The history of the world is little more than smalls privileged groups installing a state system and then using the power of the government to live parasitically off of the production of the vast majority of the people. The past year in the American financial markets have shown that this is still the case, as the government has repeatedly bailed out nearly every large investment firm connected to the mortgage crisis, thereby mortgaging future generations of Americans.
In the wake of the post-September 11, 2001 recession, the Federal Reserve lowered interest rates to historic levels in order to encourage investment and a recovery in the markets. The housing industry was only too happy to oblige, taking the easy money and low cost of borrowing signals as a sign to keep investing, building, and financing home construction. Wall Street was also happy with this arrangement, as firms like Bear Stearns, Lehman Brothers, Merrill Lynch, and others could lend money to mortgage originators, buy the loans back, securitize them, and then loan more money to hedge funds and investors to purchase these bonds.
The bankers used the interest rate and monetary manipulations of the Federal Reserve in order to create the largest speculative real estate bubble in the history of the world. Malinvestment was the word of the day, and old concepts like “lending standards,” “risk management,” and “verification of income” were discarded like the latest tech stock. It was only inevitable that it would crash and take with it a large number of financial firms and homeowners.
Few, though, could have imagined the backstop that the Federal Reserve and US Treasury would become after the bubble burst, bailing out the entire financial system as well as guaranteeing funds for specific institutions and even taking over private companies in order to preserve and cover up the crimes of the housing boom.
Hundreds of billions of dollars have already been injected into the financial system by central banks worldwide, with talks of more to come. As well, the Fed has created various new “auctions” in which financial companies are allowed to trade worthless assets for US Treasury securities, thereby keeping the toxic waste off of their balance sheets and unloading them onto the average American. Defaulted mortgage securities, credit card securities, car loan securities, and even stocks can now be exchanged by banks for Treasury instruments.
But even this large-scale financial sleight of hand pales in comparison to the government stepping in and destroying the value of the dollar in order to bail out specific companies which voluntarily took on great exposures to the subprime mortgage market. The policy of the government, though, is that corporations which scam the American people the most have the most to gain from bailouts and not having to disclose the amount of money they have actually lost for their customers and shareholders.
The Bear Stearns bailout was just the first in what is now a growing list of companies the Fed has helped prevent from collapse. Although JPMorgan Chase purchased the firm for a fraction of its worth, the Fed guaranteed tens of billions of dollars in worthless assets that Bear held, making the deal even better for JPMorgan, who will consolidate its own worldwide financial power and dump the garbage its newly acquired company held onto all of us.
The Fannie Mae and Freddie Mac bailout was another illustration of this ideology, as the Congress decided that, since investors had lost confidence in the mortgage giants, confidence must be imposed by a forced takeover of the companies. Instead of letting broke, failed companies declare bankruptcy and fail, now all citizens of the country will be forced to pick up the tab for over $5 trillion of mortgage debt that the companies guarantee. The more bad decisions and fraud that Fannie and Freddie engaged in, the more “necessary” its bailout became in order to cover up these crimes.
The latest company to be taken over by the government is American International Group, Inc., the 18th largest company in the world and a major insurance company. It also took on too much exposure to the frauds of Wall Street and the subprime market, and investors lost confidence that it could remain in business. On Tuesday, September 15, the Federal Reserve stepped in with authorization from the US Treasury, giving the bank $85 billion of Americans’ money in exchange for a 79.9% share of the ownership.
In every case of the government bailing out the banking system in general or individual financial firms in particular, a relatively small number of people at the top made the decision to spend hundreds of billions (if not trillions in the case of Fannie/Freddie) of dollars without a single vote or opinion expressed by the American people. Of course, all of this is to ensure the “stability” of the markets, a system based on fraud which relies heavily on government backstops against failure and to insure against the rampant moral hazard banks engage in.
Any myths people still hold that a “free market” exists in America should now be dispelled by the government repeatedly stepping in to manipulate interest rates, provide below market rate loans, and guaranteeing the continuance of failed, broke businesses. Not surprisingly, the representatives of the system can only recommend more regulations to prevent future failures, even though corporations rely specifically on regulations to bail them out over and over again. The only question left is where does it all end?