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9/11-15/08 
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BANKING REFORM FACTS & LINKS
2007/08
Fed Dramatically Drop-Kicks Fed Funds Rate to 2.25%
The FOMC lowered the Fed Funds rate .75% to 2.25% in response to near-bankruptcy of Bear Stearns over the weekend. The Fed has virtually halved the interest rate in six months, dropping it from 5.25% in September in an attempt to reassure the financial markets and forestall a possible recession.The Fed's actions have put downward pressure on the dollar, thus increasing oil prices.
Fed Holds First Emergency Weekend Meeting in 30 Years
Fed $200 Billion Loan Probably Won't Help
Fed Auctions $40 Billion in Loans to Rescue Banks
Banks became even more unwilling to lend towards the end of the year, because no one wanted to have bad loans on their books at year end. Banks were unwilling to use the Fed's discount window, because they didn't want others to know they needed the credit. So, the Fed came up with anonymous auctions as a way to loan money to banks to tide them over until the end of January. The Fed has promised that these auctions will continue until the crisis subsides.
KWAME HOLMAN: Seventy years ago last month, Wall Street stocks crashed, thousands of banks failed after the 1929 collapse, and the Great Depression ensued. On Capitol Hill and elsewhere, bankers themselves got much of the blame for the meltdown. Labeled "banksters," they were scolded for engaging in risky stock bets that brought them and their depositors down. In 1933, President Franklin Roosevelt signed a law that restricted commercial banks' ability to buy and sell stocks. It was called the Glass-Steagall Act, after its chief proponents, Senator Carter Glass and Congressman Henry Steagall. In the 1950s, Congress again put limits on commercial banks, this time prohibiting them from owning insurance companies.
But in the decades since then, banking regulators and the courts have chipped away at the walls separating banking from other financial services. In the 1980s, the Federal Reserve gave the largest banks permission to trade securities on Wall Street on a limited basis. In 1997, federal regulators allowed Bankers Trust, a commercial bank, to buy investment firm Alex Brown. And last year, banking powerhouse Citicorp merged with Travelers, an insurance and investment giant. Under the existing barriers, however, the new conglomerate will have to sell off its insurance business. At the merger announcement, Travelers CEO Sanford Weill appealed to Congress to undo the Depression-era restrictions on banking in order to help American financial companies compete overseas.
SANFORD WEILL: I think that if you look to Europe or you look to Asia, organizations like ours already exist, where banks and insurance companies and investment companies are all part of what they call universal banks.
KWAME HOLMAN: Now, after two decades of legislative stalemate, Congress is poised to pass a compromise bill, which President Clinton is expected to sign it into law. Billed as financial services reform, the legislation would allow banks, stock brokerage firms and insurance companies to merge more easily, to enter into each other's businesses, and pave the way for financial service supermarkets that could sell all three kinds of services under one roof.
The bill also would allow financial companies to share consumer information, such as account details, with other businesses. Firms would have to make such disclosure policies public. A key sticking point in the bill was renewal of the Community Reinvestment Act, which requires banks to lend in underserved communities. As it stands now, the bill would allow smaller banks to be reviewed less often by regulators if they maintain a good record of lending in low-income areas.
Trust former Goldman Sachs CEO Paulson as much as you would trust a fox to watch a hen house. Expect the plans to hurt consumers, take away protections, de-regulate industries, take away the influence of congress, increase partisan influence, corporate influence and protect corporations from litigation and prosecution.
Legally, America suffers from the abusive procedure violently at odds with any rational conception of the obligation of contracts—that the government or its clients can discharge pre-existing debts merely by substituting for them new promises to pay and declaring the original promises "paid" thereby. This shell-game disguises the gradual real abrogation of all debts by calling a privileged category of bank-debts "money" and "legal tender" for all other debts.Intellectually, America suffers from the radically nominalistic conception that treats circulating "credit" as "money,” that disconnects the creation of credit from the production or even the existence of any tangible medium of exchange, and that asserts the possibility of creating "new purchasing power out of nothing.” This currently fashionable monetary wisdom forgets that nothing can be created out of nothing, least of all credit—which rests on the belief by the lender that the borrower will in fact repay what he has borrowed.
LINKS:
www.bis.org The Bank for International Settlements (BIS) provides:
- a forum to promote discussion and policy analysis among central banks and within the international financial community
- a centre for economic and monetary research
- a prime counterparty for central banks in their financial transactions
- agent or trustee in connection with international financial operations
www.fdic.gov An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.
www.useconomy.about.com How and Why the Federal Reserve Intervened in the Banking Mortgage Liquidity Crisis ...
Politically, America suffers from a thoroughgoing default of the government on its responsibility to maintain a sound and honest monetary and banking order, and its decision instead to employ the old "money-illusion" of inflation as a hidden tax and to connive with special-interest groups to subvert monetary laws for their own predatory purposes.
News Item:
The 185-nation International Monetary Fund and the World Bank readied for weekend discussions following talks among the world's seven richest industrial countries.The IMF, the lender of last resort for countries in trouble, is facing its own hard times. One proposal on the agenda would trim 15 percent of the agency's staff and sell about $11 billion in the institutions' vast gold reserves.Overshadowing the sessions was the severe credit crisis, which could result in losses approaching $1 trillion before it is over, according to an IMF estimate released this week.Treasury Secretary Henry Paulson assured the IMF's policy-setting panel on Saturday that the Bush administration was dealing aggressively with the U.S. slowdown, but that risks remain."The weak housing market, together with high energy prices and stress in financial markets, is penalizing U.S. economic growth," he said. "We must expect more bumps in the road."Paulson said that while there is no magic remedy "to prevent the excesses of the past from reoccuring, working together we can strengthen market discipline, enhance risk management and improve the efficiency and stability of our capital markets."The European Economic and Monetary Affairs commissioner, Joaquin Almunia, said economic uncertainty has increased, the financial turmoil has affected advanced countries and the risk of a U.S. recession has risen. He contended the European Union was in "a relatively favorable position to absorb the effects of the financial turmoil."The world's economic powers endorsed a plan Friday to keep closer watch over big banks, investment houses and other financial firms. These institutions have reported billions of dollars in losses from the credit crisis. The problem began with the widespread defaults on subprime mortgages in the United States, but quickly spread to other types of global investments.Announcement of the tighter oversight came in a joint statement after talks among the Group of Seven nations — the United States, Japan, Germany, Britain, France, Italy and Canada. other types of investments around the world."The turmoil in global financial markets remains challenging and more protracted than we had anticipated," G-7 officials said."The U.S. economy has to get over the economic unrest," Japanese Finance Minister Fukushiro Nukaga told reporters. What happens in the United States, he said, will affect Asia and other countries.An IMF economic outlook predicted a mild recession this year in the U.S., the world's biggest economy. That is seen as raising the risks of a global recession to 1-in-4.Paulson and Federal Reserve Chairman Ben Bernanke tried to reassure officials that U.S. policymakers are doing everything possible to loosen U.S. credit markets. That would enable businesses and consumers to get loans more easily and help the economy revive.Axel Weber, head of Germany's central bank, said the "measures that were taken in the U.S. have already had some effect" and that the Fed's interest rate cuts should help bolster growth.Democrats in Congress are pushing for a more aggressive program to help an estimated 2 million homeowners at risk of defaulting on their mortgages. But Paulson said the administration believes its plan, which relies heavily on voluntary efforts by the private sector, was the best approach.___Associated Press writers Jeannine Aversa, Harry Dunphy, Foster Klug and Desmond Butler contributed to this report.___On the Net:International Monetary Fund: http://www.imf.orgWorld Bank: http://www.worldbank.orgTreasury: http://www.ustreas.gov/Federal Reserve: http://www.federalreserve.gov/
