May I ask a question of FR's economists?

[Vigilanteman]

Excellent analogy. It is why I argue with some of the pure libertarians that a minimal amount of regulation to ensure standard business ethics are followed is absolutely necessary.

When the rules of the game are perverted by the leftists to favor leftist perverts, then the perverts benefit at the expense of everyone.

[enotheisen]

Back in the days of my youth. Banks and lending institutions carried the loan value based on the actual amount loaned. They did not adjust the value of the property to the market value. Since many banks and lending institutions carried the lien value of the property on their books as an asset they could not create more money than the reserves they had.

Some time in the ninety's Congress allowed the banks to change their assets based on the market value of the property rather than the lien or loan value. It seemed smart at the time. Housing prices were going up at around 20 percent per year. This way the bank's reserves increased and they could loan more money. Banks even let some people buy homes with no down payment or at 100 percent of the value of the home. Everyone expected home prices to keep on going up. They had gone up for thirty years.

This went along fine until the unthinkable happened. California, Nevada, and Florida had a housing slump. The houses dropped in value and the bank's reserves dropped and they could no longer loan any money. The banks then started calling in bad loans and the people let the houses go into foreclosure because they no equity in the house.

So to protect the financial process from rolling over and dying, the government stepped in and took your tax money to prop up the banks. It was called the Toxic Assets Relief Program(TARP).

[ken5050]

You first need a historical perspective...

Stocks have always been marked to market..

Bonds...especially governments..were, way back when..bought, and held to maturity...they provided a high level of safety, a constant, and consistent, income stream.

So if a temporary economic jolt hit, and bond prices dropped, they didn't want to make banks and other financial institututions have to write them down and take hits to the balance sheet.

Mortgages behave almost exactly like bonds in that regard..but now that they are securitized, and cut into tranches, and traded constantly...they should be marked to market...but this can disrupt the liquidity of the market, and the ability to generate and absorb NEW mortgages..so the POLITICAL decision was made to allow leeway in the FASB standards..

[tomd2]

The Federal Reserve is owned by almost 300 banks, of which half are foreign banks. If you dont want to believe me google ‘who owns the Federal Reserve’ or read The Creature from Jekell Island http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986328 to understand how the Fed Reserve came to be.

Also the government owns as much of the Federal Reserve as it does of Federal Express. none of it.

[arrogantsob]

Apparently you believe that information in unknown or shocking, it isn’t. All profits of the Federal Reserve are turned over to the US Treasury. Last yr I believe it was about 40 billion. Those foreign banks are nice little slaves of the American taxpayer.

Central banks are not designed to be owned by governments since that would make them entirely political and governed by political motives. The idea is that the government appoints the leadership of the Fed while private motive will keep it from pursuing political ends at the expense of economic/financial needs.