G. Edward Griffin: The Name of the Game is Bailout

This is the second installment in a series of chapter summaries from G. Edward Griffin's must-read book The Creature From Jekyll Island.  This book may be the most important "red pill" available and we highly recommend that you buy and read the full book at RealityZone.

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Chapter 2 Summary: The Name of the Game is Bailout

Although national monetary events may appear mysterious and chaotic, they are governed by well-established rules which bankers and politicians rigidly follow.  The central fact to understanding these events is that all the money in the banking system has been created out of nothing through the process of making loans.  A defaulted loan, therefore, costs the bank little of tangible value, but it shows up on the ledger as a reduction in assets without a corresponding reduction in liabilities.  If the bad loans exceed the size of the assets, the bank becomes technically insolvent and must close its doors.  The first rule of survival, therefore, is to avoid writing off large, bad loans and, if possible, to at least continue receiving interest payments on them.  To accomplish that, the endangered loans are rolled over and increased in size.  This provides the borrower with money to continue paying interest plus fresh funds for new spending.  The basic problem is not solved, but is postponed for a while and made worse.

Fed's secret loans to banking giants revealed

Dees Illustration

SMH/Bloomberg

Credit Suisse, Goldman Sachs and Royal Bank of Scotland each borrowed at least $US30 billion ($29 billion) in 2008 from a Federal Reserve emergency lending program whose details weren't revealed to shareholders, members of Congress or the public.

The $US80 billion initiative, called single-tranche open-market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the September 15 bankruptcy of Lehman Brothers Holdings.

Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 per cent that December, when the Fed's main lending facility charged 0.5 per cent.


“This was a pure subsidy,” said Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Florida-based Cumberland Advisors. “The Fed hasn't been forthcoming with disclosures overall. Why should this be any different?”

The Federal Reserve Bank of New York, which oversaw ST OMO, posted aggregate data about the program on its website after each auction, said Jeffrey V. Smith, a New York Fed spokesman. By increasing the availability of short-term financing when private lenders were under pressure, “this program helped alleviate strains in financial markets and support the flow of credit to U.S. households and businesses,” he said.

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US Fed loaned Libya-backed bank billions

Dees Illustration

AFP

WASHINGTON (AFP) - The Federal Reserve lent a Libyan state-backed bank billions of dollars during the financial crisis, documents made public on Thursday have revealed.

The Arab Bank Corporation, which is today 59.3 percent owned by the Libyan government, borrowed in slices as big as $1.175 billion from the US central bank.

At the time the bank was not majority owned by the Tripoli government; other shareholders included the Kuwait Investment Authority and the Abu Dhabi Investment Authority.

Europe Whispers “Crisis” While the Market Continues Screaming

Jason Kaspar, Contributing Writer
Activist Post

Last year the Europe Union (and the euro) teetered on the verge of collapse when the Greek financial crisis strained the viability of the EU construct. This year, as other EU countries domino in similar fashion, no one seems to care – certainly not the markets. Portugal’s government collapsed last Friday, and Standard and Poor has downgraded Portugal twice in the last week from A- to BBB-.  S&P then proceeded to cut Greece’s rating further from BB+ to BB-. Yet, defying all reason, the markets have gone up.

So, why is the market reacting positively to this news?

Well, in the perverse logic of a shortsighted market, debt spending is good.  Going into the European crises last year, there was no backstop for a European country in trouble.  The provisions for sovereign collapse were unclear and hotly debated.  Would Greece be kicked out of the Eurozone?  What would happen to the Euro?  Would bondholders suffer losses? How would this impact banks?

Bloomberg Files Lawsuit Against European Central Bank

UNC Biz Blog

Bloomberg LP, the parent of Bloomberg News, filed a lawsuit Wednesday that asks the European Union’s General Court in Luxembourg to overturn a decision by the European Central Bank not to disclose documents that show how Greece used derivatives to hide its fiscal deficit.

Bloomberg editor in chief Matthew Winkler appeared on Bloomberg Television on Wednesday to talk about the suit. Winkler said, “It’s very straight forward. We are seeking full disclosure of documents that show how Greece was able to finance itself into a predicament that became the European debt crisis as we know it. It’s entirely to the benefit of all the members of the EU, all of the citizens, all the taxpayers and for sure the financial markets. Transparency is something that has a way of enlightening perspective.”

Winkler also commented on the derivatives Bloomberg is seeking more information on:  “In this case, very complicated, intricate financing techniques were deployed to essentially enable Greece to put off consistently any kind of transparent reckoning of its indebtedness. That’s really at the heart of this case and that’s really why we are seeking these documents.”

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Iceland offers risky temptation for Ireland as recession ends

Iceland has finally emerged from deep recession after allowing its currency to plunge and washing its hands of private bank debt, prompting an intense debate over whether Ireland might suffer less damage if it adopted the same strategy.

Iceland Winterfest - Alamy image

Ambrose Evans-Pritchard
Telegraph

The Nordic economy grew at 1.2pc in the third quarter and looks poised to rebound next year. It ends a gruelling slump caused largely by the "New Viking" antics of Landsbanki, Glitnir and Kaupthing, the trio of lenders that brought down Iceland's financial system in September 2008.

The economies of the two "over-banked" countries have both contracted by around 11pc of GDP, but Iceland has achieved it with inflation that devalues debt, while Ireland has done it under an EMU deflation regime that raises the burden of debt.


This has led to vastly different debt dynamics as they enter Year III of the drama. Iceland's budget deficit will be 6.3pc this year, and soon in surplus: Ireland's will be 12pc (32pc with bank bail-outs) and not much better next year.

The pain has been distributed very differently. Irish unemployment has reached 14.1pc, and is still rising. Iceland's peaked at 9.7pc and has since fallen to 7.3pc.

The International Monetary Fund said Iceland has turned the corner, praising Reykjavik for safeguarding its "valued Nordic social welfare model".

"In the event, the recession has proved shallower than expected, and Iceland’s growth decline of about minus 7pc in 2009 compares favorably against other countries hard hit by the crisis," said Mark Flanigan, the IMF's mission chief for the country.

Total debt will peak at 115pc, before dropping to 80pc by 2015 in what the IMF called "robust debt dynamics". Meanwhile. Ireland's debt will continue rising for another three years to 120pc of GDP. The contrast will be very stark by the middle of the decade. Iceland may have a lower sovereign debt than Germany by then.

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IMF urges EU to boost bail-out fund to stem crisis

The International Monetary Fund has called on the EU authorities to boost their rescue fund and step up bond purchases to insure against a fresh financial crisis in the eurozone periphery.

Ambrose Evans-Pritchard
Telegraph

“The recovery could still stay the course, but this scenario could now easily be derailed by the renewed financial market turmoil,” the IMF says in a report for eurozone finance ministers today, according to Reuters. “The sovereign and financial market storm affecting the periphery constitutes a severe downside risk.”

The IMF said the EU’s €500bn bail-out machinery was not enough to cope with the magnitude of the threat as Spain and even Italy start to come under pressure.

“There is also a strong case for increasing the resources available for this safety net and making their use more flexible, including for the purpose of providing more effective support to banking systems,” it said.


Dominique Strauss-Kahn, the head of the IMF, will present the report on the economy of the 16 countries using the euro at a meeting of eurozone finance ministers and Jean-Claude Trichet, the European Central Bank president, on Monday.

The fund said the ECB’s bond purchases should be “expanded” to restore calm. The ECB bought Portuguese and Irish bond markets last week, forcing down spreads dramatically in a “short squeeze” against speculators in small illiquid markets. This merely buys time.

It is does not solve the structural problem that a large part of the eurozone faces a huge financing need yet has lost reliable access to capital markets. The ECB has so far ruled out mass purchases of Spanish and Italian bonds, bowing to a de facto German veto.

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US Fed lent $3.3tn to multinationals, billionaires and foreign banks

US central bank releases details of thousands of secret loans to global firms as well as foreign banks and American billionaires

Dominic Rushe
Guardian

The global credit crunch of 2008 ran deeper and wider than previously disclosed, forcing the US government to fund firms including General Electric and Toyota, along with banks and billionaire investors, according to documents released by the Federal Reserve.

Under pressure from politicians, the US central bank has released details of 21,000 transactions it made as the global economy faced meltdown.

As well as its well-publicised support of the banking system, the Fed's aid reached far beyond Wall Street, offering finance to the motorbike manufacturer Harley-Davidson, the industrial equipment maker Caterpillar, the telecoms company Verizon and even the computer billionaire Michael Dell as it struggled to keep the economy going. The lending reached $3.3tn (£2.1tn) at its peak.

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Related Article:  

The Worst Year Ever

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The Austerity Hammer Starts to Fall on United States as Debt Consumes Europe (VIDEO)

It's the Bankers or the People - You have been Warned!

Alex Jones and Aaron Dykes
InfoWars

Problem, Reaction, Solution: Derivatives, Crash, Too Big To Fail, Bailout, Nationalization, Budget Crisis, Privatization, Debt Slavery, Austerity, Evaporating Pensions, Central Banks, Big Government, World Government. It’s been quite a saga, but this economic crisis has been planned sabotage by design. The age of the Offshore Global Cartel is the age of economic warfare with the wealthy Western world. The 3rd World has largely already been brought to its knees. The remaining vestiges of national sovereignty must be eliminated and the middle class consumer society must be swept back to the feudal age by way of a tidal wave looting of living standards, cut wages & pensions, and the bread and circuses of cheap plastic goods and entertainment. The upper middle classes, the array of independent businesses, remaining lone giants and other true competition to the New World Order mafia economy system must be consolidated or dominated.

Alex Jones explains why it is the bankers or us will be free at the end of this crisis. The total cost of the derivatives is over $1.5 Quadrillion, a sum that will completely consume the world in perpetual debt, a sum that can never be repaid. It is an economic shearing, a shearing of the sheep. The economic crisis has always really been a complete transfer of power to the banking class.


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RELATED ARTICLE:
US Debt Woes Expose Hidden Austerity and Public Looting

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Following Hungary And Ireland, France Is Next To Seize Pension Funds

Bank Looting in Progress

Tyler Durden
Zero Hedge

If the recent Hungarian “appropriation” of pension funds, and today’s laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the “new” money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France.Financial News explains how France has “seized” €36 billion worth of pension assets: “Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades.” FN condemns the action as follows: “The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions  Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system.” In other words, with the ECB still unwilling to go into full fiat printing overdrive mode, insolvent governments, France most certainly included, are resorting to whatever piggybanks they can find. Hopefully this is not a harbinger of what Tim Geithner plans to do with the trillions in various 401(k) funds on this side of the Atlantic.

More from FN on how first France, and soon every other socalized pension regime, will continue to plunder a nation’s life saving to fund short-term deficits:

The decision has prompted a radical restructuring of the FRR’s investments. The new strategic investment plan, which will be released in the new year, will see a rapid reduction in its 40% allocation to equities and a shift to cash and short-term government bonds, according to a source close to the situation.

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Citizens of Europe Rage Against the Machine
Banksters Coming for Your Retirement Next


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Irish Pension Reserve Funds Openly Targeted by Banksters

Ann Cahill
Irish Examiner

UP to €15 billion from the National Pensions Reserve Fund, set aside when the Celtic Tiger was still roaring, is likely to be used to recapitalise three of the country’s banks.

Amid speculation last night that the rate of interest to be charged on the EU/IMF bailout could be as much as 6.7%, Fine Gael’s finance spokesman Michael Noonan said that kind of rate was "far too high" and unaffordable on any reasonable projection of growth.

The Department of Finance said the interest rate had still not been finalised, but given that much of the loan would be repayable over nine years the rate could be higher than the 5.2% charged to Greece but would not be as high as the 6.7% being quoted by some brokers.


Meanwhile, Anglo Irish Bank, which was downgraded to junk status yesterday evening, is expected to be closed swiftly, together with the Irish Nationwide Building Society, under the EU/IMF loan plan.

Officials hope to finalise the details of the €85bn package later today and have EU finance ministers approve it tomorrow.

The emphasis in the plan is to avoid drawing down money from the bailout and rely in the first place on money from the Pension Reserve Fund for the banks, and on the €20bn the state borrowed earlier this year to part-fund next year’s national budget.

Economist at the Economic and Social Research Institute, John FitzGerald, said he believed it would be a good idea to use the money in the pensions fund to recapitalise the banks, and keep the EU/IMF funds in reserve in case they needed further money later.

"Using the €20bn in cash we have first would be good for the country in the short run. It would leave the opening debt for 2012 €20bn lower and interest payments would be €1bn less. It would also leave the national debt lower than forecast at the end of next year," he said.

About €35bn of the total EU/IMF loan was being earmarked last night for the banks.

The Government would prefer not to tap this sum but keep it in reserve for contingencies during the three-year programme.

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Eurozone Debt Crisis 2.0: Dollar Sucks Less Than Euro, Again

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