Thursday, May 6, 2010

Krugman - How Far Down Will They Go? & Bernanke's Biggest Bailout (Courtesy of the NeoNazi Right?)

(EXTRA: If anyone could make a contribution to my PayPal account (or otherwise - contact me for further info), it would be sincerely appreciated as I've just gone off the cliff financially. I really appreciate everything that my kind readers have done for me in the past financially and otherwise. Now . . . back to your regular viewing.) I'd say a miracle was needed right about now, and how about that 60% of the people in the US (but I'm not sure they are real people) who still favor "Drill, Baby Drill?"

Paul Krugman, whose blog linked Welcome to Pottersville2 on its front page last week (sorry there's no permanent link to post), has some wisdom to impart about what the outcome of the latest deal on Greece (and many, many other countries probably) might end up being.

Honestly, it's worth a few screams (before they get back to the business of screwing us over next time). (Emphasis marks added - Ed.)

Greek End Game

Many commentators now believe that Greece will end up restructuring its debt — a euphemism for partial repudiation. I agree. But the reasoning seems to stop there, which is wrong. In effect, the consensus that Greece will end up defaulting is probably too optimistic. I’m growing increasingly convinced that Greece will end up leaving the euro, too.

I’ve basically laid out the logic already: even with a debt restructuring, Greece will be in deep trouble, forced to engage in severe austerity — and provoke a deep slump — just to close the primary, non-interest deficit.

The only thing that could reduce that need for austerity would be something that helped the economy expand, or at least not contract as much. This would reduce the economic pain; it would also increase revenues, reducing the needed amount of fiscal austerity.

But the only route to economic expansion is higher exports — which can only be achieved if Greek costs and prices fall sharply relative to the rest of Europe.

If Greece were a highly cohesive society with collective wage-setting, a sort of Aegean Austria, it might be possible to do this via a collectively agreed reduction in wages across the board –an “internal devaluation.” But as today’s grim events show, it isn’t.

The alternative is a devaluationwhich means leaving the euro. Any announcement of plans to leave the euro would, as Eichengreen points out, trigger disastrous bank runs. By the same token, any suggestion by outside players, like the ECB, that the option exists would amount to invoking a speculative attack on Greek banks, and therefore can’t be made. The whole thing is effectively undiscussable.

But that doesn’t mean it can’t happen. Greece is already starting to look like Argentina 2001.

Again, this isn’t an alternative to debt restructuring; it’s what might be needed in addition to debt restructuring to make the fiscal adjustment possible.

I hope that somewhere, deep in the bowels of the ECB and the Greek Ministry of Finance, people are thinking about the unthinkable. Because this awful outcome is starting to look better than the alternatives.

And, of course, there's the coming "good news" that I've been fearing since they have refused to make public what they're going to do about all those toxic loans still weighing down the bankster's non-decisions about resuming lending to the little guys. Not really a surprise that it's being readied by our "friends" over on the far right is it?

Get ready (you better sit down). You are not gonna like this. It's almost as if we now believe that the very successful (currently) banksters (Goldman Sachs, Morgan Stanley included here) didn't make any mistakes before - and are allowing us to get back on their good side. (Emphasis marks added - Ed.)

Bernanke's Biggest Bailout

By Mike Whitney The right-wing think-tank, the American Enterprise Institute, is helping the Federal Reserve to develop a strategy to transfer $1.25 trillion in toxic mortgage-backed securities (MBS) and non performing loans onto the public's balance sheet. Although it's unknown whether Fed chair Ben Bernanke will act on the AEI's recommendations, it does show that the Fed's Quantitative Easing program (QE) - which moved the bulk of garbage assets from the banks to the Fed's balance sheet - poses long-term problems that will need to be addressed. Bernanke never intended to keep these assets any longer than necessary. Now he is actively exploring options for getting rid of them.

Ostensibly, the QE program was designed as the first leg in a two-step process to remove the bad paper from the banks balance sheets and then dump it on Fannie Mae and Freddie Mac as discreetly as possible.

So far, Bernanke has been relatively successful in convincing people that he was buying the assets to increase lending, which was clearly never the objective.

Quantitative Easing was a fraud from the get-go.

Here's an excerpt from the AEI's web page by the eerily-named "Shadow Financial Regulatory Committee" which explains what's going on:

"Freddie and Fannie have been placed in conservatorship and the Treasury has confirmed that their debt is now guaranteed by the U.S. Government. This means that their debt is essentially identical to Treasury debt. The Treasury could simply issue Treasury debt to Freddie and Fannie with the offsetting accounting transaction being an IOU to the U.S. Treasury. Freddie and Fannie could then swap the acquired Treasury debt for MBS held by the Federal Reserve. This transaction would have several desirable features. It would place housing debt on the books of Freddie and Fannie where it belongs and remove the Fed from financing U.S. housing policy, which is appropriately a fiscal policy and not a monetary policy function. This would also help to re-establish Federal Reserve independence from the Treasury and fiscal policy. Finally, it would free the Fed to devi(s)e strategies to reduce its balance sheet by engaging in more traditional asset sales in the much deeper Treasury market where the pricing impacts would be smaller and would accommodate a more rapid reduction in excess reserves." ("Mortgage Backed Securities in the Federal Reserve’s Portfolio" Shadow Statement No. 294, American Enterprise Institute.)

So, there it is in black and white: the committee believes that the "transaction would have several desirable features. It would place housing debt on the books of Freddie and Fannie where it belongs and remove the Fed" from any further obligation. Naturally, the Fed will need an excuse to justify what-amounts-to another gigantic bailout. The AEI thinks that the fear of inflation will do the trick, and they are probably right.

Expect the Fed to mobilize its allies in the media to launch a public relations campaign that focuses on the imminent threat of hyperinflation. That way - when Bernanke dumps more than a trillion dollars of toxic sludge into Uncle Sam's mortgage-recycling center - he'll only be performing his statutory duties to maintain price stability.There's nothing fancy about the AEI's strategy; it's a pretty straightforward "no frills" ripoff.

Bernanke buys the garbage from the banks and then transfers it to the GSE's. No muss, no fuss.It's a shame that Congress can't figure this stuff out. Bernanke is merely acting as one would expect. He's bent-over-backwards to save the banks from nationalization and to keep their political and financial power intact. He's also usurped Congress's power over the purse-strings by initiating fiscal policy (in the purchasing of the toxic assets) which is well beyond the Fed's mandate. Now he's putting the finishing touches on another giant bailout so he can clear the Fed's books and resume the arduous task of bubblemaking. Is it really that hard for Congress to figure out what's going on?

Sounds like a huge money-laundering scheme to me.

We could really use a miracle right now. Suzan _____________

5 comments:

Beekeepers Apprentice said...

They probably should have let the big banks fold. Oh, that would have been a shock to the system, definitely, but maybe that's the course that should have been taken.

Jazzbumpa said...

Hyperinflation?!?

What idiocy.

http://www.nakedcapitalism.com/2010/05/mmt-fear-of-hyperinflation.html

There are no Right Wing think tanks. Only propaganda machines. It's a goddamned tragedy when these bastards get to influence policy.

WASF,
JzB

Suzan said...

Thanks, Jazz!

I read Yves and link to her often.

She is always on the money (boys)!

S
_________

TomCat said...

Great Piece, Suzan.

First, Happy Mothers Day!

Second, thanks for making sense of the Greek crisis. You really improved my understanding of it.

Third, you said Ostensibly, the QE program was designed as the first leg in a two-step process to remove the bad paper from the banks balance sheets and then dump it on Fannie Mae and Freddie Mac as discreetly as possible.

In addition to being the biggest taxpayer ripoff in history, is not this also an open invitation for the GOP to blame Fannie and Freddie, neglecting to mention the real source of the problem?

Corporations are NOT people! Money is NOT speech!

Suzan said...

Uh, yeah, TC.

AS USUAL.

Gotta give it to thugs. Their thuggish behavior never changes.

Dependability!

And look at the Tea Partyers it's attracted. Good times.

For idiots.

Love ya, buddy!

S

is not this also an open invitation for the GOP to blame Fannie and Freddie, neglecting to mention the real source of the problem?
______________