April Fools: The Fox To Guard The Banking Henhouse
By Dr. Ellen Brown
Global Research, March 31, 2008
[author's website at www.webofdebt.com]
The Federal Reserve, which has been credited with creating the current housing
bubble and bust just as it created the credit bubble of the Roaring Twenties
and the bust of 1929, is now to be given vast new powers to oversee regulation
of the banking industry and promote "financial market stability." At least,
that is the gist of a Treasury Department proposal to be presented to Congress
on Monday, March 31, 2008. Adrian Douglas wrote on LeMetropoleCafe.com, "I
would like to think that this is some sort of sick April Fools joke, but, alas,
they are serious! What happened to free markets?"1
In fact, what happened to regulating the banks? The Treasury's plan is not for
the private Federal Reserve to increase regulation of the banking system it
heads. Au contraire, regulation will actually be decreased. According to The
Wall Street Journal:
"Many of the [Treasury's] proposals, like those that would consolidate
regulatory agencies, have nothing to do with the turmoil in financial markets.
And some of the proposals could actually reduce regulation. According to a
summary provided by the administration, the plan would consolidate an alphabet
soup of banking and securities regulators into a powerful trio of overseers
responsible for everything from banks and brokerage firms to hedge funds and
private equity firms. . . . Parts of the plan could reduce the power of the
Securities and Exchange Commission, which is charged with maintaining orderly
stock and bond markets and protecting investors. . . . The blueprint also
suggests several areas where the S.E.C. should take a lighter approach to its
oversight. Among them are allowing stock exchanges greater leeway to regulate
themselves and streamlining the approval of new products, even allowing
automatic approval of securities products that are being traded in foreign
markets."2
"securities products" include the mortgage-backed securities, collateralized
debt obligations, credit default swaps, and other forms of the great Ponzi
scheme known as "derivatives" that have been largely responsible for bringing
the banking system to the brink of collapse. But these suspect products are not
to be more heavily scrutinized; rather, their approval will actually be
"streamlined" and may be automatic if they are being traded in "foreign
markets." The Journal observes that the Treasury's proposal was initiated last
year by Secretary Henry Paulson not to "regulate" the banks but "to make
American financial markets more competitive against overseas markets by
modernizing a creaky regulatory system. His goal was to streamline the
different and sometimes clashing rules for commercial banks, savings and loans
and nonbank mortgage lenders." "streamlining" the rules evidently meant
eliminating any that "clashed" with the Fed's goal of allowing U.S. banks to be
more "competitive" abroad. The Journal continues:
"While the plan could expose Wall Street investment banks and hedge funds to
greater scrutiny, it carefully avoids a call for tighter regulation. The plan
would not rein in practices that have been linked to the housing and mortgage
crisis, like packaging risky subprime mortgages into securities carrying the
highest ratings. . . . And the plan does not recommend tighter rules over the
vast and largely unregulated markets for risk sharing and hedging, like credit
default swaps, which are supposed to insure lenders against loss but became a
speculative instrument themselves and gave many institutions a false sense of
security."
Regulating fraudulent, predatory and overly-speculative banking practices has
been left to the States, not necessarily by law but by default. According to
then-Governor Eliot Spitzer, writing in January of 2008, state regulators tried
to regulate these shady practices but were hamstrung by federal authorities. In
a February 14 Washington Post article titled "Predatory Lenders; Partner in
Crime: How the Bush Administration Stopped the States from Stepping in to Help
Consumers," Spitzer complained:
"several years ago, state attorneys general and others involved in consumer
protection began to notice a marked increase in a range of predatory lending
practices by mortgage lenders. Some were misrepresenting the terms of loans,
making loans without regard to consumers' ability to repay, making loans with
deceptive 'teaser; rates that later ballooned astronomically, packing loans
with undisclosed charges and fees, or even paying illegal kickbacks. These and
other practices, we noticed, were having a devastating effect on home buyers.
In addition, the widespread nature of these practices, if left unchecked,
threatened our financial markets.
"Even though predatory lending was becoming a national problem, the Bush
administration looked the other way and did nothing to protect American
homeowners. In fact, the government chose instead to align itself with the
banks that were victimizing consumers. . . . [A]s New York attorney general, I
joined with colleagues in the other 49 states in attempting to fill the void
left by the federal government. Individually, and together, state attorneys
general of both parties brought litigation or entered into settlements with
many subprime lenders that were engaged in predatory lending practices. Several
state legislatures, including New York's, enacted laws aimed at curbing such
practices . . . .
"Not only did the Bush administration do nothing to protect consumers, it
embarked on an aggressive and unprecedented campaign to prevent states from
protecting their residents from the very problems to which the federal
government was turning a blind eye. . . . The administration accomplished this
feat through an obscure federal agency called the Office of the Comptroller of
the Currency (OCC). . . . In 2003, during the height of the predatory lending
crisis, the OCC invoked a clause from the 1863 National Bank Act to issue
formal opinions preempting all state predatory lending laws, thereby rendering
them inoperative. The OCC also promulgated new rules that prevented states from
enforcing any of their own consumer protection laws against national banks. The
federal government's actions were so egregious and so unprecedented that all 50
state attorneys general, and all 50 state banking superintendents, actively
fought the new rules. But the unanimous opposition of the 50 states did not
deter, or even slow, the Bush administration in its goal of protecting the
banks. In fact, when my office opened an investigation of possible
discrimination in mortgage lending by a number of banks, the OCC filed a
federal lawsuit to stop the investigation."
Less than a month after publishing this editorial, Spitzer was out of office,
following a surprise exposé of his personal indiscretions by the Justice
Department. Greg Palast observed that Spitzer was the single politician
standing between a $200 billion windfall from the Federal Reserve guaranteeing
the mortgage-backed junk bonds of the same banking predators that were
responsible for the subprime debacle. While the Federal Reserve was trying to
bail them out, Spitzer had been trying to regulate them, bringing suit on
behalf of consumers.3 But Spitzer has now been silenced, and any other state
attorneys general who might get similar ideas will be deterred by the federal
oversight under which banking regulators are to be "consolidated."
The Federal Reserve under Alan Greenspan deliberately enabled and permitted the
derivatives debacle to take down the dollar and America's credibility.
Greenspan is now lauded, feted and awarded at the White House and on network
television, and takes a victory lap tour promoting and signing his book and
celebrating his multimillion dollar book deal, enjoying his knighthood status
in England and hero status on Wall Street. And as the falling debris of the
American economy still piles up around us, the very agency that enabled
disaster is now seeking to consolidate ultimate authority and accountability to
itself, and through centralization and arrogation of power, eliminate all those
pesky little Constitutional and State regulations and agencies, recalcitrant
governors and the last few whistle blowers, so that the further abuse of power
can be streamlined through one agency only. That agency is to consist of an
alliance of the banking powers and the executive branch, a perfect formula for
the institutionalization of continual abuse.
Perhaps Spitzer was lucky that he was the target only of a character
assassination. When Louisiana Senator Huey Long challenged the Federal Reserve
and fought for the State's right to oversee its own financial affairs in the
1930s, he was assassinated with bullets. Long's local assertion of
decentralized State powers, as provided for in the Tenth Amendment to the
Constitution, enabled the State of Louisiana to loosen the grip of the
corporations on the State's wealth and allowed the setting up of schools and
public institutions that elevated the people of the State and placed its
"common wealth" back into the hands of its citizens, while providing employment
and education. The Constitution reserves to the States and the people all those
powers not specifically delegated to the federal government, arguably including
the creation of money itself, which is nowhere specifically mentioned in the
Constitution beyond creating coins. (See E. Brown, "Another Way Around the
Credit Crisis: Minnesota Bill Would Authorize State Banks to Monetize;
Productivity," www.webofdebt.com/articles, March 23, 2008.) But in this latest
attempt at expanding the Federal Reserve's already over-expansive powers, we
see clear evidence that the Wall Street and global banking powers have no
intention of allowing their plans to be reined in by the Constitutional powers
of the States and the people. Instead, they intend to fill up the moat and pull
up the draw bridge on their feudal powers, and let the serfs shiver outside the
gates for as long as they will put up with it.]
NOTES
1 Adrian Douglas, "PPT to Come Out of the Closet,"
www.lemetropolecafe.com (March 29, 2008).
2 Edmund Andrews, "Treasury's Plan Would Give Fed Wide new Power," New
York Times (March 29, 2008).
3 Greg Palast, "Eliot's Mess" www.gregpalast.com (March 14, 2008).
Ellen Brown, J.D., developed her research skills as an attorney practicing
civil litigation in Los Angeles. In Web of Debt, her latest book, she turns
those skills to an analysis of the Federal Reserve and "the money trust." She
shows how this private cartel has usurped the power to create money from the
people themselves, and how we the people can get it back. Her eleven books
include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker,
which has sold 285,000 copies. Her websites are www.webofdebt.com and
www.ellenbrown.com.
http://www.globalresearch.ca/index.php?context=va&aid=8493
