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The average American has no idea how protected the big banks in this country really are.
For the most part we don't even blink when we are lied to publicly by their CEOs.
Maybe that's because the biggest bank in the world, the U.S. Federal Reserve, which happens to be a creation of and 100% beholden to the banks that it is a master shill for, also lies to us and covers up Wall Street's misdeeds.
How else can you explain the Federal Reserve's practice of secretly feeding billions of dollars to big banks, and then looking the other way while those same banks lie to the public about their strength so they can raise desperately needed equity and borrow in the debt markets?
Why else would the Fed prop up Bear Stearns long enough for JPMorgan Chase & Co. (NYSE: JPM) to buy it, and then prop up JPMorgan? Why else would the Fed prop up Merrill Lynch for the benefit of Bank of America Corp. (NYSE: BAC), and then prop up Bank of America as Merrill dragged it down. And why else would the Fed prop up Wachovia just so it could be taken over by Wells Fargo & Co. (NYSE: WFC) - yet another bank that would come to need even more help?
Power and Ponzi Schemes
The pat answer from the Fed is that propping up failed banks long enough to be taken over by "healthy" institutions is better for the system than letting them fail. On the surface that's true, but it's what's under the surface that's destroying America's free market foundation.
Here's what's come as a result of the Fed's actions: The "Super-Six" - JPMorgan, Bank of America, Citigroup Inc. (NYSE: C), Wells Fargo, Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) - which held $6.8 trillion, or about half the industry's assets in 2006, had increased their holdings by 39% to $9.5 trillion as of September 2011.
So what's really going on is that the country's biggest banks, which weren't healthy when their CEOs lied to us (as they still do), have gotten even bigger.
With size comes power - the power to pay lobbyists, the power to pay for legislators, and the power to change regulations.
The whole thing reminds me of a Ponzi scheme.
The Federal Reserve might as well be Bernie Madoff and the banks "feeder funds" in this nationalized scheme to perpetuate the channeling of depositor money into banks and investor money into bank stocks and debt securities.
For the chain to be broken the Federal Reserve is going to have to be overhauled - seriously overhauled - and big banks are going to have to be broken up, once and for all.
The Truth Comes Out
How deep is the scheme to keep banks growing and their power expanding? The numbers speak for themselves.
The Fed did everything it could to hide its books from public view, but Bloomberg LP sued the central bank, and in so doing, forced the Fed to comply with the Freedom of Information Act.
Thank you, Bloomberg, this nation owes you a debt of gratitude.
What was revealed were little items - things like the Fed having actually shelled out some $7.77 trillion to prop up both domestic and foreign banks, even though some either didn't need the money or should never have gotten it in the first place.
Why would banks or corporations take money they didn't need? Because it was essentially free - well not exactly free, since they had to pay about 1% interest in some cases and one-tenth of one percent in other cases.
Still, you can make good money borrowing practically for free and investing that money in anything interest bearing. That includes the toxic assets on many borrowers' books that they didn't have to sell because they got financing to keep them on their books. Oh, and that's still happening, a lot.
You see, part of the big lie was that it would take $700 billion of Troubled Asset Relief Program (TARP) money to aid our stricken banks. Of course, that was front money, or money that the public could see. What the public couldn't see was how bad things really were, because it couldn't see how much taxpayer money the Fed was shelling out.
Nor could Treasury officials see it, nor could legislators writing new bank regulatory rules to ensure this wouldn't happen again.
But it will happen again. It's just a matter of time.
Fixing the Fed for Good
There is only one solution to our banking problems, which are the root of our economic problems.
The Fed needs to have only one mandate, which is price stability. It should be an open, audited, and transparent apparatus serving the public - not banks.
And, as far as banks go, the more the merrier. Break up all the too-big-to-fail institutions. No bank should be able to hold more than 5% of the whole industry's assets, and if that gives any one bank too much power, cut the number later on.
It's time we woke up to the lies we're being told by the Fed and the banks. It's time to break the chains that enslave us as a free-market nation.
News and Related Story Links:
- Money Morning:
Are You Outraged Yet?
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.
I can thank my Grandfather..I have never trusted banks OR insurance companies.
THANK YOU..I have read your articles before,but this must be read by more people. Better yet, maybe more Congressmen should read and understand what they are doing. MAYBE THEY DO.
Thanks again Shah for your frank insights and comments. Now, how can we MAKE the mainstream media play up these kinds of stories?? Or are they all bought off by the banks themselves? And when will the so called free market capitalists LEARN that lack of regulation is equivalent to CHAOS?
Nothing to see here. Please move on…… The only fix you have is to vote for Ron Paul.
Overhaul Washington and political America altogether, whilst you are at it…
Probably it would apply to a great number of other countries as well. I would not be surprised to see popular uprisings here and there.
I am doubtful that the incestuous relationship between banks, the Fed and government will ever be broken. Nice thought, good goal, but ain't gonna happen in the foreseeable future. As the market juicing continues, stocks blasting higher today, and economies showing improvement, this story recedes into the background.
Great article! (as usual by Shah) Fed is one big problem to be solved. Corporate lobbyism is another.
Who is going to abolish lobbyism? Congress? You must be kidding. Who else then? President? Doubt it is possible. But President can initiate this movement – we need promised CHANGE.
Those who know how the system works don't need a reminder of this mess. However, the 90% of either uneducated, uninformed or misinformed sheep would not read this item. firstly they don't care as they are getting handouts from the Government(s), secondly they would not want things to change. Most of the welfare cases never had it so good. It is an established fact that the majority of the World's Citizens are mentally challenged. That's why the PLUTOCRATS tell their brainwashed people that Democracy is the only way to govern. They don't tell the truth – the majority is always right. This is a sure way never to be challenged, the rich get's richer all the time. That's the reason that in some parts of the world the level of education is outright miserable. Even in the so called industrialized nations the general knowledge of certain minority groups is unbelievable.
Vote Ron Paul, the most honest, reliable and independent presidential candidate sofar.
True free markets with real competition, without cartell's, fraud and crime, with customer satisfaction first, freedom of speech and choice, will deliver prosperity for all and much more equal income and equity distributions.
Now the US is a medieval, unequal siociety, based on priviledges handed out by (central) Bankers
Abolish the central bank and the CIA! :D
Admit Cheney did 9/11 and prosecute him. Admit Goldman sachs is a froud and prosecute them.
The sun rises in the east on Money Morning…
… great analysis Shah, but I'm not holding my breath. By the time the bankers face a comeuppance, I am sure I will be either pushing up daisies or warming a berth in a Gulag.
Not to be critical, but America is not going to follow the Japanese path. We have no unifying culture demanding universal sacrifice by the poor for the benefit of the elite. When America faces the music, what I can see every day in my Section 8 apartment complex will go national. I wonder what Money Morning readers will do with no money and a hostile radicalized underbelly ….
Just sayin…
Thank you for publishing this crucial information in a fairly mainstream publication like Money Morning.
I hope that your readers will take this information to seriously and start to lobby the government to do what you propose. Thank you once more!!!
The price stability mandate should go to the US Treasury. The Federal Reserve should be abolished.
The only think missing from the article, which is terrific, is that the WHOLE system of banking and world politics is riddled with fanatical Zionist Jews. Just see the names! Ha ha..Benny SHALOM Bernanke, the head puppet in the show. And many, many others who control world finances and politics. Maybe the so called 'holocaust' should have really happened ten times over then we would have very, very Jews left. Of course the holocaust was a massive hoax. More like an expulsion of Jews to Palestine pre war which really did happen. Is there any gold left in Fort Knox? :-) But, back to the article; we must break the Zionist stranglehold on our world. It is our world not theirs. Oh sure, they can stay here, but behave themselves like decent human beings.
You, Shah Gilani, are a gift from God. People do not like to feel run-over; that's just nature. You give us, collectively, a hope that something can be done to thwart our economically unjust government and its bride – large financial institutions. That next step needs to be taken by many millions strong – what that will be, I'm unsure. My beautiful and innocent 8 year old and others in our youngest generation deserve fairness and a chance for a decent future!
Don't agree
I'm so glad that you are telling us the truth about the Fed and the too-big banks! Also I'm glad that you use the term "free market" because:
On CNBC their star reporter Maria Bartiromo has hosted programs with CEOs of very large US companies praising capitalism as the best economic system ever. This shows a total lack of understanding of recent world history or what the word capitalism means to many in a worldwide audience.
Also, there is this latest fiasco by this stupidest of Fed Reserve Chairman. This morning he mobilized other central banks to bailout some eurozone banks from their bad leveraged bets together with their counterparties. It is time someone wrote to the Fed Reserve, as I have done on other occasions expressing dissatisfaction with theri policies, QE2 in particular, and telling the Chairman that they don't appreciate the socialization of risks. This rescue mission of flooding more US$s worldwide being a further detriment to the value of the US$.
Thanks again for another great article. Just one edit I would make.
END the Fed!
This great article confirms my theory about what is happening in the Global economy. It's not a result of mistakes it's a Real Plan. What can we do if the politicians are the first interested either in not read and learn or they are part of the "script"?. Look at what is happening in the North of Africa and Europe.
Thanks for the info that you provide every day.
Shah, your intelect and insight is on display for all to see. The sarcasm you use and directness helps to clearify pretty dry and mundain subject matter that effects all americans in their pocket books. Thanks for your wit and clear understanding of the fix we are in.
Break up (Allied Zurich) and (Zurich Allied) holding Co ZFS, then break up the Fed Res. This will remove the worst of mankinds obscene fraud.
Thomas Jefferson's dream was that states would be laboratories of democracy.
Europeans are smart enough to have separate countries.
Americans love to talk about liberty, but what most Americans really want is to force their ideas on others.
Democracy without independence is dictatorship. America has become an idiocracy.
I seen the handwriting on the wall shortly after george w. came to office and started investing in silver in 2002……..every extra penny we had we put in silver…until 2007—–Now the man says he don't have our money or our silver[we were swindled…I think] He is completely free….the FBI says the case is not big enough and the State of South Carolina has not charged or arrested the man—————we are living like paupers and this man who in 2002 kept calling and calling us has not done a day in jail————the whole system is so corrupt and broken that it is 10 times worse as the communists ever were………the little guy has no recourse……….all the courts have been stuffed with corporists …….the media is beholden to gov. and the banks and big money…………..IT stinks ………………the workin man is thru……the middle class is history………eventuallythe power and corruption will be broken but it will take a revolution……….
In 2000 the Fed pumped billions into the economy three months before the bubble burst. There was absolutely no need for it. Was this to make the bubble big enough so that there would be sufficient money to supply all the boys in the game. Guess who all of these "boys" were–as many foreigners as domestic "players."