Over the Top Fed Actions Feed Conspiracy Thinking
By Scott ThillGo To Original
Given the fact that it is the target of more than a few conspiracy theories since it was created in 1913, the Federal Reserve System, more commonly known as the "Fed," in media and finance parlance, could be acting with a bit more prudence during these dark economic times. But no, it's gone ahead and damned the depression by doing what the New York Times described as the "unthinkable": bailing out Bear Stearns while giving away hundreds of billions to banks and other institutions whose labyrinthine securitization of our debt economy started this whole mess in the first place.
In other words, rewarding the criminals and screwing the victims.
That kind of behavior is only going to make the conspiracy theorists even cozier. When you already think the Fed has made a serious living from doing everything from transferring public wealth to private hands to signing off on the assassination of John F. Kennedy, you're not going to start thinking better of them when they offload billions onto Bear Stearns, which is a securities firm and not a bank at all. You're not going to get the opposition to stop parroting the usual party lines about the Fed being a privately owned bank that screws Americans by charging interest or compromises the overall interests of the United States by unconstitutionally printing up money like it was going out of style. You're only going to further invigorate them.
That, my friends, is known as reality.
Which is something the Fed doesn't seem to be connected to anymore, judging by how it has, in the words of Bloomberg's Craig Torres, "thrown out four decades of monetary history" in favor of not only bailing out obvious criminals, but also taking on their worthless debt as collateral. The move makes zero sense to anyone outside of those who understand the back channels of America's tangled financial networks, which are beginning to look more and more like Ponzi schemes by the minute. The fact that the Fed has taken on America's prodigious debt, and the already drowning Fannie Mae and Freddie Mac have loosened their capital requirements to do the same, there's nowhere to go but down, down, down for the economy, no matter how many billions of dollars -- or "liquidity" -- the Fed or their partners in crime manage to inject. In other words, to mangle Shakespeare, the Fed's recent actions are full of money and fury, signifying nothing.
"The Fed is trying to encourage more reckless borrowing and spending," argues Peter Schiff, president of Euro Pacific Capital and a longtime caller of bullshit on the irrational exuberance that debt securitization. "Obviously, its bailout of Bear Stearns creditors means that Americans are going to absorb their losses. The Fed is monetizing the mess and spreading out the losses among those who own dollars, whether in their savings or income. They're the ones being asked to shoulder the burden."
What kind of burden? It depends on who you ask. I'm not alone in arguing to anyone within earshot that the recession we're in -- and if you don't think you're in one, I'll have what you're smoking -- will rival if not outdistance the Great Depression. Others, like the Bush administration, who kick-started this recession with a program of easy money, batshit spending and rampant militarism, seem to think, as the president laughably asserted, that "our financial institutions are strong and that our capital markets are functioning efficiently and effectively." But that suspiciously rosy estimation could not be further from the truth.
"We've never had this type of this crisis before," Schiff adds by phone, on the way to a television appearance where he no doubt delivered the same doom prophecy, "and we never had this type of Fed trying to hold onto the economy. Why is it up to the Fed to stop this from happening? If recession is what we need, then postponing it won't help. We've got to restore order to the economy, and the Fed doesn't want to process that short-term pain, so its replacing the pain with one that will hurt even worse later."
"Where are we?" asks Danny Schechter, award-winning producer for CNN and ABC, graduate of the London School of Economics and the man behind the prescient debt economy documentary In Debt We Trust. "We're in a disaster zone. It's like bird flu in the financial system. Buyers overseas who bought all of these securities have found out that they've been scammed. No one knows how to value this stuff. The Fed has unsuccessfully injected hundreds of billions into the system as well as slashed rates. But it hasn't solved the problem."
Why? If the Fed is just a bunch of highly credentialed money wonks rather than the dark-hearted star chamber that conspiracy theorists make it out to be, then why wasn't it smart enough to realize that just throwing money at the wall wouldn't stick? After slashing rates down as low as 2.25 percent and handing out billions in duffel bags like Wall Street was Baghdad, how is it possible that the collective economic genius of the Fed hasn't been able to make a single noticeable dent in the oncoming depression? How could so many smart people be so stupid?
The answer is as boring as you think: greed.
"Nobody ever wants to upset the apple cart," Schiff explains. "No one wants to tell taxpayers that they've stumbled on a new get-rich-quick scheme where home ownership takes the place of hard work and savings, especially since they're making a lot of money. We've learned nothing from the past at this point. What we've done to ourselves with this attitude is create a situation where there is no way to postpone the unbearable destruction."
Yet destruction and creation come in one package. In other words, while Ma and Pa Kettle are losing equity like Britney's losing listeners, some are commanding interstellar earnings.
"If you're one of the 2 million American families losing your house this year, it's a depression," argues Greg Palast, BBC investigative journalist, author of Armed Madhouse and onetime student of neoconservative privatization guru Milton Friedman. "If you're a mortgage shark, happy days are here again. The difference between the Great Depression and this one is that, back then, everyone was in it. Now, it's a selective mangling. Exxon's profit hit $40 billion, the highest of any corporation since the pharaohs. So how can you say the economy is going down? For whom?"
Palast's point is well taken, even as it is ignored by everyone from the Bush administration to the financial (which is to say, entertainment) media and all the way to homeowners who ignorantly refinance so they can buy that new Hummer: Your life may suck ass, but others around you are sucking you dry. And most importantly, they're crushing the dollar on their way out the door to Dubai, or wherever suits hide in the New World Order's afterlife.
"Regardless of what the Fed does, the dollar is going to keep going down," Schiff agrees. "If the Fed keeps doing what it is doing, it won't make it out of this as a functioning currency."
"I'm sorry to tell you this," Palast adds, "but higher oil prices and weak dollars is not a failure of policy. That is the policy. Clinton had a strong dollar policy and Bush hated it. The weak dollar is a way to temporarily hike exports to create short-term pretend juice for the economy. But the weak dollar also made it easier for foreigners to buy up U.S. assets. The capitalists are cashing out of America. They're keeping condos in New York, Palm Beach and Malibu, but their investments are where the returns are fatter: Malaysia, China, India. A weak dollar helps the transfer of capital ownership."
And that is where this depression gets scarier than any we have survived so far, in America's comparatively short history. With the onset of global warming about to throw huge parts of the United States into environmental disarray, and melting ice about to create a gold rush of insane proportions in parts northward, America may have entered the beginning of a phase of its existence that has no parallel to any yet experienced. With the Bush administration and its friends in the energy, banking, housing, finance and real estate sectors cashing out what remains of American solvency and offloading its debt onto the public, the future has become one giant question mark. And it won't matter who takes the reins of the United States going forward if the newly crowned candidate doesn't start coming up with some serious resolutions.
We are entering uncharted territory on a variety of fronts, although the economic one is hitting most Americans where it hurts at the moment. But that throbbing pain has barely subsided behind our previous ills, from our rampant, expensive militarism in the Middle East to tornadoes or floods that seemingly come out of nowhere to destroy our cities, crops and futures. And if that doesn't scare you, I have a house I need to flip your way, no questions asked.
"No one is going to come out of this unscathed," concludes Schechter. "This is a disaster. It's a 50-state Katrina, and then some."
Scott Thill runs the online mag Morphizm.com. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.