Monday, January 18, 2016

suffocating the economy and rewarding the molluscs WAS the objective

counterpunch |  The chart suggests that the Fed’s primary objective was to reflate stock and bond prices to help the banks grow their way out of insolvency and avoid government takeover. Former Treasury Secretary Timothy Geithner alluded to this in an interview with CNBC in 2009 when he said: “We have a financial system that is run by private shareholders, managed by private institutions, and we’re going to do our best to preserve that system.” Unfortunately, the banking system was insolvent at that point in time, a fact that was confirmed in sworn testimony before the Financial Crisis Inquiry Commission by Fed chairman Ben Bernanke. Here’s what he said:

“As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression. If you look at the firms that came under pressure in that period. . . only one . . . was not at serious risk of failure. So out of maybe the 13 of the most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

Think about that for a minute. Not only was the US banking system hopelessly underwater, but also the world’s most lucrative and powerful industry was about to be removed from private hands and “nationalized”. Shareholders would be wiped out, bondholders would take severe haircuts, management would be replaced, and credit production would be returned to the representatives of the American people, US government officials.

Do you think the prospect of nationalization might have scared the hell out of Wall Street? Do you think the banksters might have concocted some crazy plan along with Bernanke and Treasury Secretary Henry Paulson to precipitate a crisis by euthanizing Lehman Brothers so they could extort $700 billion from Congress (TARP) before launching round after round of money printing under the deliberately-opaque moniker, Quantitative Easing?

Of course, they would. These are the same guys who had already stolen trillions of dollars from credulous investors in a fraudulent mortgage laundering scam that crashed the economy and brought the financial system to the brink of ruin. Does anyone seriously think that they’d wince at the prospect of dinging the public a second time by shifting their toxic assets onto the Fed’s balance sheet or by accessing free liquidity to fuel their illicit derivatives trades or their other pernicious high-risk activities?

Keep in mind, the Fed never could have carried off this massive looting operation without the help of both the Congress and the president. This simple fact seems to escape even the most vehement critic of the Fed, that is, that the Fed needed policymakers to strangle the economy while it implemented its plan or it would have had to abandon its reflation strategy.

Why??

Well, because if the economy was allowed to rebound, then higher employment would push up wages and raw material costs which in turn would boost inflation. Higher inflation would force the Fed to raise short-term interest rates which would put the kibosh on the cheap money Wall Street needed to buy-back its own shares or engage in other risky speculation. So the real economy had to be sacrificed for Wall Street. Hence, “austerity”.

The fact that Obama’s economics team, led by Lawrence Summers, was trying to lift the economy out of recession without creating conditions for a strong recovery was evident from the very beginning. We know now that chief White House economist Christy Romer wanted a much bigger fiscal stimulus package than the $800 bil that was eventually approved.