Leviticus 25 Plan – what is the justification for allowing U.S. citizens access to the ‘Fed Window?’
Let’s do a brief review…
During the peak of the housing boom, mortgage tranches were packaged and securitized as
Mortgage Backed Securities (MBS) – and peddled as income-producing investments by major
investment houses. Participating parties like Goldman Sachs and others also purchased ‘insurance’
to hedge the risks in the event of a housing market ‘swan dive’ – and a potentially collapse of the underlying payment streams supporting the value of these MBS investments vehicles.
The ‘insurance’ was purchased (primarily from AIG) in the form of Credit Default Swaps (CDS).
And, thanks to some nifty deregulation orchestrated by Robert Rubin (Treasury Chief under Clinton), AIG was not required to carry any meaningful level of reserves to back the Credit Default Swaps – to pay their counterparties if the Mortgage Backed Securities market… ‘went south.’
It did just that, and the rest is history. Housing tanked. MBS’ tanked. And AIG had no
reserves with which to pay Goldman and others. Had normal bankruptcy proceedings prevailed,
Goldman Sachs would likely have received just pennies on the dollar in settlement – for placing a
huge ‘blind bet’ on an investment that had no reserves backing it up.
But – the U.S. Government stepped in and arbitrated a settlement of 100 cents on the dollar,
amounting to a direct cash transfusion of a cool $12.9 trillion – from the U.S. taxpayer – to Goldman Sachs.
And then the real ‘fun’ began. The investment banking heavyweights, Goldman Sachs and
J.P. Morgan, were ‘fast-tracked’ for “federal bank charters.’ Their newly acquired status as commercial banks allowed them to joined in with “Bank of America, Citigroup, J.P. Morgan
Chase and other banking titans who could go to the Fed and borrow massive amounts of money” at near-zero percent interest.
“The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. “They had
no other way to raise capital at that moment, meaning they were on the brink of insolvency,” says Nomi Prins, a former managing director at Goldman Sachs.
“The Fed was the only shot.”
“In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and
Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income.
Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make
money. In one of the most common maneuvers, they simply took the money they borrowed from
the government at zero percent and lent it back to the government by buying Treasury bills that
paid interest of three or four percent. It was basically a license to print money — no different than
attaching an ATM to the side of the Federal Reserve.”
“You’re borrowing at zero, putting it out there at two or three percent, with hundreds of billions
of dollars — man, you can make a lot of money that way,” says the manager of one prominent
hedge fund. “It’s free money.”
(Source: Wall Street’s Bail out Hustle – Matt Taibbi, 2-17-10)
And that is one of the primary justifications for the Leviticus 25 Plan – granting U.S. citizens
the same direct access to the Federal Reserve discount window – that was bestowed upon
Goldman Sachs, J.P. Morgan, and certain other banking titans.
After all, it is ‘our money.’ And granting U.S. citizens direct access to credit extensions from the Federal Reserve discount window would clean up liquidity issues at the family level: $50,000 per U.S. citizen at zero percent interest – with a specified ‘recapture provision.’
It would “strenghten the base” in America.