Leviticus 25 Plan – what is the justification for allowing U.S. citizens access to Federal Reserve liquidity extensions?
First, a review of key precipitating events’ leading into the 2007 financial crisis…
During the peak of the housing boom, mortgage brokers were pumping the red-hot housing market for all it was worth. Major financial institutions entered the game, purchasing massive amounts of mortgage ‘paper,’ which they repackaged into tranches which were then securitized as Mortgage Backed Securities (MBS) – and peddled as high-grade income-producing investment vehicles.
Financial heavyweights like Morgan Stanley, Merrill Lynch, Goldman Sachs and many others jumped into the game. They purchased ‘insurance’ to hedge their risks in the event that the underlying value of their warehoused mortgage paper suddenly evaporated… and to maintain ‘capital adequacy’ requirements.
The ‘insurance,’ in the form of Credit Default Swaps (CDS), was purchased primarily from triple-A rated AIG.And, thanks to some nifty deregulation orchestrated by Treasury Chief Robert Rubin, AIG was not required to carry any meaningful level of reserves to back their Credit Default Swap business – 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 therein lies the primary justification for the Leviticus 25 Plan. If the Federal Reserve can bail out the very financial entities that precipitated the financial crisis with their leveraged speculation gambling binge, then they can help restore financial health to American families, also.
U.S. citizens deserve nothing less than the same direct access to the Federal Reserve liquidity extensions that was provided to the likes of Morgan Stanley, Goldman Sachs, JP Morgan, Citigroup, Bank of America, State Street, Merrill Lynch, Lehman, Deutsche Bank, Barclays, UBS, and many others.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
Leviticus 25 Plan 2018 (2818 downloads)