Posted on 09/20/2008 9:30:11 PM PDT by kingattax
Senator John McCain mounted a fierce attack on the Federal Reserve today for bailing out failed financial institutions, telling it to get back to “its core business of responsibly managing our money supply and inflation”.
Speaking to a business group in Wisconsin as Henry Paulson, the US Treasury Secretary, unveiled details of a government rescue plan that would cost "hundreds of billions of dollars", the Republican presidential nominee said the Fed should “get out of the business of bailouts”.
The Fed engineered an $85 billion takeover of insurance giant AIG earlier this week, before which it pledged to prop up mortgage giants Fannie Mae and Freddie Mac to the tune of $200 billion. Today, after consulting with Ben Bernanke, chairman of the Federal Reserve, Mr Paulson urged the government to spend hundreds of billions of dollars to take toxic mortgage assets off the books of financial firms to restore financial stability. That call came hard on the heels of an earlier Treasury announcement that Treasury it would siphon up to $50 billion from the country’s Exchange Stabilization Fund for a temporary guarantee program to shore up the U.S. money market mutual fund industry.
Mr McCain’s opposition to the bailouts is a gamble as many within the financial sector – and in the public at large – view the rescues as essential to prevent a wider economic crisis.
(Excerpt) Read more at timesonline.co.uk ...
I agree that the Fed is the lender of last resort, but when part of the bailout involves absorbing loans that should not have been issued, then it also did a bad job at overseeing risk by lending institutions. Part of the blame goes to Congress, but the Fed should have said something about this.
We don’t need a complete meltdown, but it will be painful for a lot of people and the longer we wait the worse it’ll be.
***You’re mostly right and eight years of W has made the problem worse.***
Bush has been such a disappointment to say the least.
If we had 100% reserve banking we wouldn’t need a lender of last resort. Instead we have fractional reserve banking (usually at 10%) which is a recipe for disaster. It makes loans easier to get, but that isn’t necessarily a good thing.
REVOLT...
I wonder if McCain is supporting the big giant bail out plan that is being negotiated now.
How would that work?
I couldn’t. I believe it would mean that the State is the bank.
If you make a deposit, the bank can lend out 90% of it while keeping 10% in reserve (thus 10% fractional reserve banking). This is a problem because both the person receiving the loan and the depositor expect to be able to have the money.
Normally this isn’t a problem because rarely do all depositors collect more than 10% of what has been deposited at the bank therefore the bank can always pay the depositors when they want to make a withdrawal. If however all depositors came in and demanded their money, the bank would only be able to pay 10% of them or pay all of them 10% of what the they’re asking.
The FDIC insures that $100,000 per account (which is enough for most people) will be insured if the bank can’t pay its depositors. Of course this money has to come from somewhere.
Generally this won’t happen because the bank will rarely have depositors demanding all their money, but it has happened before. The federal reserve is the lender of last resort in this process.
With 100% reserve banking, the bank would never be able to loan out money without the consent of a depositor. In this case the bank would still give out loans but the depositor would have to know that he may not be able to access a certain amount of his money at any given time until the loan is paid back. Essentially the bank would be acting as a middle man which would receive interest on loans and give a little to the depositor.
Basically that’s how it would work. I’m not an expert on the subject but that’s the general idea.
This sounds like leftist claptrap. The true cause of the depression was the sudden calling in of the loans which most people could not pay in such sort notice. The unequal distribution of wealth can not cause a depression all on its own - it is only when less affluent are suddenly made even poorer when the flow of capital becomes restricted.
The cause of the Great Depression of the 1930s was a massive deflation of the money supply (after a decade-long period of inflation by the Federal Reserve) and an unwillingness by unions (which had become very influential by then) to allow nominal wages to fall to a level at which people could remain employed on the available volume of payrolls with the available quantity of money. The upshot was mass unemployment. With 25% of the workforce unemployable (because they were legally disallowed from competing for jobs by offering their labor for wages that were considered “too low”), the government simply put them on the dole: make-work jobs like WPA, CCC, etc., that produced no benefit to the economy as a whole, and which, in fact, were a net loss, since the remaining 75% that were employed now had some of their productivity siphoned off to support the other 25%.
Interestingly, a depression had occurred earlier, around 1920, and which ended a very short time later, precisely because wages were allowed to fall to the point where they could be absorbed by the volume of payrolls with the available quantity of money. Since there was no mass unemployment, and since workers were not on the dole but were actually producing things at real jobs, the supply of goods was increased (which led to further falling prices for goods), so “real wages” - what workers could actually purchase by means of their money wages (or “nominal wages”) - did not decline.
Although the Federal Reserve began to reinflate the money supply in the 1930s (so that the volume of payrolls would be large enough to absorb those who had been unemployed), unions had expanded enough by then to keep wages ahead of inflation, thus creating a permanent class of unemployed.
What really ended mass unemployment was not WWII. What ended it was the institution of wage and price controls, which forced wages low enough to allow workers to be re-hired with the available quantity of money. This was not a time of prosperity, however. That didn’t occur until after WWII, when we had more inflation from the Federal Reserve, less union influence on nominal wage levels, and an expanded workforce from returning GIs. It was the expanded workforce and the flexibility in nominal wages that led to a great increase in real wages - what a worker can actually buy with a money wage - and hence, that led to post-war prosperity.
See “America’s Great Depression” by Murray Rothbard.
There are three criticisms of this statement. First, we criticize socialism, which is the belief that a few, so-called elites can make decisions for folks better than they can make their own decisions. Why is the concentration of capital any different that the concentration of political power. A small number of people making investment decisions for everyone, as we have just seen, can lead to enormous misunderstandings of directions, needs, and risks.
Second, production has to be balanced by consumption. Make too much of something no one can buy and you go bankrupt. Was it socialistic of Ford to decree that his workers would earn wages sufficient to afford a car? On a national scale that has to be the case. Too little wealth in the hands of those who provide the labor to produce is just as deliterious to capitalism as too little wealth in the hands of those who will save and invest.
Third, the disparity between those at the pinnacle of corporate power and those who work hard for a living, even highly educated professionals, has never been greater in our history. We have had long periods of great success with relatively less disparity. Given that enormous concentration of wealth at one end is almost universally correlated with crushing poverty, and economic ruin, I am not sure I want to make this claim.
And as we can see before our very eyes much of that enormous wealth was made while creating enormous malinvestment.
So, while I don't advocate redistribution through taxes and social engineering, I also don't think we should just stand by and let the crooks who have created this mess scream socialism when we demand that they bear the cost of the ruin they have created.
You don't have much time to act regarding Paulson's Bailout Plan.
This plan, as it is written, will give Hank Paulson UNLIMITED & UNCHECKED FINANCIAL POWER OVER THE UNITED STATES OF AMERICA!
That's right. President Bush won't be able to stop him; Nor Pelosi or Reid. He will be able to do as he pleases with NO OVERSIGHT! Do you really think this 700 BILLION number is all? That is a sanitized number so it won't scare the masses.
The true number is over a TRILLION and that's probably a floor - the ceiling could be upwards of double that...two TRILLION, or more? Let me write out just one billion (like a check) so you guys can truly appreciate this number.
$1,000,000,000,000
Why is there no outcry on FreeRepublic over this??! This is going to choke the next generations with impossible debt burden.
I see that many here are disturbed and you are complaining about it on these threads - but you must contact the people that can possibly save us from this nightmare bailout scheme RIGHT NOW!
You know, we FReepers fought hard on the immigration debacle and we WON. People here were hopping mad and weren't about to let The Gov't jam that stupid legislation down our throats!
Folks, this bailout scheme will harm our country immeasurably worse.
YOU MUST ACT NOW TO SAVE OUR COUNTRY! Get on the phones, and let your congresspeople and senators know that 'We The People' vehemently object to this financial coup that is about to take place.
CONTACT YOUR REPRESENTATIVES NOW! It might be too late by Monday morning - you should be calling them NOW - and tomorrow - yes Sunday! They are going to try and ram this through before the market opens on Monday. Call all of their offices. Leave messages. Talk to your family and friends and tell them to do the same.
If you want to understand this better then listen to Mark Levin’s show from Friday.... go to his site and click on September 19th and play the show... he lays it out in all it’s glory and this does go back to the democrats... back 30 yeara and laws passed to force lenders to loan to make subprime loans... and more what he doesn’t say on his show is one of the people who sued Citibank to force them to make subprime loans was non other than Barack Obama.
I’m glad somebody finally took the time to post this. Interest rate manipulation by the fed also plays a role.
I wish more people would see the harm in price controls and minimum wage requirements. I wish they would teach us more about economics than supply and demand in school. Everyone is so ignorant about the economy. Most people I know think that the economy means how much money people are making and that’s it. That’s how they measure the economy.
That was a great analysis by Mark LEVIN, the Great One pointed to the true root of the financial problems...the Left/Dems unintended consequences of bad policies regarding mortgage loans...the culprits are primarily Jimmy Carter’s CRA, Clinton’s CRA changes and Reno’s DOJ jackboot enforcement and the Rat infestation of Fannie/Freddie/AIG, etc...
adm5 please stop spamming every post on FR with your ranting...tool!
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
The goal of the Treasury will be to have the bad loans written off before they buy the securities. It’s not an exact science, but that’s the goal. And the intent isn’t to bail out, but to remove these toxic assets from the system, so institutions can get back to their normal financial functions.
You bet.
This is a problem because both the person receiving the loan and the depositor expect to be able to have the money.
And they both do.
If however all depositors came in and demanded their money, the bank would only be able to pay 10% of them or pay all of them 10% of what the they’re asking.
Wasn't that a cool scene in "It's a Wonderful Life"?
The FDIC insures that $100,000 per account (which is enough for most people) will be insured if the bank can’t pay its depositors.
You bet.
With 100% reserve banking, the bank would never be able to loan out money without the consent of a depositor.
Don't you think most people realize how banks make money?
In this case the bank would still give out loans but the depositor would have to know that he may not be able to access a certain amount of his money at any given time until the loan is paid back.
I'd bet the paperwork you sign when you open a bank account says your money may not be instantly available.
Essentially the bank would be acting as a middle man which would receive interest on loans and give a little to the depositor.
So there'd be no change.
Basically that’s how it would work.
Basically that’s how it does work.
>> Don’t you think most people realize how banks make money?
I bet every coherent depositor knows that.
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