Editor’s Note: This is the fourth and final piece of Shah’s four-part series on what really happened to cause the Great Recession of 2008. You can access the first part of the series here, the second part of the series here, and the third part of the series here.
It’s important to understand what caused the financial crisis and the Great Recession. But it’s absolutely critical that you know who aided and abetted the leveraging and implosion of the U.S. banking system and the economy.
Because it’s going to happen again and again if the guilty parties aren’t identified and the power they wield over America and our future isn’t dismantled once and for all.
In fact, a crash is brewing that could make the crisis of 2008 pale in comparison.
2018 could be the year of the greatest economic crisis of the century. Jobs will suffer, the housing market will spiral downward, and millions of American seniors will face bankruptcy, but if you know how to prepare, you’ll be one of the few lucky ones. You can learn more about how to protect yourself here.
But who are the guilty parties who let the 2008 crisis happen? They are the people and institutions that gullible Americans believe are our protectors.
The Real Monster
It’s all about greed.
American capitalism is the most dynamic force on the planet. It is why the rest of the world used to believe our streets were paved with gold. It’s what makes the U.S. the land of opportunity.
But the tools that make our brand of capitalism work have been hijacked.
Meet the new boss; same as the old boss.
Before the founding of the United States, colonists debated and fought over money.
The colonies issued their own currencies, and private banks issued bills of credit and made loans. In addition, there was a debate over whether the North with its “money interests,” or the South with its “agrarian interests,” would lead the Confederation of States.
Money matters were a mess.
To further complicate the currency conundrum, in 1775, the Continental Congress (with nothing backing it) issued its own paper currency to finance the Revolutionary War.
After America’s independence and the adoption of the Constitution, at the First Congress in 1790, America’s first Secretary of the Treasury, Alexander Hamilton, proposed establishing the First Bank of the United States. The proposition intended to resolve the issue of fiat currency issued by the Continental Congress, consolidate the colonies wartime debts, and stabilize and improve the nation’s credit.
It was controversial, to say the least, but it passed and worked.
The Second Bank of the United States, chartered by Congress in 1816 and called a monster and “hydra of corruption” by President Andrew Jackson, died in 1834 when Jackson withdrew the federal government’s deposits in the bank and refused to recharter it.
While the imposition of central bank-type institutions had some positive effects, they also facilitated misuse of economic and financial powers of their directors, shareholders, and constituents.
The net result of America’s history of unsupervised and supervised excess lending by banks with inadequate capital and virtually no reserves led to booms and busts for both banks and the economy.
Then a real monster appeared.
Smoke and Mirrors
Using the Panic of 1907 as the basis for their creation, a group of the richest, most powerful bankers in the U.S. and Europe, with the help of insiders in Congress and the election of a paid-for President to sign their Trojan Horse legislation, enacted the Federal Reserve Act of 1913.
The long title of the legislation is, “An Act to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.”
What the American public doesn’t know is the Federal Reserve, often called America’s central bank, is a private bank system whose only real connection to America’s government and the American people is the President’s authority to nominate the seven members of the Board of Governors of the Federal Reserve System and the Senate’s confirmation of them for fourteen-year terms.
The public doesn’t know the Fed owns America’s currency.
On the very top of every bill, more correctly every “note” (a note is technically another name for a loan), or immediately under the $100 on a one-hundred dollar bill, proof of the Fed’s ownership of the notes is evidenced by the printed words, “Federal Reserve Note.”
The U.S. Treasury may have the U.S. Mint coin and it may print the Fed’s money, but it belongs to the Fed. Having the Secretary of the Treasury’s signature and the Treasurer of the United States’ signature on the Fed’s bills is nothing more than smoke and mirrors.
The Fed determines all issuance of money in the U.S., as well as the withdrawal of it.
The reason this bait and switch worked for a mostly ignorant and duped Congress at the time the bill was being debated – except for those in Congress who were in on the great theft – is the Fed would promise to use its new money to buy government-issued Treasury bills, notes, bonds, and other obligations – essentially financing unlimited government deficits.
More importantly, the way the Fed buys government debt is by having the Treasury print the Fed’s money (now it’s done electronically through electronic credits), which the Fed issues to its favored Primary Dealer banks so they actually buy the government’s Treasuries.
That’s one way the big primary dealer banks get money, which they use to buy Treasuries, which they then use as collateral in the Fed Funds market with other big banks to borrow more money to make loans, against which they hold tiny reserves, so the remaining loan balances left on deposit can be calculated as excess capital, against which they can lend more money, always to make interest on their lending.
Not only does the Fed provide cover for politicians who spend recklessly to get votes, removing any need for fiscal discipline, it feeds massive amounts of money to its constituent banks – the big banks and “money interests” (the oligarchs who really run America) who own and control the Fed – so they can rake in profits, and egregiously leverage themselves to the edge of insolvency.
And when they fail, the Fed bails them out. Because that’s what they were created to do.
That’s how the financial crisis happened, the Fed kept interest rates low, so banks could keep borrowing cheaply and leveraging up their balance sheets and profitability.
Yep, It’s That Simple
When Lehman failed, no one really knew how leveraged and interconnected all the investment banks and universal banks were or how they’d used derivative credit default swaps (CDS) to downsize their capital reserve requirements.
It didn’t matter to the biggest of them, except Lehman Brothers Inc., because they’d be rescued by the Fed, one way or another.
It’s really that simple.
The real reason the Fed exists is to supply money and credit to its banking constituents and to bail them out. The afterthought is coming to the rescue of a faltering economy by floating trillions of dollars through its member banks.
That’s the true essence of “trickle-down economics.”
Anyone who believes we’d never have gotten out of the financial crisis or the Great Recession without the Fed shoring up the financial system and lowering rates enough, and long enough, to stimulate the economy again, is dangerously uninformed – or, if you ask me, just gullible.
If there was no Federal Reserve, the Treasury issued America’s currency and credit without interest, and all banks had a minimum capital reserve requirement of 20% (increasing with greater leverage, riskier assets, or an expanding total risk profile), there’d be absolutely no need for the Fed.
It’s the bankers and money interest oligarchs that use the Fed to feed profitability at their banks that really run this country. Most of the politicians in America are in their pockets.
So are the regulators at the Securities and Exchange Commission and other so-called prudential regulators.
The SEC was the principal regulator of all the investment banks:
- Bear Stearns: sold to JPMorgan Chase & Co. (NYSE:JPM) with the Fed’s help,
- Lehman Brothers: killed on purpose,
- The Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS): both forced to become bank holding companies at the height of the crisis so they could be saved by the Fed, and;
- Merrill Lynch: bought by Bank of America Corp. (NYSE:BAC), with the help of the Fed, which proves the principle of regulatory capture, where the regulated control those who regulate them.
To become that shining economic city on the hill again, all America must do is dismantle the power base of the oligarchs who run and ruin the country.
That means repeal the Federal Reserve Act.