Rates may have not yet bottomed??

[GMAN]

I found a couple of things when I looked at the Federal Reserve Act outlined on their website. The earnings is what was previously posted.



Section 7. Division of Earnings

Dividends and Surplus Fund of Reserve Banks


(a)

1. 1. After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock.

I found the tax exemption particularly interesting. I thought that was the case, but it is in black and white on their website.


Exemption from Taxation

(c) Federal reserve banks, including the capital stock and surplus therein, and the income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate.

[Longsnowsm]

Strangely many of the advantages of the gold standard or even a bimetalism standard are also some of the so called weaknesses, but here is my favorites.

1. Stable money supply
2. Long term lower inflation rates, and promotes price stability over the long term.
3. Limits the ability of the Fed or the Treasury to play games with the money supply.
4. If adopted in a framework similar to Bretton Woods it would provide fixed exchange rates and a framework for trade that is equal and not suspect like the current games being played in the currency markets. In a gold or bimetalism standard we know what the value of the underlying metal is, but today do you really know what a dollar is worth?
6. Provides a standard for exchange that is easily defined and less vulnerable to whims of other nations
7. Real interest rates would be force to reflect the reality of the monetary situation and would in fact be raised to support the peg of the dollar to the valuation of the gold price in order to maintain the standard. No more playing the fraudulent manipulation of the interest rates through Fed buying and other players in order to support run away spending and debt or to bailout failed monetary policies of our trading partners.
8. The monetary system is self regulating.

There are some really interesting articles talking about just how the Fed and the Treasury before it made major mistakes with the banking and monetary policy. The big mistakes that lead to the excesses which caused the Great Depression were much the same mistakes we see today. The real bills doctrine and poor adherence to the Gold Standard Act of 1900 setup the banking system for disaster. This allowed the Fed and commercial banks to use loans as collateral or as basis for money creation. The weapons of financial mass destruction of the day were the unregulated margin accounts very much like the derivatives issues we have today. Yet more creative ways to game the system, disregarding the risks, and creating financial institutions that should have been forced to fail. In the Great Depression they let many of those banks go under, and that is exactly what they should have done today. The Federal Reserve Act states that nothing in the act was to usurp or undermine the Gold Standard Act. However this is exactly what they did and the use of credit and debt became the basis for over leveraged and under capitalized banks.

I find this article rather enlightening on the subject: http://www.aier.org/ejw/archive/doc_...ent&format=raw

The reference to 5 years is not stating that we will need the gold standard or some real terms monetary standard in 5 years. The reference to 5 years is my estimation of how long before the giant Madoff like ponzi scheme the Fed is running is revealed to all. You see there is no way they can monetize this massive derivatives nightmare that is unraveling. This is the making of the the commercial and investment banks and other creative financial institutions without regard to the risks to the system. The watchdog is suppose to be the Fed. The Fed created the mess during the great depression and they created this nightmare we have today.

Oh, and to the question of the Federal Reserve being Federal. Here just a few excerpts from some court cases that clearly lay out the Fed is owned by "regional commercial banks". This is just one of many places the information can be found if one chooses to do some digging... No conspiracy involved, just good old fashioned horse sense that the US government should be controlling the monetary policy and regulation of the banks and not some "for profit" consortium of banks that attach debt to ever dollar put in circulation. The Fed does the bidding for it's share holders who are "for profit institutions".
The Federal Reserve is a Private Financial Institution

An excerpt:
"Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. Sect. 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. Sect. 341, and appoint officers to implement and supervise daily Bank activities. These activites include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. Sub-Sect. 341-361."


Longsnowsm

[GMAN]

I think our prices were much more stable in the U.S. when we were on the gold standard. It seems to me that our standard of living was higher. Oil prices were stable. We also exported more of our manufactured products. We made most of what we used back then. Wages were lower than today, but our money went further.

[no_worries]

Strangely many of the advantages of the gold standard or even a bimetalism standard are also some of the so called weaknesses, but here is my favorites.

1. Stable money supply
2. Long term lower inflation rates, and promotes price stability over the long term.
3. Limits the ability of the Fed or the Treasury to play games with the money supply.
4. If adopted in a framework similar to Bretton Woods it would provide fixed exchange rates and a framework for trade that is equal and not suspect like the current games being played in the currency markets. In a gold or bimetalism standard we know what the value of the underlying metal is, but today do you really know what a dollar is worth?
6. Provides a standard for exchange that is easily defined and less vulnerable to whims of other nations
7. Real interest rates would be force to reflect the reality of the monetary situation and would in fact be raised to support the peg of the dollar to the valuation of the gold price in order to maintain the standard. No more playing the fraudulent manipulation of the interest rates through Fed buying and other players in order to support run away spending and debt or to bailout failed monetary policies of our trading partners.
8. The monetary system is self regulating.

Longsnowsm

Even if, for the sake of argument, we grant that these items are true, they are not unique to a gold standard. They are true of ANY commodity backed currency. All of these advantages are really byproducts of two of the items; a pegged value and fixed exchange rates. All well and good, except for the fact that the success of the system is reliant on all parties adhering to the standard. How are you going to accomplish this? We have seen time and time again, the main obstacle to any fixed exchange is keeping everybody in line. History has shown that countries decouple when economic turmoil hits and because of the deflationary nature of the gold standard in such an environment, those that remain pegged longest suffer the most creating a substantial disincentive.

Whether or not the gold standard would actually work as claimed is something of a moot point without first establishing how full participation would be ensured. History has shown that countries only remain parties to the system until economic realities dictate otherwise.

As for the Fed, nobody has argued that it isn't a privately held entity. Both Rev and I posted information detailing the same ownership structure of the member banks. However, the Fed is not controlled by the member banks. While the boards of the 12 regional banks are formed as you mentioned, the Board of Governors which overseas the entire system, including the 12 Regionals, is by Presidential appointment. The FOMC, which is responsible for policy, is made up of the 7 members of the BOG (appointed) and 5 of the 12 regional presidents. Being a member bank in the system is not akin to being a normal corporate shareholder. Members only direct voting is in electing 6 of the 9 board members of their Regional. Every member has one vote, regardless of size.

In short, it IS the government that's controlling monetary policy, for better or worse.

[Longsnowsm]

No_Worries,

I think if you look back at my earlier post I actually mentioned oil, and other commodities as a possibility for a monetary system like this. Anyone looking at the long term stability of that type of system knows that those that dump the standard in face of their own economic issues is doing so out of expediency and only make the situation worse for a longer period of time. The correction appear to happen quickly in a commodity based standard. So while there is short term volatility the corrections are quick if people will play by the rules. Breton Woods appeared to work OK, but like you mentioned there are those that chose to play by their own rules. So there are issues to be sure. The IMF and others have been talking about a basket of fiat currencies as the new standard, but is just as dangerous. I however think a basket of commodities might be preferable to mitigate some of the potential shock value of being able to manipulate a single commodity like gold or silver. I am not aware of something like this being tried before, but I think it could work.

The very fact that for profit commercial banks own the Fed is the point. We only pretend we are "in charge of them". So anyone who thinks that this is irrelevant clearly doesn't understand that the tail does not wag the dog. :-) In the history of the Fed there has never been a thorough audit. Why is that if they are under the control or supervision of Congress? If they are a public entity how is it they can tell Congress that they don't have to tell us where over 2 trillion of our bailout funds went? If they are a public entity how is it they can suddenly just decide not to publish M3 data? And nobody asks why or how they can get away with this. This is a band of thieves and international crooks who are in charge. The recent repeal of Glass Steagal now allows hybridization of insurance, investment, commercial and other financial institutions where it is a free for all. All of this comes to us by the prodding of the Federal Reserve in 1999. Why would they do that? In 2004 they pushed for the Financial Services modernization which opened up pandoras box for these highly questionable financial instruments and deals.

Someone really try to explain these things if they are truly acting in our best interests and not those of the very banks that own the Fed... Where there is smoke there is fire.

Congress needs to resume control of the monetary system and learn some lessons from the past. It makes no sense that we pay bankers for every dollar that is put into circulation. It is our money and should not be held captive to the whims of the banks nor should we have to pay just to issue our own currency. Looking back at history I love some of the quotes from Andrew Jackson who said when asked what his greatest accomplishment was and he said "I killed the bank!". We had a pretty good run without this band of crooks and I think we can do so again.

Longsnowsm

[no_worries]

Bretton Woods was signed in 1944 and problems began arising in the 1950's. The duration of the compact was spent trying to adjust to new problems as they arose in order to maintain the system. I'm not sure I would hold it up as a successful program. Bretton Woods, the gold standard, and other similar ideas are essentially a strategy to move toward a single global currency. The problem is, that notion is hugely unpopular politically. As a result, the systems ultimately fall well short of the desired effect. Until the political will is there adopt the perspective of a world economy, none of these systems will work. National interest will trump every time.

As for the Fed, I don't know how to be any clearer about the structure. Ownership is separate from control, as in a handful of other hybrid institutions. The ownership stock does not confer the same rights as normal corporate stock does. All of the top decision makers are appointed and confirmed by the government, not by the member banks.

The Fed has never been audited because it was designed to be independent. The Fed's mandate only includes price stability and unemployment, or the lack thereof. If people feel that the Fed has grown too powerful, it is because of actions of the Executive and Legislative branches. Congress now wants to say that the Fed is out of control and TARP is a fiasco. It happened on their watch...shame on them for not paying enough attention to what they were voting on. Congress screwed things up, didn't notice the problems coming, rushed to "fix" things, and NOW they want to lay the blame somewhere else? Please! Congress should be the last ones clamoring to audit anybody these days.

As for M3, it's a relatively inconsequential piece of data in terms of establishing the money supply. Repealing portions of Glass-Steagall had nothing to do with the Fed. No matter how much "prodding" is done, they don't vote. Again, Congress is the goat. Even that was not necessarily a bad thing. Allowing the various business to be owned by a single conglomerate was not the problem; the lack of oversight was the problem.

You can watch any congressional hearing or testimony regarding the economy and the first thing that jumps out is just how few members have any clue about economics. They're the last ones I want steering the ship.

[Longsnowsm]

I cannot say that Bretton Woods was a success, but I do believe it is an interesting framework to help with establishing monetary exchange rates. Since I am a commodities standard kind of guy I don't believe that using a standard like gold or some other tangible asset makes for a global currency. It establishes a known entity for a method of exchange for national currency which establishes a value for that currency. Under today's fiat currency system you don't know what it is or what it's worth based on the political expediency of the moment. Under a standards based system persons and governments can demand the underlying commodity in exchange for the currency. So I think Bretton Woods could be revived and enhanced as a good place to start.

I want to hear your theory on the repeal of core components of Glass Steagal. Frankly it is the removal of the barriers of bank ownership that has setup this financial disaster today. I don't agree with our current president on much but I agree with him on this:

'President Barack Obama believes that the Act directly helped cause the 2007 subprime mortgage financial crisis.[22] Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis. They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".[23]"

It has turned into a financial orgy with serious questions reaching all aspects of our financial markets to include our rating agencies and the "advise" we are getting in the financial marketplace. Kind of hard to trust the guys rating when they are owned or influenced by the companies they are rating.

Your perspective on the Fed and that they are controlled by the FRB which are controlled by Congress is naive at best. On one had you say they are independent and cannot be influenced, and on the other hand you say they are under our control. You cannot have it both ways. It is laughable to think that the for profit banks that make up the Fed do not control our Congress, Wall Street, and every aspect of the economy and legislation. They are the most powerful lobby in DC. Everyone knows this, and few dare to stand up to them.

So while Alan Greenspan and many Fed banks were out cheerleading the repeal of Glass Steagal you think it had nothing to do with the Fed? The banks and financial institutions were out there pushing hard for this and you think they had nothing to do with the Gramm-Leach-Bliley Act? You have to be kidding right? Do we need to pull up some video of uncle Alan out pimping for this? The most powerful lobby in the world, and the reason many of these political clowns are in office is due to these "contributors", but you say the Fed doesn't vote???? Surely you jest.

And you would be wrong, the Fed does submit to some limited audits. But it is severely limited. The Federal Reserve Act did not authorize a "Black Box" bank without proper audits, controls, and the public release of information. I think you need to take a look at the Federal Reserve Act and show us where they are above the law and above review.

As recently proven by the Bloomberg court case that required the Fed to release the information under the FOIA they are in fact required to answer questions and provide information. Sadly another judge has put that release of information on hold. But we will soon enough find out who the Fed is giving our money to and what they have been doing with it.

Court Orders Fed to Disclose Emergency Bank Loans (Update2) - Bloomberg.com

These guys are pretty slimy and the pretense that the financial system will be at risk if the information is released is a complete sham. What is it that they are really afraid of? Who have they been giving US taxpayer dollars to? If they claim to serve the public then it is time to make them also accountable to that same public. It is not only time to audit the Fed, but it is time to ask why they exist.

M3 is just a symptom of this central bank problem, just like not providing the information requested from them. On one hand we say that the money supply is growing, and on the other hand we say that "well nobody knows since they don't provide the data". I say "pooh" or get off the pot. They should be required to provide the data and let the chips fall where they may if they are here to serve the public, but if as I contend they are here to feather their own nests then of course any closer observation should be shunned. You say it is a lack of oversight that this money supply issue happened. Exactly how does that work? The Fed is independent you say so they cannot be told what to do. And you say the Congress does not actually listen to the Fed as you just stated that they may have prodded Congress on Glass Steagal, but they aren't the legislative body... <cough> <cough> <cop-out> So it seems that the story is a mixed one. Either congress has the oversight and can tell the Fed what to do and how to control the banks etc or it cannot. Which is it? You know as well as everyone else that the Fed controls the banks(or at least on the surface it appears that way). The Fed controls the money supply, the interest rates, and the credit markets. And now they want to control the consumer credit markets! If Congress had any pull with the Fed then Bernanke wouldn't be telling them that they don't have the authority to force them to tell us what they did with the bailout funds and if they want that authority they need to repeal the Federal Reserve Act. So I think you attribute authority where it isn't, and attribute accountability(where it should be), but isn't.

So while I find it slightly strange that I would be defending Glass Steagal and the power it gives the Fed, I am a realist in that I can see in a funny money(fiat money) fractional reserve banking system they have to have safeguards, reserves, and insurance to cover these wild swings in the economy due to the extreme forces that leverage has on the funny money system. The problem is that the regulator and the independent central bank didn't do it's job to ensure that there were the reserves, and the money in the economy to deal with this massive creation of money by the banks. So again who's job was that? Remind us? Explain how this could have happened when it has been warned about and spoken of in dire terms as far back as the early to mid 90's about the derivatives and hedge fund markets? Again who benefited? Who is getting the bailouts because they now claim they "just couldn't see it coming", and are "too big to fail"?

The Fed nor the Treasury has a leg to stand on. Sadly I wish we could say that this was a US only issue, but the fact is the central banks all over the planet have been doing the same thing. Funny how that works... Global bankers that own the central banks globally working in concert and using the same methods? I think the story the Fed has been feeding us is thin and so are the excuses. Congress has it's own "splainin" to do, but at least we can in fact hold them accountable. It is time to audit the Fed.

Audit the Fed

It is time for accountable government and a financial system that is sound. Right now all I hear from Fed supporters are more excuses, and convenient brushing aside what is actually going on... and if all else fails attack anyone that dares to ask common sense questions about the very nature and role of the banks in the financial collapse. Instead they look for scapegoats and try to keep us arguing over partisan politics. This isn't partisan, this is about the future of our nation and its very existence. We won't have a future if we continue to allow these criminal institutions to control our money.

Think that is just rhetoric? Well there are many others who feared these financial institutions and their desire to keep us in a permanent state of emergency and wars. To force us to borrow our own money and attach interest to every dollar. And yet there are still people who try to defend them...

The Outstanding Public Debt as of 07 Oct 2009 at 07:39:37 PM GMT is:
$ 1 1 , 9 2 7 , 3 8 6 , 6 3 2 , 8 4 3 . 4 6

Some food for thought:
"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." — Henry Ford

"[Every circulating FRN] represents a one dollar debt to the Federal Reserve system." — Money
Facts, House Banking and Currency Committee

"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits." — SIR JOSIAH STAMP, (President of the Bank of England in the 1920's, the second richest man in Britain)

“If the American people ever allow the banks to control the issuance of their currency (instead of Congress), first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs.”
-Thomas Jefferson, letter to then Secretary of the Treasury, Albert Gallatin, 1802

"If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations.
"The bold efforts that the present bank has made to control the government and the distress it has wantonly caused, are but premonitions of the fate which awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it...If the people only understood the rank injustice of our money and banking system there would be a revolution before morning." - Andrew Jackson

"The financial system has been turned over to the Federal Reserve Board. That Board as ministers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money" -- Charles A. Lindbergh Sr., 1923

"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it". — Congressman Louis T. McFadden in 1932 (Rep. Pa)

"We are completely dependent on the commercial banks. Someone has to borrow every dollar
we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." — Robert H. Hamphill, Atlanta Federal Reserve Bank

"The Federal Reserve banks are one of the most corrupt institutions the world has ever seen.
There is not a man within the sound of my voice who does not know that this nation is run by the
International bankers — Congressman Louis T. McFadden (Rep. Pa)

"Some people think the Federal Reserve Banks are the United States government's institutions.
They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers" — Congressional Record 12595-12603 — Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

"Whoever controls the volume of money in any country is absolute master of all industry and
commerce." — James A. Garfield, President of the United States

"A great industrial nation is controlled by it's system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world--no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men." — President Woodrow Wilson

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance." — James Madison

These were some wise men, and who lived it, fought it, and understand how this scam works. It is almost criminal that the Fed and bankders have so hoodwinked you and so many others into believing their absolute BS. This is how they have managed to steal the wealth of our nation and why they have managed to stay in power so long. They have you all believing the lies and none of us have been around long enough to recall what it was like before EVIL overthrew our government.

Longsnowsm

[no_worries]

You're reading my post and then making some pretty broad leaps and assumptions about what I'm saying. Much of your arguing is against points I never made. I'll try and address some of your points tomorrow.

Alright, tomorrow is here.

What makes a commodity-based currency attractive, like you say, is the fact that it has a set value and exchange rate. If every currency in the world is pegged to the same commodity and exchange rates are fixed, how is that any different than simply having one currency for everybody? There's really very little difference between the two. But putting that aside, what is the rationale for setting the value of your currency based on something that is completely disconnected from economic activity? What you economy is doing would be meaningless. All that would matter is how much gold, or whatever underlying commodity you're using, you can accumulate. Gold isn't bad for us, since we're one of the top producers, but what if we settled on something else? What if currencies were pegged to something that the U.S. didn't produce in meaningful quantities; what would the consequences be? And all of this is still a moot discussion. In the end, such a system can only work if everyone adheres to it. That has never proven to be the case and, despite your assertions to the contrary, the data shows that countries that withdrew from the gold standard earliest in past downturns, recovered first.

I fail to see where the Gramm-Leach-Bliley Act necessarily led to the current crisis. How exactly did the fact that one company could now be an investment bank, commercial bank, and/or insurance company, cause the problem? It didn't. In fact, those companies that ARE most diversified have survived the crisis far better than their competitors. If they were the root of the problem, one would not expect such an outcome. The one criticism that can be leveled at the act relating to the crisis is the exemption of financial derivatives from SEC regulation. As I said before, Congress was derelict in their duty pertaining to regulation of the workings. The Act itself and the changes it imparted on ownership of financial institutions were not a problem. In addition, if you would read further down in the Wikipedia article you got your info from, you would see that banks were already able to hold and trade the instruments that caused the most harm, prior to the Act. Not insignificant is the fact that Europe had always operated under such deregulated conditions, yet they did not spawn the crisis. The current crisis in the banks was due to poor oversight and limited reserve requirements with respect to the amount of risk being undertaken. The simple fact was that the financial industry was evolving faster than its regulators, so they didn't see the problems coming.

I do agree with your point about the ratings agencies. They were a huge part of the problem. They should have been subject to much more oversight. Then again, nobody conferred on them any kind of authority. It's akin to a neighbor that constantly gives you advice that happens to turn out good for you for a long time. Then one day he gives you bad advice. Who's to blame? Nobody told you to listen. Nobody vouched for his knowledge. He just had a great track record. In the end, you're the one who made the decision to listen.

For the most part, your argument about control of the Fed is no argument at all. You offer up little in the way of facts and resort to claims of naivete, "everyone knows...", and other refrains of conspiracy theorists. I don't know if you are intentionally misstating my points or simply don't understand what I'm saying. If by "FRB" you are referring to the Board of Governors and the FOMC, than yes, that is who makes the decisions at the Fed. If you meant "Federal Regional Banks" than that is not what I was saying. When I said that it is "the government controlling monetary policy" I didn't mean that Congress actually makes the decisions. The decision makers (referenced above) are appointed and confirmed by the President and Congress. Therefore, the government makes those decisions BY PROXY. I thought that principle was self-evident given the common knowledge of how the Fed is structured. My mistake. But my main point was that the member banks have no direct input on decisions. Now, it appears your argument is mostly that the big bad bank lobby owns everyone in Washington and therefore can control the Fed's decisions thereby ruling the World. There's really no way to argue against such claims because they don't include much in the way of facts. It's why conspiracy theories tend to live a long time.

I never said the Fed is above the law. We see Bernanke answering question from Congress at every Fed testimony, which is required by law. The Fed is audited annually. However, it is shielded from audits into its policies regarding the twin mandates managing inflation and unemployment, as well as dealing with foreign banks. The shield is, ostensibly, for the purpose of maintaining sovereignty in its policies with respect to politics.

The Bloomberg case had nothing to do with auditing the Fed. The Fed argued that it did not have to disclose the bailout amounts under the Freedom of Information Act because doing so would materially harm the banks in question. The judge ruled that they simply didn't provide facts to prove the assertion. Which is reasonable, given that such a situation hasn't really arisen in the past. However, the stock market certainly reacted negatively when it was disclosed that certain banks had received bailout funds while other didn't. There's also the instance of the run on IndyMac purportedly caused by Senator Schumer's public questioning of the bank's health. It's not unreasonable to think that people will react negatively when it's disclosed which banks the Fed believed were in need of emergency funds. However, even if it's likely, they can't prove it will happen and that's why Bloomberg won their case.

There is no mystery whether the money supply is growing or not. There is plenty of information released that gives insight into that including M-1 and M-2. M-3 is not really relevant in determining that fact, which is why it was discontinued.

I didn't say anything about lack of oversight contributing to the increase in money supply. I said lack of oversight resulted in Congress now feeling like they don't know where the bailout funds went, which is why they want to audit the Fed. They passed a bill giving the Fed a lot of latitude to do what it thought necessary...knowing the relative autonomy the Fed operates under. If they wanted more accountability, they could have provided for it in the bill, since it was authorizing funds and action not normally under the scope of the Fed. However, hindsight is 20/20 and now they want to make up for their rush to act.

I also didn't say that Congress doesn't listen to the Fed. I said, no matter how much prodding the Fed may have given, the ultimate decision was still up to Congress. The due diligence was their responsibility and listening to the Fed is but one part.

Like I said before, you spend a lot of time responding to things you THINK I mean, even though they're not what I said. My points are relatively brief, maybe read them a little more closely before responding and you wouldn't have to type so much.

The Fed does not control interest rates, it simply has influence over them. It certainly has more control over the money supply, though money supply can be increased or decreased outside of the fed. The Fed has oversight over credit markets, but it hardly controls them in terms of exercising direct control. Nobody tells banks who to lend to or how much interest they have to pay...despite some claims to the contrary.

You'll have to excuse me, since they changed the format, I don't know how to quote parts of a post. But here's one of your paragraphs:

"So while I find it slightly strange that I would be defending Glass Steagal and the power it gives the Fed, I am a realist in that I can see in a funny money(fiat money) fractional reserve banking system they have to have safeguards, reserves, and insurance to cover these wild swings in the economy due to the extreme forces that leverage has on the funny money system. The problem is that the regulator and the independent central bank didn't do it's job to ensure that there were the reserves, and the money in the economy to deal with this massive creation of money by the banks. So again who's job was that? Remind us? Explain how this could have happened when it has been warned about and spoken of in dire terms as far back as the early to mid 90's about the derivatives and hedge fund markets? Again who benefited? Who is getting the bailouts because they now claim they "just couldn't see it coming", and are "too big to fail"?"

And YES! That is exactly what happened. I never once said that the Fed (along with the SEC) didn't drop the ball. In fact, I lay much of the blame for the current crisis at the feet of Greenspan. As for how it happened, that's easy. Diverging economic theories. Mechanisms that worked in the past didn't work this time. It may be because global economic dynamics have changed so much that certain rules no longer apply. Or, it could be that those theories never really worked in the past but other conditions covered up that fact. The age old problem of confusing correlation and causality.

As for your global conspiracy by central bankers, YOU are confusing correlation with causality. Yes, most central banks acted similarly and the result to their economies was likewise similar. In asserting conspiracy you are ignoring the fact that economic schools of thought tend to move in waves. When a particular school of thought shows itself to be effective it tends to be adopted and taught the world over. The role of an activist central bank started with Volcker in response to the crises of the late 70's and early 80's. Greenspan took it to a whole new level while concurrently the trend of increased deregulation gained favor. During this period, the U.S experienced unprecedented economic growth. It is only natural that other countries would try to emulate the system the took to be responsible. An interesting sidenote, during the period when much of the world was experiencing significant growth, Japan was mired in its "lost decade." One stark difference between the Bank of Japan and the Fed; the BOJ is instructed to work closely with the government when setting economic policy. Unlike our more independent Fed.

[Paul McGraw]

Interesting discussion. As a former commercial banker with a degree in economics I am impressed with the level of knowledge shown in these posts.

I kept expecting someone to quote Williams Jennings Bryan from his "Cross of Gold" speech, or perhaps I missed it.

"Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

[nctrucker1]

Article link here

I'll post the article below:



Wow, just wow.

Looks like we have a lot of failures to come yet. There are companies hauling for below their variable costs??? That's not counting there fixed costs. Jeezuz.

It looks like the banks at this point would rather stick there neck out for these companies because they don't want the trucks, trailers, or perhaps any real estate should the company collapse. That really gives a clue how bad it is.

I know things will eventually get better but it makes you wonder how far off it really is. I also wonder what the real unemployment number is, also people that lost their jobs but have taken something cheaper and don't have any "extra" spending money. Things just aren't moving.

It makes me laugh, but it really is not funny, that a JB Hunt recruiter called me last week and asked if I would be interested in a lease/purchase deal. I thought, a thousand comedians out of work, and this JB recruiter is trying to be funny. With so many O/O's in trouble making no real money, How could I even begin to think that I could do better? That JB recruiter, at least he still has a job, he must still be able finding suckers to fall for his pitch.

[heavyhaulerss]

These handouts are there for big businesses as well as individuals. Both have become addicted. A small business can't always find assistance unless they are a member of a minority group. I remember several years ago I attended an SBA seminar. There were many programs for women and minorities, but practically nothing for white men. It seemed strange that they would discriminate so blatantly.

when I was living in Chicago I wanted to get a loan to buy a business. the loan advisor who was hispanic, told me I needed 20 % dn. though he said if I was a minority I would only be required to put 5% dn. he did not agree with this law, but it was the law. I never blamed him or anyone. I just looked at how I could over come this obstacle. I had more resentment 20 years later looking back, but at the time I just did not think about it. the feeling of being a victim, or the system being against me never entered my mind, though I dont know why. it was just my state of mind at that time. though that attitude served me well over the years. it taught me to live like my grandparents did.

[no_worries]

Interesting discussion. As a former commercial banker with a degree in economics I am impressed with the level of knowledge shown in these posts.

I kept expecting someone to quote Williams Jennings Bryan from his "Cross of Gold" speech, or perhaps I missed it.

"Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

Trucking, refuge of the underemployed, LOL.

[GMAN]

when I was living in Chicago I wanted to get a loan to buy a business. the loan advisor who was hispanic, told me I needed 20 % dn. though he said if I was a minority I would only be required to put 5% dn. he did not agree with this law, but it was the law. I never blamed him or anyone. I just looked at how I could over come this obstacle. I had more resentment 20 years later looking back, but at the time I just did not think about it. the feeling of being a victim, or the system being against me never entered my mind, though I dont know why. it was just my state of mind at that time. though that attitude served me well over the years. it taught me to live like my grandparents did.

I thought that it was really strange at the time I experienced it. I didn't consider myself a victim, either. I just went on and built a business without the help of the government. In fact, I have built several businesses over the years and never gotten assistance from any government entity. If we are going to have true equality in this country, then we need to have the same rules and guidelines for everyone. You cannot have preferential treatment for ANY group nor should you discriminate against any group. When you give preferential treatment to one group you are discriminating against another. I don't think most white people consider themselves to be victims even they have been discriminated against in the last several decades. It seems to be more the minorities who consider themselves to be victims. It is ironic since there are so many programs that give priority to those who are in a minority status. I think our country would be much better off if none received help from the government. We should make our own futures.

[jeff1981]

I think our country would be much better off if none received help from the government. We should make our own futures.[/QUOTE]

Very well said. I lived in maine for several years and i was amazed at how many people chose to "live off the government" rather than make their own way. I was one of the few dairy farmers who did not take the dairy subsidy, rather i sold some of my milk locally and shipped the excess to the cooperative. I actually made more money that way than i would have with the subsidy money. I think people will often do better if they use some common sense and ingenuity rather than always looking for a bailout.

[GMAN]

Living off the government has made our country weaker. It was rare for people to take money from the government until the 1960's and Lindon Johnson's "New Deal." The only other time was during the depression of 1929. Even then, people worked for the check they received from the government. Working for what we have builds self confidence and character.

[Longsnowsm]

No_Worries,

Andrew Jackson abolished the central bank during his time. There is quite a story behind it and would make a good movie. All of the same problems were in play then that are in play now. However Andrew Jackson made a mistake when he allowed the national banks to continue to use fractional reserve banking. This is what caused the boom and bust cycles, and the runs on the banks that everyone was so afraid of, not the gold standard itself, but the uncontrolled creation of money in the form of debt. As long as the banks were allowed to create money by issuing debt there was no way there would ever be enough deposits of real money(ie gold) in the banks to cover the outstanding paper money that had been created. You have a formula for disaster with a system like this. These boom and bust cycles continued and instead of neutering the banks and demanding full reserve and tightly controlling the money in circulation they continued to allow this behavior. This behavior had to be reigned in or the system spins out of control with more risky behavior, unregulated lending, and all the evils that we all can see plainly even today without the money reserves to meet the needs of the people.

Now the bankers decided that the anchor around their neck was the gold standard, because it didn't allow them to expand the money supply at will and sadly the fractional reserve "Real Bills Doctrine" was wholly incompatible with the gold standard. Somehow Congress wasn't wise enough to see how the game was being played and along comes the Great Depression. It was irrational exuberance, debt, and out of control growth of the pretend money supply that set this bust into motion. The Fed argued that it was the gold standard that made things worse and prolonged the agony. Funny how they deflected and never talked about the uncontrolled growth and the money problems they created, but blamed the gold standard. The gold standard and full reserve banking would have prohibited the conditions of the great depression, and we wouldn't have seen the wild swings in the economy due to erratic money flows and artificial conditions created by the banks themselves. The gold standard and full reserve banking would take away the wildly profitable massive leverage schemes. So when it became too obvious that the funny money scheme was out of control and there was no way there was enough gold in the coffers to cover all the paper money they repealed the gold standard, and wisely told everyone that the gold standard made the depression worse. It is like blaming the fireman for the fire. Really convenient if your the arsonist!

So I think we have really covered the past. And if any of the BS bedtime stories you were told by the bankers were true then the many boom and bust business cycles we have had since the Great Depression would have hardly been a footnote. As with all arsonist stories they weren't true. The momentum just continued to build as more and more debt and unregulated ways of creating even more money out of thin air have been devised. Before long you have such a massive amount of debt we are calling money(financial obligations, not money) in the system that there is no way that much money could ever be printed and have anyone still believe anything the arsonists told you. The off balance sheet transactions, derivatives, swaps, and the many other "interesting" ways of creating money have turned into a train wreck and there isn't enough money in the world to pay off the bad bets. Here we are staring down the barrel of a 500-700 trillion dollar pile of non-performing creativity that is going down like a house of cards. Who do you think the arsonists will blame this time? There is no good old reliable gold standard to kick around. Oh, I get it, it is the evil Americans and their greed buying houses they couldn't afford.... yeah, thats the ticket we will blame the Americans. And WOW, why didn't they think of this sooner! We can now tell everyone the real issue is that we don't have a global currency with the proper controls and that if we will only put the arsonists in control of the new sound(maybe even promising to have a gold/silver/precious metals backing) currency that we will avoid this from ever happening again. You see we just need to centralize the management of this mess, that will fix it! You see the arsonists told us the same thing when the Federal Reserve was created about the end of the boom/bust cycles, and the bank runs. Well it just isn't so.

You see our congress, treasury, and the Fed don't know the meaning of discipline, balanced budgets, and responsibility. For some of them it is about making a buck, and as long as they have the incentive to make a buck they will continue to loan us money until there is no more money to be made. Then start all over again creating money out of thin air and the game begins again once we are bankrupt. It sounds all nice and pleasant doesn't it? But the rest of the story is that most of us who have worked all our lives and tried to save a little and maybe plan on retiring one day are getting the shaft. You see with the Keynes brand of economics if you can keep growing the money supply gradually most people won't notice the theft. But that is the trick now isn't it? Making sure that you can keep the ascent of the funny money system under control. But when the arsonists lose control due to their own greed we see the trick for what it is. Will we see it this time for what it is? Will we have the good sense to recognize we have been listening to the arsonists? Was it really the evil Americans alone that did this? Or was it the guys that were willing to take the outrageous risks and lend to anyone with a heart beat and can fog a mirror? Will we recognize they are the threat to the financial system, not the guy that dared to dream that he/she might to be able to afford a home too?

I can only hope that one day the evil Americans will wake up and realize that the $14 trillion dollar mortgage market alone didn't sink the hundreds of trillions of dollars in creative debt that is out there. That one day they will realize they were being played and that the house held all the cards. Will the American people wake up and realize the guy standing there telling the local news station that he just happened to come along and notice the building was on fire, dialed 911, ran in and saved a dog, an old lady, and a lawn mower is in fact the arsonist who set the fire... Will it happen? I can only hope.


So the question is what are we going to do about this? Continue to allow the arsonists to blame everyone for the problems of an unstable fractional reserve "Real Bills Doctrine" system? Or are we going to wise up and realize that you cannot allow the banks to us debt and creative finance, and ever increasing leverage to expand the money supply without restraint? Where is the Fed in all of this? Isn't it their job to know what the member banks are doing? Monitor, regulate, and control the money supply? So what are they going to do now? Allow the hundreds of trillions of dollars to default? To let their too big to fail members take it on the chin? To watch this collapsing house of cards tumble to the ground? Fat chance, they will try to print it. There is no way that they can print this kind of money without monetizing most of it, and without destroy most of us financially in the process.

I am not going to get into the specifics of the deregulation portion of Glass Steagal at this point, but I would encourage you to do some digging on the precusor events with Citibank and then ask yourself why they are in the mess they are in. There is a lot of evidence at this point that collusion, manipulation, questionable activities have resulted as a consequence of the repeal of Glass Steagal and have added greatly to this massive problem. Congress passing things like the Community Reinvestment Act just gave the bankers even more creative ways to lend money, and GLB was just the keys to pandoras box. CRA was just gas for an already raging bonfire.

I will agree with you that the chief arsonist Uncle Alan couldn't wait to find new more "modern" ways to let the bankers go crazy. I largely hold him responsible for the biggest run up of this bubble. I don't like Volcker, but he had guts to do what was needed to push us back from the edge. It will take more tough love like that to get this under control. Sadly it won't happen. Helicopter Ben believes the problem of the Great Depression was that they didn't print money like it was going out of style. So the Fed fantasy is wipe out enough of that creative debt/financing to save the system. Never mind it was this creative finance that put most of the banks in this mess in the first place, but the answer according to whirlybird Ben is the printing press. They will have done nothing to fix the problems that caused this mess, but you can be assured they won't be taking the blame. It is just too darn profitable.

If at this point you cannot see the connection to bank, profits, and their out of control power over DC and Wall Street I really don't think I can help you. If you cannot connect the dots between the behavior of the Fed and the banks I surely won't be able to illustrate it in a forum like this just how dangerous this game is with the Fed. They are the problem, not the solution.


Longsnowsm

[GMAN]

The old Building and Loan or Savings and Loan companies used to loan money on their deposits. They were usually locally owned and operated. Unfortunately, most of them either went out of business or were gobbled up by the major banks. Rates were lower than the big banks and they only loaned on their deposits. That is the way it should be with lenders. The bank where I have done most of my corporate business in recent years assured me that they only loaned money on their deposits around the time of the bust. A short time after telling me this I found out that it wasn't true and that they received 7 billion dollars of bailout money. Banks did much better when they were small and knew those with whom they did business. It was also better for the consumer. I think that it is much better for most consumers to do business with smaller, locally owned banks or credit unions.

[no_worries]

If at this point you cannot see the connection to bank, profits, and their out of control power over DC and Wall Street I really don't think I can help you. If you cannot connect the dots between the behavior of the Fed and the banks I surely won't be able to illustrate it in a forum like this just how dangerous this game is with the Fed. They are the problem, not the solution.
Longsnowsm

Ohhhh, you've been instructing me? You'll forgive my confusion.

All you've done this whole time is throw together a hodgepodge of commentary dredged from whatever blogs you happen to be perusing that day. What you end up with is a disjointed mix of poorly conceived arguments that barely relate to one another, let alone support one another. What you've offered is your opinion interlaced with various internet commentaries to tell a rather long and repetitive story. Where are your facts and figures, your sources of such, and your citations? Where is the economic analysis supporting your assertions? $500-$700 Trillion? Where does that number come from? If you have any grasp of the subject your purporting to "help" me with, you would realize just how ludicrous that number is. You want to blame fractional-reserve banking? If you're going to have full-reserve banking, why have banks at all? There's a reason that full-reserve is purely theoretical and has never actually been put into practice...anywhere.

The dots to connect between the Fed and banks is a simple straight line. However, if you start listening to conspiracy theorists and those with an agenda, the picture starts to become convoluted until you're chasing your tail trying to explain things that aren't nearly as complicated as you'd like to make them.

I'm not trying to convince you of anything. I've met several people that preach the same things you do and I know better than to try and change their views. I simply amuse myself by countering the claims made. Now, if you really want to try your hand at a logical argument, by all means do so. But if you're not going to buttress it with facts, figures, and analysis, let's just put this thread out of its misery, LOL.

[Longsnowsm]

No_Worries,

Hmmm, Where to begin... Generally in a conversation there is a two way street as far as communication. Frankly I have enjoyed this exchange and I am sorry you somehow feel that I am somehow talking down to you or "instructing". I was hoping to illustrate in whatever manner is possible in a forum like this that there are a lot of people who have a very different view than that espoused by the banks, and the Fed, and our corrupt government who seem bent to finish the job of collapsing our economy so that they can just "reset it" to whatever image they hope to remake us. You see spin is bad, freedom, free markets, and the framework the US Constitution provides is good.

Now I don't know if you just cannot think of a way to defend the criminal fractional reserve banking system, or just don't understand what banks were suppose to do in the first place. Maybe we are all just victims of the times we have lived in and not really ever had the opportunity to see and imagine a world that isn't controlled by for profit banking interests that love to create emergencies or fund both sides of wars just for the sake of profits and to increase control... or to salvage their sinking monetary system. Frankly if you can defend 30 and 40 to 1 lending practices by the banks knock yourself out. If you can defend the Fed loaning our money to foreign central banks to stabilize their funny money systems go for it.

The list goes on and on of the things that are wrong with the existing financial system. A system that knows that the banks are unstable and need a central bank to be the lender of last resort. A system that even with that backdrop decided they needed to add insurance in the form of FDIC to insure accounts. There is layer after layer of a complex web of safety nets all because this thing is a stable as a one legged pony. This is the system that we have today that requires more and more programs, acts, and "systems" just to make sure that when the wheels fall off that it doesn't take the whole thing down.

There are always guys looking for the angle, for the scam, for the way to beat the system... You know I bet there is money to made in there somewhere! LOL

So you honestly don't know what the job of a bank is? If they don't use leverage and ponzi schemes you don't know what a bank is suppose to do??? Really? Look at the terms warehousing and lending. You can still do that in a full reserve bank. Really it can be done... Earning money offering services and safety, what a concept.

But enough of that, you know how much I just love a conspiracy. It is a conspiracy how banks make money. It is a conspiracy how the Fed is suppose to be the lender of last resort to make sure if the banks find themselves in a hole that they have someone to bail them out. It is a conspiracy how this whole game is played and just how many fail safes this thing has built in and still adding on just to make sure it doesn't meltdown. I guess we could outline the various safety nets and programs to stabilize your one legged pony, but we can save that for another time. We have some ever better conspiracy stuff to talk about.

If I had a financial institution and had a brochure and I had to explain the myriad of systems, how my lending policies worked, what I actually have in actual cash, and the many creative uses of contracts, leverage, methods for managing my books just to ensure that I have the funds to keep running and keep lending there is no way people would invest with me or save their money with me. Those are the facts. This isn't a conspiracy, this is just the truth. If people understood how the banking system works they wouldn't trust a penny with them. The same is true with the Fed. They are the backdrop to this theater. So try as you might more an more people are waking up to the fraud and the risky behavior of these banks and their practices. So maybe instead of spending so much time on the Fed's web site you should actually ask more about what is on your banks balance sheet.

Since I just troll blogs and spew garbage I really thought I should share this with you. Your right! I found this really great little web site that posts some of the best conspiracy oriented stuff you can possibly imagine. I thought I would just share a little bit from their Q4 report 2008. It was the last one I read and haven't had the chance to get the latest numbers... Since you obviously think I am full of it then lets just crawl into some numbers for us all to chew on:

OCC: OCC's Quarterly Report on Bank Derivatives Activities

In the OCC’s Quarterly Report on Bank Trading and Derivatives Activities Fourth Quarter 2008 from the the Comptroller of the Currency Administrator of National Banks. Let's just look at what they had to say about some of these "treasured" financial institutions.

Let's take the 5 top banks:
Total Credit Exposure to Risk Based Capital (%)
JPMORGAN CHASE 382%
BANK OF AMERICA 179%
CITIBANK 278%
GOLDMAN 1,056%
HSBC 550%
Avg % (Top 5 Banks)
489 %

Total derivatives exposure in the top 5 banks in Q4 2008: $191.498 trillion dollars

It breaks out as follows(numbers are in billions):
Futures & Fwrds 19,877
Swaps 127,101
Options 28,991
Credit Derivatives 15,529
TOTAL 191,498

Notional numbers listing assets and derivatives exposure for the top 5 banks... they listed 25, but the top 5 will do(numbers reflected in millions):

Rank Bank Total Assets Total Derivatives
1 JPMORGAN CHASE BANK NA, $1,746,242, $87,362,672
2 BANK OF AMERICA NA, $1,471,631, $38,304,564
3 CITIBANK NATIONAL ASSN, $1,231,154, $31,887,869
4 GOLDMAN SACHS BANK USA, $162,474, $30,229,614
5 HSBC BANK USA NATIONAL ASSN, $181,620, $3,713,075


Oh, there is a lot of good info out there, charge off's, break down into the various creative instruments. It really gives a guy a warm and fuzzy feeling knowing that our banks are SOOO WELL FUNDED. So there is a lot more data where that came from, but if that isn't an eye opener for anyone who is still reading this thread please feel free to enlighten me how this is suppose to work again... I am all ears.

Oh, maybe we should go through the Fed's numbers... Oh that's right they only give us what they decide to give us. It is for our own good after all. If you knew what was going on the entire financial system would collapse!!!! You gotta be kidding me! If people just read the data out of the Treasury and they understood how bad this was the entire financial system would collapse... There would be runs on the banks like you wouldn't believe if people understood these numbers.

So while I enjoy our little exchange don't even pretend to lecture me about conspiracy theories.... Why has this information not made the headlines? Why hasn't the financial status of our banks really been reported? Could it be a conspiracy??? Remember those bank STRESS TESTS!!!!! ROFL

Oh, and even though I despise the man due to the fact he is nothing more than a Wall Street cheer leader, Larry Kudlow was on the talking heads on CNBC one afternoon admitting that ONLY 30% of these derivatives are under water(non-performing)... He said something to the effect it is just insane to offer the banks nothing(pennies on the dollar) in the market place in mark to market for these contracts and that the street has it all wrong... Well depending on who's math you use 30% of numbers this big is a heck of a lot more than Uncle Sugar has printed so far.... If you dig around in the Treasury report they say the number of contracts with a positive value is roughly 6 out of 10. Looks like 40% losers according to the Treasury.

You think the Fed is just going to let these banks eat this???? No way baby... We gotta get a warp drive installed on those printing presses! Worse yet if the banks are forced to liquidate assets to cover the loses they take even more loses. It is literally a house of cards.

Oh and you want to know the range of $500-700 trillion... well just like statisticians it seems that the numbers seem to vary depending on the source of the news. So rather than give you a specific number from yet another moron in the press or from a source that you will just decide to rip to shreds since there seems to be a great deal of variation in the figures that get reported it just seemed easier to report the range of figures reported rather than a defined source. I am sure you can understand where I am coming from there... Unless of course you want me to throw some specific numbers out there for more discussion.

Frankly I trust any of the numbers out there including these I just posted from the Treasury suspect... Let's just say when the news is this bad I am suddenly from MO and you need to show me...

Ok, let's consider my figures buttressed and let's see where this baby goes. I want to hear your theory on the glamorous fractional reserve system and how the Fed in it's role as the lender of last resort could possibly ever manage to bail out the banks with this kind of balance sheet. I know you understand the role of the central bank, and you obviously believe they are doing a good job or you wouldn't be such an avid defender of this behavior. So tell me how the watchdog Fed somehow missed this disaster coming and explain to me just how that is suppose to work. I really genuinely want to know. I have tried, honestly tried to figure out just how we got into this mess and how this is going to play out without a flat out total global collapse and or paper money so deep that we will all be billionaires.

The headlines coming in even now is that the banks haven't learned anything from this experience and are still pouring more and more risky leverage into the system.

So let there be dialog... I don't know a lot, but I am always willing to learn more. Which makes me wonder why there are a few guys here on this forum that obviously come from the world of finance and why you chose to come drive a truck?

Anybody want to still bank with any of these top 5 banks? Good luck.

Longsnowsm

[no_worries]

Alright, I'll humor you for awhile longer.

It's interesting that you've chosen to use the figures from Q4 '08 when the next two quarters are available. Perhaps it's because that was the peak of the crisis and the numbers are significantly better now.

You perfectly illustrate one of the problems with the media and its reporting of this issue. $191+ trillion in derivatives exposure. That just sounds horrendous given the fact that everybody knows derivatives are such a disaster. As it turns out, derivatives are not necessarily the evil machination they're made out to be. Are there some bad examples, of course. Mostly in asset backed classes and only a subsection of those. However, 85% of all derivatives contracts are interest rate products which are relatively simple and straightforward. That doesn't mean they are without risk, but the risk is easily understood. They are a simple hedging tool. If you'll notice, all of those REALLY BIG numbers are notional values. If you understand what that means as it relates to derivative contracts, then you tend not to be alarmed when hundreds of trillions of dollars are cited as exposure. It's simply not an accurate characterization of the situation.

Net Current Credit Exposure is the most important number to draw on from this report. It is the number that the OCC weights the heaviest in assessing risk. In your Q4 report that number is $800 billion, certainly nothing to sneeze at. However, it can mostly be attributed to the precipitous drop in interest rates and wide credit spreads during the quarter. As it so happens, the NCCE at the end of Q2 '09, just two quarters later, is $555 billion. That's a 31% decline in risk in just 6 months time. Is it still too much risk exposure? Probably so. But whatever severity one describes to the conditions at the end of 2008, it has to be agreed that the situation is much less dire today. These numbers would seem to indicate that we are moving away from the brink, not toward it.

The big scary numbers are meaningless without the proper context and an understanding of notional value. Derivatives themselves are not inherently "bad" or even overly risky. There certainly are some products that fit this description but they make up a tiny portion of the overall market. The derivatives market is larger today than it was at the end of 2008 yet significant profits were made. That market will continue to grow even as banks continue to cut back their risk exposure. What DOES need to happen is tighter regulation of the derivatives market. There is no central clearing house, most are traded otc. This is where the Feds dropped the ball, exempting these instruments from oversight. I don't look for that situation to continue for long.

Kudlow was not talking about 30% of all derivatives. He was referring to a specific subset, either CDS or MBS, which together make up a small portion of the market.

I bank with one of the big 5 banks and am not worried in the least. Your odds of bank failure are much greater with a community or regional bank given their significantly larger exposure to residential and especially commercial real estate. That's not to say there aren't plenty of safe banks out there, you just have to do your homework. In any case, even in the event of failure you're protected. Unless you buy the stories that the FDIC is nearly out of money and won't be able to insure you. There's always your mattress, I suppose.

I never defended leverage ratios being as high as they were. Once again, you misread, misinterpret, or misrepresent. Banks were way too leveraged leading up to the credit freeze last year. They have admitted it and their leverage ratios have shrunk dramatically. You can find those numbers in any of the SEC filings. Why did that situation occur? Lack of oversight on the part of the Fed. Which they too have acknowledged. And you're right, there hasn't been much in the way of legislation to address the issue. Will there be? Watch what happens after health care finally goes away.

Why should I have to defend the fractional reserve system? It's all there has ever been. There has never been an example of a functioning full-reserve system. If there's no realistic alternative, there's no reason to defend the status quo. I know exactly what your notion of banking in a full-reserve system is. Banks as nothing more than a depository making money on for-fee services. Good luck with that. Why pay someone to watch your money? Especially if you get your other pipe-dream of the gold standard. Shoot, in that scenario I'd just keep everything in gold coins and bury them in my backyard. Why pay a bank for that service? The fact is, banks have ALWAYS made money by lending out their deposits. In order to make a profit without that income would require such exorbitant fees for the few services they could offer that nobody would take advantage. Your only remaining alternative would be a de facto non-profit or (gasp!) government bank. Explain to me why there has never been a full-reserve bank system when there should have been and maybe I'll lend the idea a little more credence.

If banks had a brochure explaining all the aspects of their business, it wouldn't much matter because most people wouldn't understand most of it anyway. Which is exactly why so much of the info that is out there today is errant. When something bad happens, people tend to blame the things they don't understand. It's been that way since the beginning of time and today is no different. The banks are certainly not without fault. But much if the blame is being misdirected.

As for thinking you were "talking down" to me, no need to worry. That would require questionable confidence in my own understanding of the issues. I drive a truck because I rather enjoy the lifestyle. I enjoyed education, never much relished the idea of working 100 hour weeks. I much prefer calling my own shots and my current 8-day a month schedule suits me perfectly. It's not the being out on the road that I enjoy, it's the abundance of time it leaves me to do the things I DO enjoy. If one day it stops paying enough to lead the lifestyle I want, maybe I'll return to my previous career path...which wasn't finance.