Sunday, March 30, 2008

Let The Banks Regulate Themselves – And Print Their Own Money

Last Friday, George Dubya Bush announced a new system to regulate the banking industry. The new system is designed to regulate more than commercial banks. It would include the regulation of Savings and Loans, Investment Banks, Mutual Funds and even Insurance Companies. The announcement was made with a twenty two page report that is a summary of a much longer, very complex document. The announcement seemed to be in response to the latest bailout by the Fed: this time of Bear Stearns.

However the document's complexity indicates that it's confection could not possibly have been prepared in a week or two.This plan has been cooked up for some time now. The Bush White House has simply been waiting for an auspicious moment to present it. In fact this all feels very similar to what happened after 911. The Project for a New American Century, staffed by Don Rumsfeld, Dick Cheney and Paul Wolfowitz had plans ready to justify and launch an attack on Saddam Hussein's Iraq as far back as 1998. They were just waiting for an auspicious moment to present those plans. Well, it looks like the Bear Stearns meltdown, as part of the larger financial crisis, is the 911 that Paulson, Bush and Bernanke have been waiting for.

So what is the plan? It is to abrogate the regulatory responsibilities over all financial activity in the United States to the Federal Reserve Bank. The Fed would control the stock markets, both investment and commercial banking, insurance companies and other financial institutions. These companies would no longer be controlled by the SEC, the Treasury Dept, etc. All their regulated activities would be overseen by the Fed.

But the Fed is not part of the government. The Federal Reserve Bank is owned by the RegionalReserve Banks which are owned by large American commercial banks. The government's only input into the management of the Fed is through the appointment of the members of the Board. But the government cannot remove members of the Board, so the influence that our elected representatives have over the Fed Board and it's Chairman is only through reasonable argument. The Fed Chairman is required to make a periodic presentation to Congress, but they cannot force him to do anything that he doesn't wish to do. Neither the President or his Secretary of the Treasury can dictate policy to the Fed Chairman. He is the completely autonomous director of a non governmental organization.

The Fed was established by bankers in 1913 as a Central Bank in order to coin money. Laws have been passed that abrogate the Constitutional responsibility to coin money from the Congress to the Fed. Those laws are of questionable Constitutional legality, but they have been accepted for 95 years and will not be challenged now. The Fed will continue to coin money and will do so to try to stabilize the economy and create conditions for the growth of capital. They are now creating money to bail out the large mortgage banks and investment banks.The Chairman of the Fed confers with the President and the Secretary of the Treasury as a matter of courtesy before doing these things, but it is only courtesy, he need not pay them any heed

The Fed Chairman is more liable to listen to the owners of the institution that he manages: the commercial bankers. So the Fed is really representing bankers. Now think for a moment: Is it a good idea to put the banks in charge of overseeing the banks at the same time that the banks have the power to print money to bail out the banks? Is that how things should by done in a representative government? If we decide that regulation of financial institutions is a good idea, and that seems to be the consensus, then in a country with a government established for the people and by the people, shouldn't the people ultimately control how that regulation is conducted?

Bush and Paulson say no, the people should have nothing to say.


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