In the linked editorial, economist and author, Henry Liu...

[Mr_Jefferson_24]

...is quoted with this remark concerning the current U.S. financial crisis:

"The Fed is merely trying to inject money to keep prices not supported by fundamentals from falling. It is a prescription for hyperinflation. The only way to keep the price of worthless assets high is to lower the value of money. And that appears to be the Fed’s unspoken strategy."

Do you agree that this is a fair summation of what the Fed is doing?

------------------------------------

The editorial: http://onlinejournal.com/artman/publish/article_3784.shtml

---snip---

Paulson’s Chicken Little routine might have soiled a few senatorial undergarments, but let’s hope the American people are made of sterner stuff and will reject this charade. The conversation should be shifted from conceding more authority to hucksters in pinstripes to indictments for securities fraud. Even the most economically-challenged nation ought to be able to afford a few sets of leg irons and a couple hundred jail cells. That’s all it will take. That, and a couple brisk dunks on the waterboard.

Paulson’s plan to revive the banking system by buying up hundreds of billions of dollars of illiquid mortgage-backed securities (MBS) and other equally poisonous debt instruments, ignores the fact these complex bonds have already been “marked to market” in the recent fire sale by Merrill Lynch. Just weeks ago, Merrill sold $31 billion of these CDOs for roughly 20 cents on the dollar and provided 75 percent of the financing, which means that the CDOs were really worth approximately 6 cents on the dollar. If this is the settlement that Paulson has in mind, than the taxpayer will be well served. But this will not recapitalize the banks’ balance sheets or mop up the ocean of red ink which is flooding the financial system. No, Paulson intends to hand out lavish treats to his banker buddies, while interest rates soar, pension funds collapse, the housing market crashes, and the dollar does a last, looping swan-dive into a pool of molten lava. Thanks, Hank. . . .

[Mr_Jefferson_24]

1. If whoever rated this thread disruptive can somehow...

...summon the personal courage to drop in and explain him/herself, by all means, please do.

[BrainStorm]

2. This new rating system allows for a lot of mischief

The stupid and uninformed can down an important thread and lavish high praise on a silly one.

[Mr_Jefferson_24]

4. I don't want to be critical of the new rating system this early...

...in its implementation, but I would hope people won't begin making it a practice to push rating buttons in lieu of offering thoughtful input. The idea behind a discussion board is, after all, to discuss.

[BrainStorm]

3. Here's my two cents on the economy:

The last time the government let banks earn their way out of negative equity was in 1980. Interest rates to bank customers topped 20 percent, driving down prices for real estate, stocks and bonds so low that the leading U.S. banks saw their net worth wiped out. Their debts to depositors and bondholders exceeded the collateral they held in their reserves to back these deposit obligations. But as soon as Ronald Reagan led the Republicans back into office, the Federal Reserve began to flood the economy with free credit, driving down the interest rates that banks had to pay. They were allowed to act as a monopoly and keep credit-card interest rates high, at 20 percent, and above 30 percent with penalties, thanks to the fact that America's high post-Vietnam interest rates led state after state to repeal anti-usury laws to keep credit flowing.

So the banks did "earn their way out of debt." But if you were a taxpayer who needed to use a credit card, you paid through the nose. The banks earned their way out of debt at your expense. And by the way, if you really did pay an income tax, you probably did not own commercial real estate or significant financial assets. The Internal Revenue Service made commercial real estate and a large swath of finance (at least for the wealthiest investors) income-tax free by generating tax credits that could be applied against income across the board. The capital-gains tax was lowered to a fraction of the income tax, leading investors to pay out whatever income their investments generated as interest on loans to buy property they expected to sell at a markup. And with Alan Greenspan appointed the head the Federal Reserve Board in 1987, the age of asset-price inflation had arrived.

Cities and states vied with each other to slash property taxes, replacing them with income and sales taxes that fall mainly on labor and consumers. The upshot is that wealth has polarized to an unprecedented degree. According to statistics collected by the Congressional Budget Office, the wealthiest 1% now own 57% of the nation's returns to wealth (interest, dividends and capital gains) and the richest 10% own no less than 77%.

With this background in mind, it looks like the Paulson-Bernanke plan for the Wall Street investment banks and other predatory lenders - and insurers such as A.I.G. - to "earn their way out of debt" will be at the economy's expense. The bailout is to be achieved by letting Wall Street's post-Glass-Steagall financial conglomerates charge their customers exorbitant financial charges. As Britain's Conservative Party leader Margaret Thatcher put it in her favorite phrase, TINA: There is no alternative. And as Lady Macbeth said, if the deed is to be done, let it be done fast. After all, it is a once-in-a-lifetime chance for every financial institution in America to cash out with a fortune!

http://www.globalresearch.ca/index.php?context=va&aid=10297

[Mr_Jefferson_24]

5. Good article -- thanks for posting it.

I certainly hope this bailout doesn't go through without some meaningful market reforms being conditionally attached.

[BrainStorm]

6. I appreciate it. And a kick.

Some intelligent threads need to get up there.

[Mr_Jefferson_24]

7. Kick for a larger sample.

[Mr_Jefferson_24]

8. Kick for a larger sample.

[Mr_Jefferson_24]

9. Kick for a larger sample.

[Aloha Spirit]

10. Question--for how much on the dollar do you think the gov will be purchasing these MBS's?

Because I would feel a lot better if it was a low amount.

[Mr_Jefferson_24]

11. I don't know, but I'm confident it will be for a great deal...

...more than they're worth.

[Mr_Jefferson_24]

12. Kick for a larger sample.

[Frank Booth]

13. It seems like getting an ownership stake in the companies themselves will help alleviate

the problem somewhat. Then the money will be paying for more than just these nearly worthless assets.

[Mr_Jefferson_24]

14. I'd like to see a compelling case made for the contention...

...that we really need these companies -- I'm not convinced we do, or that they really add anything to the economy. The things of real value that actually make an economy strong, like a large and thriving manufacturing sector, cutting edge technology development, sensible regulation that prevents predatory behemoths from colluding to crush or swallow up all the smaller players in agriculture and other industries, etc, have disappeared.

Finance hucksters doing creative smoke and mirrors illusionist tricks with what turns out to be worthless paper only contribute grief, and now we're going to resurrect rather than let them die their well deserved death -- big mistake, and the upshot will be the creation of still more worthless paper: the U.S. dollar.

[Mr_Jefferson_24]

15. Kick for a larger sample.