Posted,
Thursday, September 18, 2008 12:03 pm
Greetings from a financial advisor in Australia !
Congratulations on a well written article, that explains
the predicament that the US financial system is in.
I have a question based on the following premises:
Fannie Freddie
The bailout of Fannie and Freddie had two aims:
- to maintain the trust that sovereign wealth funds (notably
China) had placed in the US when they lent them money.
- to avert a big payout in the $62 trillion Credit
Default Swap market.
Liquidity and Balance Sheets
You made the point that liquidity is not the only
problem, there are weak balance sheets that require recapitalisation.
Central banks can provide liquidity, and nationalise
companies with bond commitments. I wonder how much ‘spending’ power
they really have. The G7 might not be enough.
There is another solution, and I wonder about your
thoughts on it:
China can’t afford to lose the money they have
invested in the US .
Now that the US Fed has done just about everything it can
to bail out financial institutions -
Will China move their funds in, and control (to a degree)
major US financial institutions….
They have the money, but will the US politicians allow it
to happen?
If Chinese banks and sovereign wealth funds are given the
permission to move in, then this could avert a global depression.
The alternative is:
US collapses, China loses money. China can no longer
afford to fund its high GDP growth and slows down too. Oil consumption drops.
--Lower oil revenues causes Arab GDP slowdown. --the entire world slows down.
--Depression.
Am I
way off-track here in thinking that China is forced to mobilize funds to
recapitalize US balance sheets, and that the US will be forced to accept? What
will the outcome of this be ….?
Joel
Answer by R.T.:
I don't think the U.S. government will let China take
over American banks. It did not allow a Chinese company to take over an
American oil company, Unocal,
for about $18.5 billion.
You are right about Fannae Mae and Freddie Mac. It was to
prevent a collapse of the world bond market.
But, as I wrote in my article, the U.S. government cannot
play the fireman role and be always behind events. It needs a comprehensive
plan to prevent the U.S. financial system from shrinking and bring about an
economic depression.
That's why I proposed in my article that it create a
“Bank Resolution Trust” to buy back from banks, at distressed
price, the bad subprime mortgage-backed securities that the repeal of the
Glass-Steagall Act in 1999 allowed the investment banks to create and leverage.
Such a Bank Trust could transform this toxic paper into 7 or 9-year debentures
and be sold to savers, with the full guarantee of the government. If well
executed, American taxpayers would not lose any money.
Today (Thursday, Sept. 18, 2008), Sec. Paulson let it be
known that's what the U.S. government may do. I hope they move fast.
By the way, Sen. Barack Obama missed a good opportunity
to get on the offensive. If he had read my article, which was posted Monday,
September 15, for my special list, he could have stolen the thunder from the
Republicans and proposed such a well-thought out and appropriate solution.
New
Posted,
Thursday, September 18, 2008 7:13 am
Naked Short selling. This little loophole that was done by
many Canadian brokers to flow US markets with fake shares from offshore hedge
funds. This killed all the markets. It was just a matter of time and the
subprime problem was pushed off the cliff using this method of attack, using
the press and rumors to create panic. Go ask Camon Chell and Mark Valentine how
they did it. Write a story on that the being of destruction. A good question is
who taught them?
Gary.
Answer
by R.T.:
This
is a good observation.
When
Chaiman Cox of the SEC abolished the “Up-tick” rule in July 2007, I
asked myself “What the heck
is he thinking!”.
But
the mother-load of blunders was the (Phil) Gramm-Leach-Bliley act of November 1999,
that practically abolished the (1933) Glass-Steageall Act, allowing investment
banks to invest in as many innovative securities as they liked.
New
Posted,
Wednesday, September 17, 2008 11:21 am
I am trying to better understand our Federal Reserve
System. I don’t know where to start or who to believe since there are so
many writing out there about it. Do you have any recommendations on where I can
start to better under stand the system that isn’t opinion based?
Lubin
_______________________________________
Answer
by R.T.:
The
FED is a central bank, albeit with 12 regional member central banks and albeit
being a semi-public and semi-private institution. It can create money at will
by drawing checks upon itelf, which, when deposited in any private bank,
increases credit in the overall economy by a multiple.
If it creates money faster than production, there will be
inflation. If money disappears too quickly, there could be deflation.
Please read the details here:
http://en.wikipedia.org/wiki/Federal_Reserve
New
Posted,
Wednesday, September 17, 2008 8:36 am
I am a serious reader of your article 'US financial
system in serious trouble'. I'm no economist and my access to materials is
limited. There is a passage in your article which reads 'Over the last
twenty-five years, beginning with the Reagan administration and culminating
with the current Bush-Cheney administration, the Washington establishment
dismantled piece by piece the system of protection that had been built since
the 1930's economic depression and removed nearly all government regulations
that could stand in the way of greed and gouging on the part of unscrupulous
market operators.' But there are no statistics to support this statement. Will
you kindly show me some materials, for instance, a comparison of what an ordinary
wage-earner enjoys in terms of social protection now, with what his/her
counterpart enjoyed in the time preceeding the Reagan administration? That will
be helpful to me in understanding the nature of US financial problems. Tang
_________________________________________
Answer by R.T.:
This
is not a question of statistics, but a question of regulation and oversight by
the Fed and by the SEC. These regulators let the subprime crisis develop, while
they should have stopped it in 2003-04.
That's
the problem.
New
Posted,
Tuesday, September 16, 2008 8:10 pm
People Power
For the past 15 years the population
Has been overrun with legislation
Now we have mass brain sedation
By mandatory fluoridisation
What’s your next step in your plan for mankind
What else do you give us you don’t want us to find
In your disguised , gradual genocide
It is time to stand up as a people unite
To support life and claim our birthright
We must question ALL products on offer to us
Grow food in our soil, not kill the grass
Feed real food to our children instead of plastic
Not let legal toxins turn our bodies to acid
The earths future has a right to be
Self sustainable, pure and free
Its our responsibility to discern and sustain
So souls can learn in bodies tomorrow again
We can’t have a functional society
Without high levels of courtesy
We must abide by universal law
All other laws will lead to war
Accountable we’ll be held at the end of the day
For the flowers we wilted for pleasure and play
It’s time to turn our planet into a garden
To refuse Big Brother as our prison warden
Self empowerment through substance for every man
So mankind can rise to peace and freedom again
To raise our collective consciousness
It’s our eternal inheritance
For what it’s worth
As we all walk this earth
TOGETHER WE STAND, DIVIDED WE FALL
And that really does mean us all
The answer is clear on this fundamental decision
If we want a planet we must all listen
The voice of our mother screams beneath our feet
No longer can we afford to support Multi National Greed
We don’t have the right to poison the planet
In the name of progress and material asset
Or not one can live here any more
Our children’s screams silenced by Big Brothers war
Refuse to accept a destructive society
And demand freedom with equal responsibility !
This is a possible goal and we must do what has to be
done !
Boldarn
New
Posted,
Tuesday, September 16, 2008 10:01 am
I'm a university student from China. I'm very glad to
read your article “The U.S. Financial System in Serious Trouble” on
Global Research.
“At
the center of current financial problems is the failure to adapt standard
financial regulation to new financial institutions, such as broker-investment
banks, off-shore based hedge funds and large derivatives markets that remain,
for the most part, outside of the traditional authority of regulators. However,
when things go wrong, as they did with Bear Stearns last March, their demise
threatens to destabilize the entire financial system and handy government
bailouts are quickly called in.”
I think you are right.
I'm looking forward to seeing your new articles about the
financial crisis.
(Home:
TheNewAmericanEmpire.com)