Letters to the Editor
bostonMA
Published Letters: 36 Editor's Choice: 22
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The Root Cause
[Read the article: The Great Depression: The sequel]
[Read more letters about this article: Here]"That last point to underline is that the hands-off-Wall Street, deregulatory impulses unleashed by Ronald Reagan and expanded by all his White House successors have directly contributed to the precarious state of today's average American."
While they may have contributed, they aren't the root cause. These are predictable symptoms of a broader disease.
The root cause of these problems, far surpassing "weakened oversight" and "deregulatory impulses", is the Federal Reserve system, its monetary policies and the distortions created by our fractional reserve banking system.
If you or I were asked to lend to an individual who wished to buy a house 40 miles from Los Angles, who would not tell us his income, or disclose his history of employment, and who provided an appraisal for the property so overstated as to be absurd, what would we do? We would rather keep the money safe in our wallets than lend for a meager 5 - 8 % return on our investment, especially considering the skyrocketing costs of everything around us. The risk would not be worth it, nor would the value of any dollars returned to us net out to create an increase in our purchasing power: real returns. These rates are far too low for the risk we would take and too low to compensate us for the increase in prices we see everyday.
It wasn't the lack of regulation over greed of savers like you or I that created this problem. It was our monetary system: the Federal Reserve system created the dollars for this borrowing to happen in the first place.
They did so by setting rates so low that it drove up the demand to borrow money. It allowed the purchaser to bid ever higher for property, with price levels increasing each time the Fed lowered rates. This is the root cause of the problem, and the proper treatment for this disease is to eradicate this unconstitutional institution called the Federal Reserve. It is an unaccountable entity within government given the power to create money out of thin air.
This money is not only used for subprime lending. The Federal Reserve allows government to fund our wars without asking the taxpayers to pay the cost of war, it allows election of politicians on false entitlement promises, and it grants the government the power to borrow and spend in amounts so large as to bankrupt our children and continually devalue the purchasing power of our savings through inflation. If the government had to tax us for its expenditures each year the public would never have allowed a $1 trillion dollar war to continue. We simply can't afford it.
Until we accept the diagnosis we will always be suffering from and attempting to treat symptoms brought on by this Federal Reserve system. Responsible adults should work to eradicate this problem before it becomes a hereditary disease enslaving generation after generation of our children to both their government and to foreign lenders.
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This is just a down payment
[Read the article: Bear Stearns: "Too interlinked to fail"]
[Read more letters about this article: Here]Bear Stearns didn't get bailed out. The entire system of globally interlinked financial markets got bailed out. Capitalism got bailed out. Cheap at the price, if you ask me.
1. Why is this written in past tense? The $1 trillion+ bailout has barely begun. There was nothing on the books at Bear Stearns that's all that different than Lehman, Merrill Lynch, Morgan Stanley, and many others. Many argue that the level of leverage being used by these firms is still comparable to Bear Stearns. All of this junk will be turned over to the Fed in exchange for crisp and clean US Treasuries, and eventually the vast majority of this waste will be written off by the Fed and monetized. All of us will pay for this through inflation and the declining purchasing power of the US dollar.
2. What does this have to do with capitalism? Yes - the President loves to talk about a free market capitalist system in America, but this system system is far from it. Like other statements from this administration it would be generous to even say that has much basis in truth. The government has a monopoly over money creation, the very DNA of the economy. Legalize competing currencies, abolish interest rate control by a central bank, and then we may have a hope of seeing how capitalism operates when it's our savings and wealth on the line, and not just cash run off a printing press. This is not capitalism. It's corporatism.
... both the Clinton and Bush administrations and Congress accepted Wall Street's plea to let them proceed with a light regulatory hand, and accepted the argument that new derivative instruments, such as credit default swaps, would increase the stability of the overall financial system by spreading risk more broadly.
1. Why should we believe that this isn't "spreading the risk more broadly"? Who just wrote off tens of billions this week? Swiss and German banks. They weren't writing off bad European debt or derivatives: they have "Made in USA" written all over them.
2. Instead of focusing on innovation, how about looking at the monopoly enjoyed by the ratings agencies who enables these derivatives to be sold? They are the cheap gasoline that incentivizes Wall Street to assemble ridiculous vehicles like these in the first place. The SEC designates as Nationally Recognized Statistical Ratings Organizations only three agencies: S&P, Moody's and Fitch. All three earn their fees not from the buyer of these instruments, but the creator. I wonder how they stay in business? To make matters worse, government regulation requires that our pension funds and banks can only buy debt rated "investment grade" by these same three NRSRO's. These ratings are just a modern snake oil. And our government regulations, not the free market, both created this distorted monopoly and now mandates that it continue.