Ron Paul Has A Plan!

Ron Paul has a plan! And - it's so "wacky" that it might actually work! It's also very easy, and simple: The Fed simply takes a match to the $1.6 trillion in Treasury obligations it currently holds on its balance sheet as a result of its various QE programs!

Ta-da! The government suddenly has $1.6 trillion in room under the debt cap, enough to last us maybe a couple of years. And the Tea Party will be placated since they hate the Fed, and love Ron Paul! Yea!

Surprisingly, Dean Baker, of the left-leaning Center for Economic Policy Research, thinks this idea is so crazy it just might work:

Unlike the debt held by Social Security, the debt held by the Fed is not tied to any specific obligations. The bonds held by the Fed are assets of the Fed. It has no obligations that it must use these assets to meet. There is no one who loses their retirement income if the Fed doesn’t have its bonds. In fact, there is no direct loss of income to anyone associated with the Fed’s destruction of its bonds.

This means that if Congress told the Fed to burn the bonds, it would in effect just be destroying a liability that the government had to itself, but it would still reduce the debt subject to the debt ceiling by $1.6 trillion.

This would buy the country considerable breathing room before the debt ceiling had to be raised again. President Obama and the Republican congressional leadership could have close to two years to talk about potential spending cuts or tax increases. Maybe they could even talk a little about jobs.

In addition, there’s a second reason why Representative Paul’s plan is such a good idea. As it stands now, the Fed plans to sell off its bond holdings over the next few years. This means that the interest paid on these bonds would go to banks, corporations, pension funds, and individual investors who purchase them from the Fed. In this case, the interest payments would be a burden to the Treasury since the Fed would no longer be collecting (and refunding) the interest.

There are a lot of potential problems with this idea. Maybe most importantly, the Fed would lose a huge tool for eventually tightening monetary policy in the future — namely, the ability to swap its Treasury debt for some of the cash sloshing around the banking system. Eh, but they don't even know where the gold is, or that gold is even money.

Mr. Baker thinks there are ways around this problem and that Mr. Paul’s idea at least deserves a fair hearing:

In short, Representative Paul has produced a very creative plan that has two enormously helpful outcomes. The first one is that the destruction of the Fed’s $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling. The second benefit is that it will substantially reduce the government’s interest burden over the coming decades. This is a proposal that deserves serious consideration, even from people who may not like its source.

RON PAUL RON PAUL RON PAUL

Supreme Court Rules Fed Must Release All Bailout Data

The Fed has 5 days to release all data.

March 21 (Bloomberg) -- The Federal Reserve must disclose details of emergency loans it made to banks in 2008, after the U.S. Supreme Court rejected an industry appeal that aimed to shield the records from public view. The justices today left intact a court order that gives the Fed five days to release the records, sought by Bloomberg.

A huge win for transparency.

Statement from Matthew Winkler, editor in chief of Bloomberg News:

As a financial crisis developed in 2007, "The Federal Reserve forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny. The Fed must be accountable to Congress, especially in disclosing what it does with the people’s money."

“The board will fully comply with the court’s decision and is preparing to make the information available,” said David Skidmore, a spokesman for the Fed.

The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed’s unprecedented $3.5 trillion effort to stem the 2008 financial panic.

“I can’t recall that the Fed was ever sued and forced to release information” in its 98-year history, said Allan H. Meltzer, the author of three books on the U.S central bank and a professor at Carnegie Mellon University in Pittsburgh.

Continue reading

QE2 Explained

"The Ben Bernank" is my new favorite phrase.

The Week In Review - Sunday Comics

Finish line. We made it through another week. I got my computer back from the shop, and I was still able to maintain Blasphemes somehow. Mr. Obama was accused of not communicating with his base...
Mr. Goodwrench got his walking papers this week.
Nancy really does have a screw loose... and the Democrats who are agreeing to keep her as their leader must be insane. Even Representative Heath Shuler said that his fellow Democrats should learn from his failed N.F.L. career and replace their quarterback, Nancy Pelosi. Question there is, is Nancy the Offensive Coordinator, or the QB? Either way, it would have been a better move to marginalize her.
But look on the bright side of QE2... everything is half off! I'm sure that's why the Chinese are getting more than a bit pissed off for extending the credit of their best customer. Unfortunately, that customer is Norm Peterson.
TSA is getting out of hand... no, they're getting a little too handy - in the grab hands... er - okay, I'll admit I'm missing the funny headline here, but there's really nothing funny about what's been going on at the airports lately. There's a story of a TSA agent practically molesting a child at the airport the other day.
And if you thought that the only winners last Tuesday were the Republicans, you may want to check on what Hillary's up to. There's now open talk of a primary battle.
Oh, and Mr. Bush came back in the news for a week. His feud with Kanye is finally over... And he wrote a book. I think it really should be placed in the fiction category.
Well, that's this week, let's see if we can make it to the next? See you there.

Fear The Boom and Bust

Filed under Saturday morning cartoons: bonus time... here's the EconStories guys are back with three video lectures about "Fear The Boom And Bust"

Part III: The Cluster of Errors

The Great Ressession Is Not Over

Bernanke Signals Stepped-Up Efforts to Spur Economy

The Federal Reserve chairman, Ben S. Bernanke, gave his strongest indication yet that the central bank was ready to resume huge purchases of longer-term debt, and was
determined to prevent the economy from slipping into a cycle of falling prices.

While Mr. Bernanke emphasized that deflation was "not a significant risk for the United States at this time," he said the Fed "will strongly resist deviations from price stability in the downward direction." It was his most robust statement to date that the Fed would do its part to avoid a Japanese-style deflation from taking hold.

Read More:

Too late, Ben. Deflation and a decade of Japan's stagnant styled economy are here, and they're going to stay. Can't say the same for you, your boss or the morons in Congress who said they were going to come in and fix it. They wanted it, they got it. They threw a bunch of slush funds at it, took over a bunch of companies, continued to escalate foreign wars - and then decided to take over another 19% of the GDP with Obamacare. And they still haven't rolled up their sleeves to get the bad mortgages out of circulation - or dealt with Fredie or Fannie. Yeah, it's ALL Bush's fault. I didn't say Bush and his policies didn't build the kindling, but the Democrats are running around yelling fire - when they asked for, and are currently holding the garden hose. Don't kid yourself, they're just as much to blame for all this as everyone else, too. No one's getting out of here without some soot on their faces.

Start investing in ammo, gang. That is, while you can still get it.

S.E.C. Sat On Its Hands

Lehman Examiner to Testify That S.E.C. Sat on Its Hands

The court-appointed examiner who dissected the Lehman Brothers bankruptcy is expected to criticize the Securities and Exchange Commission on Tuesday for its decision to “stand by idly” as the investment bank veered toward collapse.

The S.E.C. knew that Lehman did not have adequate liquidity but in essence did nothing, the examiner, Anton R. Valukas, says in prepared testimony released in advance by the House Financial Services Committee.

One of the most damning findings in Mr. Valukas’s 2,209-page report last month — that Lehman used accounting gimmicks to hide the extent of its indebtedness — was not known to the S.E.C. But Mr. Valukas wrote: “I saw nothing in my investigation to suggest that the S.E.C. asked even the most fundamental questions that might have uncovered this practice early on, before Lehman escalated it to a $50 billion issue.”

So, The Bush S.E.C. allowed a failed business to fail? or... he sat by munching pretzels so that Goldman could take out some competition? I guess your perception of conspiracy theories and hatred of Bush will matter on how you see this development. Perhaps the S.E.C. is just completely incompetent or to blame? Hard to tell the distinction between gross negligence and willful participation in failure.

There's plenty of blame to spread around. Both parties are culpable, and they all know it. Hell, half the Fed either has best friends in Wall Street, or they just left to run the Fed. Just ask Timmy Geithner and Hank Paulson.

They've made their grab at as much loot as they can get away with, and the second the game collapsed, there were dire warnings of Martial Law and tanks in the streets.

Here's an idea (One of my famous 'stop bitching, give us a solution' moments!)... We need to demand a forensic audit of the Federal Reserve and all large banks and investment houses; any evidence of wrongdoing found as a result of such audit to be immediately turned over to a grand jury for indictment and prosecution.

Firms which broke the law to have their banking and securities licenses revoked. People who broke the law to do some hard prison time with real criminals such as pederasts and hard core gangstas. Bank executives and government officials. And do some television specials to pop in and see how they're doing. Put it on HBO. That's reality TV worth watching. Might actually be a deterrent for those other folks who think that they'll get away with their schemes.

Let's Reinstate Glass-Steagall; firms speculating on the markets may be allowed to do so but not with the safety net of the taxpayer, and no firm propped up by the tax payer will be allowed to speculate. Any companies which do both to be broken up... and at their own expense.

Disallow all off-balance-sheet games. Require fancy derivatives to be traded on open markets.

Return to sane mortgage lending standards: 20% cash down, 24% front-end debt load, 36% back-end debt load. If house prices don't support sane mortgage underwriting, they'll just need to float down until they do.

Require unsecured lending to be backed by one dollar of excess capital for each dollar of unsecured lending. Karl Denninger is a good source to read more.

TARP CRAP

Today you're bound to hear about the 100 million dollar bonus given to Goldman Sachs's CEO. (More)

While the White House will predict a record budget deficit in the current fiscal year and more big shortfalls for the next decade in its upcoming budget proposal (More)

But what you probably won't hear much about today, I mean other than what Lady GaGa wore to the Grammy Awards last night - is the whopping 77 fraud, money laundering, insider trading and tax evasion investigations related to TARP - the government bailout.

Inquiring minds are reading the SIGTARP Quarterly Report To Congress. The report is a massive 224 pages long. Here's Mike "Mish" Shedlock's Notes.

Let's start with the SIGTARP mission, then the findings.

Mission

SIGTARP’s mission is to advance economic stability by promoting the efficiency and effectiveness of TARP management, through transparency, through coordinated oversight, and through robust enforcement against those, whether inside or outside of Government, who waste, steal or abuse TARP funds.

Let's dive into the 224 page report and see how well TARP, and the alphabet soup of lending facilities met their stated goals.

On the positive side, there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008. Many large banks have once again been able to raise funds in the capital markets, and some institutions — including some that appeared to be on the verge of collapse — have recovered sufficiently to repay their TARP investments years earlier than most would have predicted. These repayments and the sales of the warrants associated with them have meant that Treasury (and thus the taxpayer) has turned a profit on some of the individual TARP investments; as a result of these repayments, among other positive developments, it now appears that the ultimate cost of TARP to the American taxpayer, while still substantial, might be significantly less than initially estimated.

Mish: The idea that there are "profits" is fictitious. It's effectively praising making 10 cents on a dollar while not counting hundreds of $billions lost on AIG and Fannie Mae, and ignoring $300 billion worth of loan guarantees at Citigroup still in effect.

Moreover, the only reason banks were able to show a profit and pay back TARP loans is mark-to-market rules were delayed further and banks did not have to bring hundreds of billions of dollars in off balance sheet SIVs back on to bank balance sheets.

Many of TARP’s stated goals, however, have simply not been met. Despite the fact that the explicit goal of the Capital Purchase Program (“CPP”) was to increase financing to U.S. businesses and consumers, lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury. Notwithstanding the fact that preserving homeownership and promoting jobs were explicit purposes of the Emergency Economic Stabilization Act of 2008 (“EESA”), the statute that created TARP, nearly 16 months later, home foreclosures remain at record levels, the TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation. Whether these goals can effectively be met through existing TARP programs is very much an open question at this time.

Mish: Question? There is no question. TARP will do nothing for foreclosures or bank lending, not now, not ever.

The substantial costs of TARP — in money, moral hazard effects on the market, and government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time.

It is hard to see how any of the fundamental problems in the system have been addressed to date.

• To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.

• To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.

• To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.

• To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

Mish: The Report Blasts Geithner and the NY Fed. I seriously doubt Geithner survives this but the sad thing is Geithner will not end up in prison where he belongs.

SIGTARP’s audit, which was issued on November 17, 2009, found, among other things, that the terms of the original FRBNY financing did not result from independent analysis, but were simply an adoption of the term sheet from an aborted private financing discussion, and those terms, which included an onerous effective interest rate of 11%, made modification of the terms and further Government action inevitable.

The audit also found that, in structuring Maiden Lane III, FRBNY attempted to obtain concessions, or “haircuts” from the CDS counterparties — and one counterparty was prepared to take a modest haircut — but the FRBNY’s negotiating strategy was hampered by a series of policy decisions that severely limited its ability to obtain concessions, including its decision not to accept concessions unless concessions could be obtained from all of the counterparties, its refusal to use its leverage as regulator to some of the institutions involved, and its basic discomfort with interfering with the sanctity of the counterparties’ contractual rights. These policy choices led directly to a negotiating strategy with the counterparties that even then-FRBNY President Geithner acknowledged had little likelihood of success. The audit further noted that although Mr. Geithner has denied that his intent was to benefit the counterparties,the overall structure of the AIG bailout resulted in AIG’s counterparties receiving tens of billions of dollars they likely would not have otherwise received had AIG gone into bankruptcy.

Mish: The report also highlights numerous cases of fraud, money laundering, insider trading, and tax evasion . There are 77 active cases are under investigation. Ongoing investigations involve: Omni National Bank, Bank of America, Colonial Bancgroup/Taylor, Bean & Whitaker, AIG, others.

SIGTARP’s Investigations Division has continued to develop into a sophisticated white-collar investigative agency.

Through December 31, 2009, SIGTARP has opened 86 and has 77 ongoing criminal and civil investigations. These investigations include complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations.

While the majority of SIGTARP’s investigative activity remains confidential, developments in several of SIGTARP’s investigations have become public over the past quarter as discussed more fully in Section 1 of this report.

A substantial number of SIGTARP’s ongoing investigations were developed in whole or in part through tips or leads provided on SIGTARP’s Hotline (877-SIG-2009 or accessible at www.SIGTARP.gov). From its inception through December 31, 2009, the SIGTARP Hotline received and analyzed nearly 9,900 contacts, running the gamut from expressions of concern over the economy to serious allegations of fraud.

Mish: Please consider a prime conflict of interest example in regards to PPIP, the Public-Private-Investment-Plan, specifically designed to allow banks to dump their worst assets onto the public (taxpayers) shielding banks from the risk.

Section 5 also provides an update on the issue of imposing conflict-of-interest walls in PPIP, including a discussion of a series of suspect trades that has already occurred within one of the Public-Private Investment Funds (“PPIFs”) in which a portfolio manager directed the sale of a security from a non-PPIF fund under his management to a dealer after the security had been downgraded and then, minutes later, purchased from that dealer the same security at a slightly higher price for the PPIF. SIGTARP is reviewing these trades. The fact that these kinds of issues could arise in the first instance is the direct result of Treasury’s refusal to require information barriers or walls in PPIP, and in an environment in which large portions of the public already view the fairness of Government programs with skepticism, whether fairly or unfairly, the reputational risk associated with this review is a wholly unnecessary cost.

Mish: Note the refutation of the preposterous claims that taxpayers will be made whole.

Contrary to the January 7, 2010, assertion by Treasury that the taxpayer “will be made whole” because the FRBNY loan to Maiden Lane III is on track to being repaid in full, it is clear that any assessment of the costs to the Government and the taxpayer necessarily must look beyond FRBNY’s loan to Maiden Lane III to also take into account both the funds that FRBNY previously loaned to AIG and the subsequent TARP investments. All of these infusions to AIG are linked inextricably: more than half the total amounts paid to counterparties in connection with the CDS portfolio retired through Maiden Lane III did not come about through the Maiden Lane III CDO purchases, but rather from AIG’s earlier collateral postings that were made possible in part by the original FRBNY loan, which was, in turn, paid down with TARP funds. Because of this linkage, the ultimate costs to the Government and the taxpayer cannot be measured in isolation. Stated another way, regardless of whether FRBNY is made whole on its loan to Maiden Lane III, the ultimate value or cost to the taxpayer cannot be calculated until the likelihood of AIG repaying all of its assistance can be more readily determined. Treasury’s recent suggestion to the contrary is, at best, incomplete.

Mish: The report blasts Bernanke's wall of secrecy need. Inquiring minds may also wish to review Secret Deals Involving No One; AIG Coverup Conspiracy Unravels.

SIGTARP’s audit also noted that the now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve in connection with Maiden Lane III, once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counterparties or the details of the payments, warning that disclosure of the names would undermine AIG’s stability, the privacy and business interests of the counterparties, and the stability of the markets. After public and Congressional
pressure, AIG disclosed the identities of its counterparties, including its eight largest: Société Générale, Goldman Sachs Group Inc., Merrill Lynch, Deutsche Bank AG, UBS, Calyon Corporate and Investment Banking (a subsidiary of Crèdit Agricole S.A.), Barclays PLC, and Bank of America. Notwithstanding the Federal Reserve’s warnings, the sky did not fall; there is no indication that AIG’s disclosure undermined the stability of AIG or the market or damaged legitimate interests of the counterparties.

Mish: Inquiring minds note how insurance companies gamed the system.

The audit also noted that the CPP investments in two insurance companies highlight an incongruity in the CPP program design. Hartford and Lincoln were able to obtain CPP funds by buying small thrift savings institutions and becoming thrift/savings and loan holding companies, thereby meeting the technical criteria for receipt of CPP funds. The amount of CPP funds provided, however, was then determined by the assets of the holding company (i.e., the parent insurance company), not just the assets of the much smaller qualifying thrifts. In the case of Lincoln, for example, the company was able to obtain $950 million in TARP funds after it acquired a thrift that, on its own, would have been able to obtain at most $350,000 (if it would have qualified for CPP funding at all). Moreover, in using TARP funds, there was no requirement that TARP funding be used in connection with the subsidiary thrifts’ activities. As it happened, the insurance companies reported that they used little (in the case of Hartford) or no (in the case of Lincoln) TARP funds in connection with the subsidiary thrifts’ activities but rather used the vast bulk of the funds to support their insurance businesses. Stated another way, simply by purchasing comparatively tiny thrifts, Hartford and Lincoln — companies whose primary businesses (unlike other CPP participants) have little to do with lending to consumers and businesses — gained access to more than $4.3 billion in taxpayer funds, an amount that is many multiples of the thrifts’ total assets.

Mish: Please note the following constitutional questions around the Legality of Executive Branch ‘Czars.’

On October 22, 2009, the Special Master, who was appointed without the advice and consent of the Senate, made determinations concerning executive compensation within AIG, Bank of America, Chrysler Financial, Chrysler, Citigroup, GM, and GMAC.

Following the issuance of the Special Master’s determination, Michael W. McConnell, formerly a judge on the Circuit Court of Appeals for the Tenth Circuit, authored an essay entitled “The Pay Czar Is Unconstitutional” that was published in the Wall Street Journal on October 29, 2009. In his essay, Judge McConnell concluded that “[b]ecause he is not a properly appointed officer of the United States, Mr. Feinberg’s executive compensation decisions were unconstitutional.”

Mish: Here is a table of funds subject to oversight.

click on chart for sharper image

Planned Expenditures Outstanding

click on chart for sharper image

Mish: Looking for institutions in deep financial trouble? You can find them in table 2.10, CCP program missed dividend payments. There are 74 such troubled institutions. Here is a short clip.

click on chart for sharper image

TARP Tutorial: How Taxpayers Lose TARP Money When Banks Fail

The creation of TARP elevated the taxpayers’ exposure to bank failures by making them direct investors in more than 700 institutions — generally as preferred shareholders. The recent bankruptcies of CIT , UCBH, and Pacific Coast National Bancorp, all TARP recipients through CPP , are tangible examples of the risk that failing CPP banks pose to the U.S. taxpayer.

It is impossible to predict how many additional banks will succumb over the next
several years. According to the FDI C website, however, the number of institutions on its “Problem List” is at a 16-year high. As of September 30, 2009, there were 552 insured institutions on the list, the largest number of problem institutions since the fallout from the savings and loan (“S&L”) crisis resulted in 575 institutions being placed on the list by December 31, 1993.91 The FDI C does not publish the names of problem banks on its website for fear that disclosing such information would cause a “run” on the bank’s deposits.

As preferred shareholders, U.S. taxpayers fall in the category of shareholder in many of the Government’s TARP investments. If the institutions fail, the taxpayers, like the other shareholders, will typically lose their investment if there are no remaining funds after creditors have been paid.

On December 31, 2008, Treasury invested $2 billion of CPP funds in CIT , a bank holding company with various commercial finance businesses including lending to small and midsize businesses.112 CIT , which was founded in 1908, is a major lender to small businesses, with more than $60 billion in finance and leasing assets supporting more than one million borrowers.

On November 1, 2009, CIT filed Chapter 11 Bankruptcy. Its depository institution,
CIT Bank, however, did not file bankruptcy. December 10, 2009, CIT ’s shares and
warrants were extinguished, and former holders of preferred shares received contingent value rights (“CVR s”). Theoretically, CVR s place Treasury in a position to recoup part of its investment in CIT .

If, in the future, the senior and junior debt holders are paid back 100%, then any residuals would go to the CVR holders. At this time, it is unlikely that there will be any residual to pay Treasury for its preferred stock investment; in its TARP Financial Statements, Treasury listed the value of its CIT investment as zero.

Making Home Affordable Program

The Making Home Affordable (“MHA”) program was introduced by the Administration on February 18, 2009, as a collection of three major initiatives: a loan modification program, a loan refinancing program, and additional support for reduced mortgage interest rates.

TARP funds are primarily dedicated to one initiative within MHA, the Home Affordable Modification Program (“HAMP”). According to Treasury, HAMP is a $75 billion program that will lower monthly mortgage payments for homeowners by providing loan modification incentive payments to the servicers and loan holders (lenders or investors — referred to as investors in this section) and by protecting against further loss of collateral value. In addition, the MHA program now includes foreclosure alternatives for those not able to complete a HAMP modification.

Of the $75 billion reserved for HAMP, $50 billion will be funded through TARP and will be used to modify private-label mortgages.

Beyond the TARP support, the additional $25 billion in HAMP funding is provided under the Housing and Economic Recovery Act of 2008 (“HERA”) and will be used to modify mortgages that are owned or guaranteed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), two of the Government-sponsored enterprises (“GSEs”).

Mish: By now the failures of HAMP are well documented. Modifications are failing at a massive rate and foreclosures keep making new highs. HAMP is a lost cause. More importantly, Congress allocated unlimited funds to Fannie and Freddie even though losses are soaring.

Because Congress have the Fed a blank check, the Fed is immune from losses that will pile up as a result of its bloated balance sheet as shown below.

According to Federal Reserve Vice Chairman Donald L. Kohn, the Federal Reserve’s announced purchases of GSE-guaranteed MBS, GSE debt, and Treasury securities “were successful in reducing long-term interest rates” and “increased the availability of mortgages to households.”

Mish: Kohn failed to mention the cost or what happens to interest rates as soon as the Fed stops the program. However, because Congress was stupid enough to write a blank check for Fannie and Freddie losses, the Fed can and probably will restart purchases as soon as the economy resumes its slide.

Clearly TARP was a complete failure, that is assuming the goals of TARP were as stated.

My belief is the benefits of TARP and the entire alphabet soup of lending facilities was not as stated by Bernanke and Geithner, but rather to shift as much responsibility as quickly as possible on to the backs of taxpayers while trumping up nonsensical benefits of doing so. This was done to bail out the banks at any and all cost to the taxpayers.

Was this a huge conspiracy by the Fed and Treasury to benefit the banks at taxpayer expense? Of course it was, and the conspiracy is unraveling as documented in this report and as documented in AIG Coverup Conspiracy Unravels.

In spite of massive, predicted in advance fraud, the Treasury still refuses to require information barriers or walls in PPIP.

The result was what many of us predicted all along: TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations.

No one should be surprised by these investigations. Indeed the real surprise is there are not more of them.

Almost completely cutn'pasted from Mike "Mish" Shedlock's http://globaleconomicanalysis.blogspot.com

But the best part? The BEST Part? The government's $700 billion bank bailout bill took us all a half step from the brink, but has so far failed to increase lending from the banks who received the taxpayer assistance. And we're still right on the edge of complete and total insolvency.

Now back to Lady Gaga and Elton John.

Paul vs Bernanke

Ron Paul questions Ben Bernanke on definition of inflation

Paul: You threatening me?
Bernanke: Yep.

Meanwhile, no one else in the room even understands what's going on.

Congress: Audit the Fed! Fed: Go On, We Dare You!

Federal Reserve Threatens Congress Over HR 1207

Last week, the Federal Reserve’s vice chairman, Donald Kohn, threatened to jack up interest rates if Congress continues to expose “some of the U.S. central bank’s most sensitive decisions to political scrutiny,” Reuters reported. “Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation,” Kohn told a House of Representatives Financial Services subcommittee.

Kohn’s threat came as Ron Paul’s bill to audit the Federal Reserve (HR 1207) has picked up 256 co-sponsors — more than 55% of the House of Representatives. HR 1207’s companion bill in the Senate, S 604, has already attracted 8 co-sponsors. Kohn and his boss Ben Bernanke are obviously very concerned over the prospect that the American people may soon have a look at their books. (more)

My concern, is that Congress doesn't have the balls or the leadership to follow through. There's also little to no chance this bill would survive a day in the Senate.

Fed Gets More Power

The Washington Times is reporting that the Federal Reserve, already arguably the most powerful agency in the U.S. government,

[Stop right there - It should read -- "The Federal Reserve, an international banking cartel charted by the US Federal Government through the1913 Federal Reserve Act and arguably the most powerful entity in the U.S., will get sweeping new authority to regulate any company whose failure could endanger the U.S. economy and markets under the Obama administration's regulatory overhaul plan.]

...will get sweeping new authority to regulate any company whose failure could endanger the U.S. economy and markets under the Obama administration's regulatory overhaul plan.

The FED is as much a part of the Federal Government as Fed Ex. Okay?!

But back to the plan... The final plan due to be released on Wednesday -- which originally aimed to streamline and consolidate banking and securities regulation in one or two agencies -- now is expected to sidestep most jurisdictional disputes and simply impose across the board standards to be applied by all financial regulators, according to administration and industry sources. Awesome. Soak it in.

Imagine if Halliburton had been handed THIS much power over the Defense budget under Bush? They would have impeached Bush in a heartbeat. Now, the Democrats wouldn't have been able to - but I stand by the analogy.

Audit the Fed, then END THE FED.

Audit the Fed

A proposal from U.S. Rep. Ron Paul, R-Texas, to audit the Federal Reserve was approaching majority support in the U.S. House, he is confirming the plan has reached that "crucial benchmark."

"The tremendous grass-roots and bipartisan support in Congress for H.R. 1207 is an indicator of how mainstream America is fed up with Fed secrecy," Paul said shortly after U.S. Rep Dennis Kucinich, D-Ohio, became the 218th cosponsor, giving the plan, technically, majority support in the 435-member House.

"I look forward to this issue receiving greater public exposure," Paul said.

A spokeswoman in Paul's offfice said by the end of the business day in Washington, D.C., the plan had attracted 221 cosponsors. She said hearings on the transparency of the Federal Reserve are expected over the next month as part of the Financial Services Committee's series of hearings on regulatory reform.

Well, that's unexpected, but welcome surprise.

Balls

Federal Reserve Chairman Ben Bernanke warned that federal budget deficits were growing so large that they threaten the nation's financial stability. "Cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation," Bernanke said. The warning dragged down U.S. stocks.

That's balls. Bernanke spends 2 Trillion dollars over the budget - then warns Congress that insane spending might harm the country.

Congrats Ben, you're Blasphemes Hypocrite of the Week!

What YOU Owe

Some of you are getting tired of my [almost] daily rantings on taxes. Well - here is an explanation why I'm so uptight and have my panties in a bunch. Here's WHAT WE OWE...

As our "leaders" are out telling everyone what a great job they did with the stimulus package - bringing the economy from the brink (oh yeah, prove it) You, me and all the taxpayers are on the hook for an extra $55,000 EACH to cover insane, unchecked federal commitments made to retirement benefits, the national debt and other government promises such as rainbows and unicycles for every household

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing, plus an aging population driving up the costs of Medicare and Social Security. Thanks baby boomers!

That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003. That's all George Bush trying to get Jeb's state.... and it worked by the skin of his teeth.

The latest increase raises federal obligations to a record $546,668 per household in 2008. Even USA TODAY did an analysis of it. Where do you think I snagged that graphic?

So what? Well, that's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor. In other words, you don't have anything to show for it.