Topic: Federal Reserve
END THE FED - HR 3996, the Automatic Bailout Bill of 2009 My comments as those masters of disaster, the U.S. Congress, create a horrible bill, the Financial Stability Improvement Act of 2009, and on the fate of Ron Paul's Audit the FED bill, HR 1207.by Jake Towne, the Champion of the Constitution
(libertarian)
Saturday, November 21, 2009
WASHINGTON, DC - Yesterday Congressman Ron Paul's bill to complete a full audit of the Federal Reserve for the first time in 96-year history has narrowly avoided total defeat. The Federal Reserve is a quasi-private banking cartel owned by the banks with its Chairman nominated by the President that controls interest rates and the money supply. HR 1207, a very short 342-word bill, has a majority in the House with 313 co-sponsors. Its companion bill in the Senate, S 604, has 30 co-sponsors. HR 1207 has been blocked from a full House vote by the Chairman of the House Committee on Financial Services, Barney Frank.
Instead Paul and Congressman Alan Grayson successfully added in the FED audit as amendment 69B to Frank's monstrous HR 3996, the Financial Stability Improvement Act of 2009. (Draft text here and PDF below.) While Frank proclaims the bill supposedly protects the taxpayer from bailing out Wall Street, the truth is Congress intends to grant the Federal Reserve even more powers to mishandle and crash the economy as they did with their money-printing, excess credit, and low interests rates to cause the last bubbles, residential and commercial real estate, to form and then collapse.
Possibly the worst part of the bill is what I term the "Emergency Bailout Authorization," or per Section 1109, officially known as the Emergency Financial Stabilization.
"Upon the written approval of the Board of Governors of the Federal Reserve System... and the Board of Directors of the Corporation [Author's Note: This the FDIC.]... and with the written consent of the Secretary of the Treasury (after consulting with the President), the Corporation may extend credit to or guarantee obligations of solvent insured depository institutions or other solvent companies that are predominantly engaged in activities that are financial in nature, if necessary to prevent financial instability during times of severe economic distress. There shall be available to the Corporation to carry out this section amounts in the Treasury not otherwise appropriated, including for the payment of reasonable administrative expenses." (pages 43-44/253)
HR 3996 will also formalize the today's President's Working Group on Financial Markets, or the "Plunge Protection Team" formed after the 1987 stock market crash to perform interventions in the financial markets and lead Presidents to make misleading statements like "the financial markets are strong and solid... This economy of ours is on a solid foundation... core inflation is low" from January 2008. The new group will be named the Financial Services Oversight Council and consist of economic central planners Treasury Secretary Timothy "Turbo Tax" Geithner, FED Chairman Ben Bernanke, FDIC Chairwoman Sheila Bair, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Director of the Federal Housing Finance Agency, the SEC Chairman, NCUA Chairman, and the CFTC Chairman. (pages 5-7/253)
HR 3996 will cede power to the FED to force companies to obey the FED's orders if the company's actions or size pose a threat to their own "safety and soundness" or to the "financial stability of the United States," which are both incredibly vague and undefined terms.
"If the Board determines, after notice and an opportunity for hearing, that the size of an identified financial holding company or the scope or nature of activities directly or indirectly conducted by an identified financial holding company poses a threat to the safety and soundness of such company or to the financial stability of the United States, the Board may require the identified financial holding company to sell or otherwise transfer assets or off-balance sheet items to unaffiliated firms, to terminate one or more activities, or to impose conditions on the manner in which the identified financial holding company conducts one or more activities." (page 19/253)
When financial holding companies are identified as "undercapitalized" they "shall not, directly or indirectly, acquire any interest in any company or insured depository institution, or engage in any new line of business [without permission of the Council.]" (page 30/253)
Section 1105 gives the FED the power to force financial holding companies into bankruptcy: "an involuntary case may be commenced by the Board of Governors of the Federal Reserve System against an identified financial holding company." (page 38/253)
Section 1701 gives the FED "in unusual and exigent circumstances" power to authorize immediate bailouts and assistance to any "individual, partnership, or corporation." (page 253/253) This enables the FED to neatly bypass Congress when the next crisis occurs.
HR 3996 will be a colossal failure. There is simply no way a centralized body of bureaucrats like the newly formed Financial Services Oversight Council can adequately oversee every major corporation in the United States. Far from guaranteeing the taxpayer will not be robbed to pay failed Wall Street businesses, the bill secures "automatic bailouts" for the banksters and powerful corporations. While some may seem the regulations and control as helpful preventative actions to prevent economic strife, "too big to fail" is an outright lie. An orderly bankruptcy process of debt liquidation and asset reevaluation sold by the insolvent firms and bought by solvent, stronger firms results in the quickest possible recovery.
We must realize that much of the government-sponsored regulations merely serve to increase the size of government bureaucracy, which increases the end cost to the consumer, prevents competition from smaller firms, and creates a higher barrier of entry for new businesses. By their very nature, bureaucratic regulatory agencies are doomed to inefficiency and failures, and can do nothing than a series of private, competing accreditation firms cannot do both profitably and far better.
Many, including our Congress, have forgotten that the free market is the most just, most humane, and most prosperous economic system the world has ever known. The current false economy is primarily due to the counterfeiting, plundering and meddling of the central bank, the Federal Reserve. Read more about my thoughts on bailouts and corporatism here. If for some reason HR 3996 does not pass, it is my humble opinion that Congressman Paul should move for a discharge petition for HR 1207. Any co-sponsor that chooses to not sign the petition is, in my mind, a traitor to transparent government and the Republic.
For anyone in the area of Philadelphia, I invite you to join myself and many others in a rally this Sunday, November 22, at the Federal Reserve Bank of Philadelphia or at your closest FED. Following a march and speech in front of the FED, I will be giving a talk "END THE FED... Then What? - The Transition to Sound Money" in the Independence Hall Visitors Center.
"A small body of determined spirits fired by an unquenchable faith in their mission can alter the course of history."
We the Peopleof the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings of this article to your blog or anywhere else in order to promote the Restoration of our Republic.
Veritas numquam perit. Veritas odit moras.Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.
Tu ne cede malis sed contra audentior ito.Do not give in to evil but proceed ever more boldly against it.
The views expressed in this
article are those of Jake Towne, the Champion of the Constitution only and do not represent
the views of Nolan Chart, LLC or its affiliates. Jake Towne, the Champion of the Constitution is
solely responsible for the contents of this article and is not an
employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
I would like to see a discharge petition so it gets a stand alone vote but wonder if it can be spun off once it hits the floor. Otherwise Pelosi can just refuse to bring it to the floor as Frank wasn't bringing it to committee. Also, another way to see this is that the Fed hates 1207 and those who want govt intervention do too, and if HR 1207 doesn't pass but keeps the overall bill from moving forward at least we got that much good out of it for now. I want it to pass. I think those not voting for it are deluding themselves with it being 'spinnable' to the American people. However, what I understand is C4L is pushing it to be made a standalone bill. I honestly think RP probably knows best how he can get the most out of this -- but MAY not realize how much support he has.
Posted By: Jake Towne, the Champion of the Constitution
Date: 2009-11-21 09:38:38
Paul is correct in that a discharge petition is very difficult to obtain - 218 of the 313 co-sponsors need to sign it. Therefore he patiently waited until it hit committee, and now its obvious what will happen - my bet is that the amendment gets wiped out before it passes in HR 3996, but even if it passes the FED has 12 months before needing to comply - and likely will avoid the audit somehow anyways.
While the discharge may fail, similar to the motion Paul made to declare war on Iraq, at least someone tried to do SOMETHING.
Including the audit text in HR 3996 is just the usual "lesser of two evils" nonsense. It should not compel any member of Congress to vote for it (in my opinion).
Posted By: John E. Leimone
Date: 2009-11-21 11:40:55
Besides being misleading, this article reflects an appalling ignorance about the financial economic and financial history of the US and other countries around the world, as well as how financial markets function.
1. Misleading. Although the quote from the proposed legislation refers to "large financial corporations" which probably includes no more than 30 or so, the criticism subtly and misleadingly is directed at oversight of "large corporations", implying nonfinancial corporations are included, when they clearly are not.
2. Ignorance of financial history. The Federal Reserve was created precisely to mitigate the inceasingly frequent and disruptive economic and financial crises that characterized the 19th and early 20th centuries, and the empirical evidence clearly indicates that the amplitude of business cycle has declined since the Fed was created. Other countries throughout the world also created central banks for similar reasons, and the evidence shows that central banks are more effective at monetary policy and controlling inflation when they are independent of interference by self interested politicians, while still being subject to broad accountabiliy. Moreover, with the exception of Hong Kong, circumscribing central banks power to control money and interest rates through the creation of monetary boards has tended eventually to break down, with Argentina (at the turn of this century) providing the most spectacular failure in recent times.
3. Bankruptcy. Bankruptcy proceedures for nonfinancial corporations do not work for financial corporations for several reasons. First, in contrast to nonfinancial corporations, the assets of financial corporations are primarily financial in nature and their market value tends to decline extremely rapidly during periods of financial crisis as has we saw so dramatically in September and October 2008. Second, while the failure of a large nonfinancial can affect the viability of other firms, the failure of one or more large or sometimes even medium sized financial institution can create a much more severe chain reaction that can bring down the whole financial system and obstruct credit flows and payments activity, both of which form the lifeblood of a functioning economy, on a massive scale. The intererruption of credit flows would have been much more massive and would have been global in scope in 2008 had both the US and other governments not intervened as they did. Otherwise, we would undoubtedly have faced an economic situation not with 10 percent unemployment as we now have in the US, but probably higher than the 25 percent during the Great Depression together with a huge and long lasting decline in global economic activity.
This is not to say that the process might not have been conducted better, but when faced with a global firestorm, action has to be taken quickly. One of the lessons from the Great Depression are that the Hoover Administration sat on its duff when the crisis began, and it spiraled completely and of control and effectively lasted 10 years. Accordingly, improvements in the regulatory structure are needed to incorporate the lessons that have arisen in this current crisis and should be debated in an intelligent, informed, pragmatic and nonideological manner. The tone of this article casts considerable doubt about those who hold such views as expressed can meet such criteria.
Posted By: John E. Leimone
Date: 2009-11-21 12:45:29
Besides being misleading, this article reflects an appalling ignorance about the financial economic and financial history of the US and other countries around the world, as well as how financial markets function.
1. Misleading. Although the quote from the proposed legislation refers to "large financial corporations" which probably includes no more than 30 or so, the criticism subtly and misleadingly is directed at oversight of "large corporations", implying nonfinancial corporations are included, when they clearly are not.
2. Ignorance of financial history. The Federal Reserve was created precisely to mitigate the inceasingly frequent and disruptive economic and financial crises that characterized the 19th and early 20th centuries, and the empirical evidence clearly indicates that the amplitude of business cycle has declined since the Fed was created. Other countries throughout the world also created central banks for similar reasons, and the evidence shows that central banks are more effective at monetary policy and controlling inflation when they are independent of interference by self interested politicians, while still being subject to broad accountabiliy. Moreover, with the exception of Hong Kong, circumscribing central banks power to control money and interest rates through the creation of monetary boards has tended eventually to break down, with Argentina (at the turn of this century) providing the most spectacular failure in recent times.
3. Bankruptcy. Bankruptcy proceedures for nonfinancial corporations do not work for financial corporations for several reasons. First, in contrast to nonfinancial corporations, the assets of financial corporations are primarily financial in nature and their market value tends to decline extremely rapidly during periods of financial crisis as has we saw so dramatically in September and October 2008. Second, while the failure of a large nonfinancial can affect the viability of other firms, the failure of one or more large or sometimes even medium sized financial institution can create a much more severe chain reaction that can bring down the whole financial system and obstruct credit flows and payments activity, both of which form the lifeblood of a functioning economy, on a massive scale. The intererruption of credit flows would have been much more massive and would have been global in scope in 2008 had both the US and other governments not intervened as they did. Otherwise, we would undoubtedly have faced an economic situation not with 10 percent unemployment as we now have in the US, but probably higher than the 25 percent during the Great Depression together with a huge and long lasting decline in global economic activity.
This is not to say that the process might not have been conducted better, but when faced with a global firestorm, action has to be taken quickly. One of the lessons from the Great Depression are that the Hoover Administration sat on its duff when the crisis began, and it spiraled completely and of control and effectively lasted 10 years. Accordingly, improvements in the regulatory structure are needed to incorporate the lessons that have arisen in this current crisis and should be debated in an intelligent, informed, pragmatic and nonideological manner. The tone of this article casts considerable doubt about those who hold such views as expressed can meet such criteria.
Posted By: Jake Towne, the Champion of the Constitution
Date: 2009-11-21 13:31:07
Dear John -
Thanks for your comment. You are correct in your comment that most of the above applies to "financial" corporations, it should be clear from the portions of the draft bill I quoted.
However Section 1701 DOES apply to any entity - I don't believe this post is misleading. If you would like to quote the section you believe is misleading, please do so - it's certainly not my intention.
On #3, you wrote "their market value tends to decline extremely rapidly during periods of financial crisis." Sure, they can, but what's most likely is these (in some cases, "toxic") assets are overvalued through dubious accounting methods on their balance sheets. Any improvement to FASB standards has been beaten back.... some would even say it is fraudulent. Markets, eventually, clear.
Unemployment is not 10%, it is between 17 and 22% per shadowstats.com. BLS's U-6 is at the lower bound of the range I quoted.
On #2, studying monetary and economic history, from your comment I can only guess you've read just Keynesian or Monetarist accounts. While Friedman+Schwartz did have some worthwhile things to say, I highly suggest reading the below.
"Hoover Administration sat on its duff" -- Ever hear of the Hoover Dam???? FDR simply continued the disaster that Hoover began, see: http://towneforcongress.com/economy/bernankes-great-lie-the-gold-standard-and-the-great-depression
Dr. Thomas Woods is one of the most well-spoken economist-historian on the subject of the Great Depression seen from the Austrian free market perspective.
Thank you for the article. I'm a University of Oregon student. I'm working on a paper about how most of our current economic woes can be traced back to the Federal Reserve. Do you recommend I look anywhere else?
Posted By: Jake Towne, the Champion of the Constitution
Date: 2009-11-23 07:36:03
Dear Benny -
Depends how far back in time you want to go and how deep your research will go. I would suggest reading up on Tom Woods (his book Meltdown) on the current crisis at mises.org. Some of his articles are here [link edited for length]
This article I wrote has a lot of great Rothbard sources at the end http://towneforcongress.com/economy/bernankes-great-lie-the-gold-standard-and-the-great-depression
Posted By: Sonic Ninja Kitty
Date: 2009-11-23 20:05:56
Hi Jake, Great article, as usual. I hope the end the fed rallies went well. There's no MSM coverage of them (what a surprise, eh?). Keep on keeping on!
Want to comment on this
article? Leave your comment here. Your email address is
required to track your comment. However, we will neither
publish your email address nor distribute it to other
organizations or persons. The only reason we might use
it would be if we needed to contact you regarding your
comment. All comments are subject to our
terms of use policy.
Instead Paul and Congressman Alan Grayson successfully added in the FED audit as 
We must realize that much of the government-sponsored regulations merely serve to increase the size of government bureaucracy, which increases the end cost to the consumer, prevents competition from smaller firms, and creates a higher barrier of entry for new businesses. By their very nature, bureaucratic regulatory agencies are doomed to inefficiency and failures, and can do nothing than a series of private, competing accreditation firms cannot do both profitably and far better.