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The White SwanSam Mathid On Friday the New York Times stated that the Treasury Department will be recommending that Congress give the Federal Reserve broad new authority to oversee financial market stability. [article here] This new legislation will not be an attempt to fix the current problem and will not be an attempt to protect the markets from future problems. It will be an attempt to foster the outrageous belief that if only the Federal Reserve had had more authority for oversight then none of the financial shenanigans of the last five years would have happened. That is nonsense, and a patently obvious nonsense at that. Even worse, it is a feeble excuse made in an attempt to divert blame. The boom in the mortgage market was brought about by the Federal Reserve, knowingly and deliberately. The unfolding mortgage disaster would never have happened had interest rates been allowed to respond to market forces. In a free market interest rates would not have plumbed the artificially low level mandated by the Federal Reserve. These low levels of interest not only allowed the excesses of the mortgage crisis to happen in the first place, but actively encouraged them. On December 16th, 2003 at the Department of Housing and Urban Development President Bush signed the 'American Dream Downpayment Act'. The following is a part of the speech that he made on that occasion: "I am here today because we are taking action to bring many thousands of Americans closer to owning a home. Our government is supporting homeownership because it is good for America, it is good for our families, it is good for our economy." and: "Today we received a report that showed that new home construction last month reached its highest level in nearly 20 years. The reason that is so is because there is renewed confidence in our economy. Low interest rates help. They have made owning a home more affordable, for those who refinance and for those who buy a home for the first time. Rising home values have added more than $2.5 trillion to the assets of the American family since the start of 2001." The policy of low interest rates was not an oversight of the Fed, and the blindingly obvious results of those low interest rates were most certainly not a product of a lack of Fed supervision. The housing bubble with its associated alphabet soup of derivatives was a situation deliberately engineered by the Federal Reserve Bank and the Federal Government in order to keep credit pumping out into the system toward the purpose of keeping the economy going just a little bit longer. The Federal Reserve, acting under political instructions, were directly responsible for the current mortgage problem. They are the cause, not the effect; they are the problem, not the solution; they are the guilty party, not the innocent victims. The Federal Reserve Bank of America responding to the prodding of President George W. Bush wholly and solely created the current mess that we are in. No amount of sad and pathetic finger pointing will ever cover that fact. The situation that we have arrived at today was utterly predictable. That is why gold has been going up in price for years. It is why knowledgeable people have been out of the real estate market for years. Gold has been going up because economically literate people realised what the results of engineering a housing boom based on artificially imposed low interest rates would be. That result would eventually be a major bust in the housing market sufficient to bring down the whole American economy. What has happened is not a surprise and no amount of rushed legislation seeking to cover the tracks of the perpetrators of this disaster should be allowed to pass Congress. Let those who called the shots now answer for the current and future devastation that their actions have directly caused. This proposed legislation is an attempt to foster the belief that if only 'they' had been able to supervise what was happening 'they' could have saved us from this. This is a situation that was wholly created by the low interest rates of the Fed in response to political pressure to keep the economy going a bit longer. It was a political decision supported by the Fed to do whatever it took to keep the economy going for one more round and hang the consequence. In 2003 the economy was becoming ever more fragile and the decision was made to transfer the credit bubble to the area of housing in a desperate attempt to keep the game going long enough to ensure the re-election of the Bush administration in 2004. The Federal Reserve was totally compliant in reacting to that political pressure. Now both the Bush administration and the Federal Reserve wish to avoid responsibility for their actions by covering the tracks that lead directly to their front door. I have seen the term 'black swan' used to describe the current economic maelstrom. This refers to the occurrence of an unpredictable event. In this instance that term is misleading and either an attempt to obfuscate, or a complete misreading of the situation. This was no 'black swan', it was a white swan that was in full of view for years before it finally landed. So we now have the situation where the guilty party has presented their implausible and self-serving defence. Will the media now stand up and state the case for the prosecution? For if the media will not then who will? These egregious political opportunists must be held responsible for their actions. If ever there was a strong case in full public view for the dismantling of the Federal Reserve and the abolishment of its powers over the free market then this is it. They have wrought destruction not from ignorance, not from attempts to help, not for any noble reason of any sort whatsoever, and certainly not in the interests of a sound and sustainable economy. They did what they did to curry political favour in the full and certain knowledge that it would end badly. It could never have ended any other way. Now they wish to not only avoid paying the price of their brown-nosed wrigglings, but they wish to be rewarded with even more power. A pox on Alan Greenspan, and great shame on Ben Bernanke for continuing the charade instead of fingering his much lauded but less than illustrious predecessor for the sycophantic, political stooge that he really was. None of this is designed to save those who have already been or are about to be foreclosed. Nothing can now help the real victims. Lives and families have been destroyed, hopes and dreams have been dashed. The beneficiaries of Federal Government and Federal Reserve Bank low interest rate expediency are now increasingly moving from the houses that they were encouraged to proudly buy to the 'Tent Cities' which are sprouting in our urban areas. They will be increasingly victimised by being moved on in attempts to hide the magnitude of the situation. It looks bad when they all squat together and worse, it makes the elite feel uncomfortable. The American Dream is turning into a nightmare of epic proportions, and the perpetrators of this disaster care not a whit except for their own hides and reputations. This proposed new legislation is not even an attempt to help the real victims of the low interest rate policy. The new homeless have been forgotten in the rush for cover. It is purely and simply an effort on behalf of the guilty parties to extricate themselves from blame. It should not be allowed to succeed. The very idea that these same people who have wrought such destruction to the economy (what a sterile euphemism that is for people's lives) should be given even more power than they already have is preposterous. In another age they would have been strung up from lamp-posts, or had their heads placed on pikes. In total contradiction to the President's words spoken in 2003 at the Department of Housing and Urban Development, artificially low interest rates were not good for America, they were not good for American families and they were not good for the American economy. They were good for the career ambitions of the head of the Federal Reserve and they were good for the short term political ambitions of George W. Bush. Mar 29, 2008 © Sam Mathid 2006-2008 321gold Ltd |
