It seems as though our legislative branch can only pass one or two major pieces of legislation a year, while major decisions are made daily by various executive and judicial entities.

The problem is that congress screams for attention, makes all the promises, and sucks up all the press. The episodic politics of congress make it a soap opera that is mildly entertaining but cheap, and while the personalities distract the focus, the policies are given less scrutiny by the public they serve.

You’ve hit the nail on the head. The danger with our financial system ever since the Federal Reserve Act of 1913(?) was that an unelected public-private institution would control the country’s money supply. The bankers would set their own rules and print their own money.

Sure the president picks the head but he is left to choose between the ones the Reserve Board nominates. There is no congressional oversight because they don’t understand it. And everything seems to work out okay, so why bother.

Then the urge is always to keep inflation roaring to keep investments high and business booming. This causes oversupply and a general failure to clean out the dead wood adequately leaving large bubbles bursting.

And everyone let them inflate the money supply to fund wars, social programs, and bridges to nowhere. It’s all of our faults for failing to understand the system, and Congress’s for not overseeing them, and now the time for all of us to pay dearly for the hubris of a generation now long gone is here.

I can say his name, because I fall within the guidelines of RedState.

Erick, I’m surprised at you. You’re starting to sound like the Good Doctor… except he’s been warning about the Fed for over 20 years, while neocons pooh-pooh’d and insisted it was all for our own good.

“You’ll thank me later.” Well, later is now, and where are we? On the path to hyper-inflation.

Whee.

Here is a good video that describes the federal reserve. It is heavily slanted towards a gold currency but it really explains well how the fed works and its brief history.

If nothing else, it helps explain what the Fed’s credit window, how fractional reserve banking works, and how the monetary system works.

http://www.youtube.com/watch?v=iYZM58dulPE

Congress created the current paradigm vis-à-vis e Federal Reserve Act. This simplistic piece of legislation gave the FED power over monetary policy, currency stabilization and an ability to act in emergency situations. Not to defend all this nonsense, but the Fed is doing their job; period. If Congress wants them out according to our Constitution they can legislate them out. I submit that is a much riskier proposition than existing actions.

Partially in their defense, on AIG I would argue the US government could actually make money on the deal. When is the last time Congress penned such perspicacious legislation?

This all came about in contemporary times because Congress rejected a plan by Republican author Nelson Aldrich in which 12 regional banks (called National Reserve Associations) would be privately held. But Congress in its infinite wisdom decided that such power could not be put in the hands of private evil banking concerns (oooh-scary). So here we are back to Hamiltonian- Jeffersonian and later Jacksonian/Whig type arguments which occurred during the the First/Second Bank of the United States.

Overall, a decent case can be made the Federal Reserve has done more good than harm; my opinion. Most recently, they have done a lousy job of creating new regulations which address contemporary financial complexities that accurately measure risk. This permitted corporations taking these risks to act within the laws and guidelines, otherwise they would be on trial (not one of those Senate, blustering, stammering kangaroo sessions which I am sure is in our future).

Trust me, the industry remedies are already on the way with new Treasury/FED actions that range from accounting standards consolidation, lending policy and collateral requirements. McCain is exactly right to see these as vehicles by which we cure our current ills and mitigate future damage. The answers are not found in, as Bozobama suggests, finger pointing at evil hedge fund guys and heavy handed legislation/regulation. That inevitably stalls growth, shrinks financial opportunity and will increase the scope of this crisis. It also chases companies to overseas markets; a very valid concern with the increasing globalization of economies.

To be dismissive of the Fed’s actions at this point is to ignore their critical role which I believe will be lauded a few years down the road.

Congress created the current paradigm vis-à-vis e Federal Reserve Act. This simplistic piece of legislation gave the FED power over monetary policy, currency stabilization and an ability to act in emergency situations. Not to defend all this nonsense, but the Fed is doing their job; period. If Congress wants them out according to our Constitution they can legislate them out. I submit that is a much riskier proposition than existing actions.

Partially in their defense, on AIG I would argue the US government could actually make money on the deal. When is the last time Congress penned such perspicacious legislation?

This all came about in contemporary times because Congress rejected a plan by Republican author Nelson Aldrich in which 12 regional banks (called National Reserve Associations) would be privately held. But Congress in its infinite wisdom decided that such power could not be put in the hands of private evil banking concerns (oooh-scary). So here we are back to Hamiltonian- Jeffersonian and later Jacksonian/Whig type arguments which occurred during the the First/Second Bank of the United States.

Overall, a decent case can be made the Federal Reserve has done more good than harm; my opinion. Most recently, they have done a lousy job of creating new regulations which address contemporary financial complexities that accurately measure risk. This permitted corporations taking these risks to act within the laws and guidelines, otherwise they would be on trial (not one of those Senate, blustering, stammering kangaroo sessions which I am sure is in our future).

Trust me, the industry remedies are already on the way with new Treasury/FED actions that range from accounting standards consolidation, lending policy and collateral requirements. McCain is exactly right to see these as vehicles by which we cure our current ills and mitigate future damage. The answers are not found in, as Bozobama suggests, finger pointing at evil hedge fund guys and heavy handed legislation/regulation. That inevitably stalls growth, shrinks financial opportunity and will increase the scope of this crisis. It also chases companies to overseas markets; a very valid concern with the increasing globalization of economies.

To be dismissive of the Fed’s actions at this point is to ignore their critical role which I believe will be lauded a few years down the road.

Congress created the current paradigm vis-à-vis e Federal Reserve Act. This simplistic piece of legislation gave the FED power over monetary policy, currency stabilization and an ability to act in emergency situations. Not to defend all this nonsense, but the Fed is doing their job; period. If Congress wants them out according to our Constitution they can legislate them out. I submit that is a much riskier proposition than existing actions.

Partially in their defense, on AIG I would argue the US government could actually make money on the deal. When is the last time Congress penned such perspicacious legislation?

This all came about in contemporary times because Congress rejected a plan by Republican author Nelson Aldrich in which 12 regional banks (called National Reserve Associations) would be privately held. But Congress in its infinite wisdom decided that such power could not be put in the hands of private evil banking concerns (oooh-scary). So here we are back to Hamiltonian- Jeffersonian and later Jacksonian/Whig type arguments which occurred during the the First/Second Bank of the United States.

Overall, a decent case can be made the Federal Reserve has done more good than harm; my opinion. Most recently, they have done a lousy job of creating new regulations which address contemporary financial complexities that accurately measure risk. This permitted corporations taking these risks to act within the laws and guidelines, otherwise they would be on trial (not one of those Senate, blustering, stammering kangaroo sessions which I am sure is in our future).

Trust me, the industry remedies are already on the way with new Treasury/FED actions that range from accounting standards consolidation, lending policy and collateral requirements. McCain is exactly right to see these as vehicles by which we cure our current ills and mitigate future damage. The answers are not found in, as Bozobama suggests, finger pointing at evil hedge fund guys and heavy handed legislation/regulation. That inevitably stalls growth, shrinks financial opportunity and will increase the scope of this crisis. It also chases companies to overseas markets; a very valid concern with the increasing globalization of economies.

To be dismissive of the Fed’s actions at this point is to ignore their critical role which I believe will be lauded a few years down the road.

From The Economy of Money, Banking and Financial Markets by Frederic S. Mishkin:

Each of the Federal Reserve banks is a quasi-public (part private, part government) institution owned by the private commercial banks in the district that are members of the Federal Reserve System. These member banks have purchased stock in their district Federal Reserve bank (a requirement of membership), and the dividends paid by that stock are limited by law to 6% annually. The member banks elect six directors for each district bank; three more are appointed by the Board of Governors. Together, these nine directors appoint the president of the bank (subject to the approval of the Board of Governors).

On the independence of the Fed:

The Federal Reserve has both types if independence [instrument independence and goal independents] and is remarkable free of the political pressure that influences other government agencies.

Probably even more important to its independence from the whims of Congress is the Fed’s independent and substantial sources of revenue from its holding of securities and, to a lesser extend, from its loans to banks.

Yet the Federal Reserve is still subject to the influence of Congress, because the legislation that structures it is written by Congress and is subject to change at any time.

I’ve written more at www.BrianMcDaniel.org/?p=977.

From The Economy of Money, Banking and Financial Markets by Frederic S. Mishkin:

Each of the Federal Reserve banks is a quasi-public (part private, part government) institution owned by the private commercial banks in the district that are members of the Federal Reserve System. These member banks have purchased stock in their district Federal Reserve bank (a requirement of membership), and the dividends paid by that stock are limited by law to 6% annually. The member banks elect six directors for each district bank; three more are appointed by the Board of Governors. Together, these nine directors appoint the president of the bank (subject to the approval of the Board of Governors).

On the independence of the Fed:

The Federal Reserve has both types if independence [instrument independence and goal independents] and is remarkable free of the political pressure that influences other government agencies.

Probably even more important to its independence from the whims of Congress is the Fed’s independent and substantial sources of revenue from its holding of securities and, to a lesser extend, from its loans to banks.

Yet the Federal Reserve is still subject to the influence of Congress, because the legislation that structures it is written by Congress and is subject to change at any time.

I’ve written more at www.BrianMcDaniel.org/?p=977.

The value of our money comes from ordinary supply and demand. Demand is generated by external forces, such as willingness to borrow. Somehow, we as a nation must set the supply. The government has effectively three options: manage money manually, link to a commodity, or create an independent central bank.

1. Mikefisk brought up the concern with allowing the government to manage money: if Congress could use inflation to “tax” purchasing power covertly, the economy would collapse from the spending spree’s inflationary pressure. This is the cause of the dreaded hyperinflations of history.

2. Congressman Paul’s plan was to revive the gold standard. That action would effectively fix the supply of money at some level. As long as the government issued less than the full possible amount, the system would have some flexibility, like the current central bank system. Unfortunately, government wants to spend every dollar it can find. Ultimately, with an inability to raise the supply of money (due to lacking more gold to back it up), any recession could easily become a full-blown panic, with bank runs and the works. The Great Depression would have been less severe if the money supply had not collapsed then.

3. The Federal Reserve (central bank) seems to be the most flexible system, but it is the least accountable. If the Fed were Congress’ subordinate, scenario 1 would occur. If the Fed doesn’t enlarge the money supply, see scenario 2. An independent Fed is necessary for the Fed to do some unpopular things (notably, preventing scenario 1 when congressmen demand more money for pork). The insulation from popular government is a strength economically, but a weakness politically. There is a certain need to trust the Fed, or the whole system will unravel.

Finally, please be aware that this is not all taxpayer money. The Fed creates money out of thin air, so the loss to taxpayers consists of inflation caused by expanding the money supply (which actually hits anyone holding dollars). The Fed does not spend money directly appropriated from taxpayers.

I don’t see it as a Ron Paul rant. I’ve had friends on both sides of the aisle discuss this issue with concern. We sit and argue over million dollar earmarks while the Fed just handed $85 billion of our dollars to a failing business. No debate, no discussions, just $85 billion as if it was nothing.

I feel it is wrong that it appears we’ve allowed these companies to grow to such a size that we can’t let them fail.

I think you do have that right to borrow money. Call your credit card company or bank…heck, they’re still giving it away.

But in this case:

“The New York Fed will create a special credit facility for AIG. It will last for 24 months, during which time AIG may borrow up to $85 billion, at an interest rate of three-month dollar LIBOR plus 850 basis points.”
Read blackhedd’s article:
http://www.redstate.com/diaries/redstate/2008/sep/17/the-united-states-acquires-aig-the-largest-a/

Notice the “may”.

So, do you want to give you 80% of your company or hey, how about your house for a line of credit you may or may not use at 14% interest? Not a very good deal in my book.

I hope we care enough to demand an answer.

$85 billion / 300 million Americans = $280

Congratulations, comrade, you just spent $280 bailing out a private company, like it or not. At the closing price today that is worth 137 shares of AIG stock. Good luck capitalizing on that.

The markets executed over the course of a year Lehman, Merrill, and AIG. The inevitable culmination occurred this week. The Fed’s lowering rates starting last August have done nothing to save the endangered financial companies. I would argue that lowering rates and the Bear Stearns bailout sent messages to executive management of the endangered companies that they did not have to take immediate drastic action to either raise capital by selling assets or to increase investor confidence by dramatically increasing the transparency of their financial situations.

Unfortunately there are at least three other fairly large financial firms that the markets have also been executing over the past year, including another one that is too big to fail.