"And the only source of cashing out is the US Treasury and Fed."

[BR_Parkway]

Michael Hudson, the ex-Wall Street economist and author of Super Imperialism: The Economic Strategy of the American Empire put the Lehman case into perspective with observations he made to me via e mail on Sunday. I think it summarizes the big picture admirably:

“When predators have exhausted the economy, they turn on each other. The result is financial cannibalism. After all, who else is it possible to get money from in today's negative equity environment?

“If the media are missing anything, it’s that the game is over. The financial institutions are taking their money and running. They know it's over. And the only source of cashing out is the US Treasury and Fed.

“My solution:There is an easy place to start, that can take only a few weeks. That is to look at the Fed's $1.3 trillion in cash-for-trash swaps. If these prove to be junk mortgages for which the Fed has given good US Treasury bonds, at the proverbial taxpayer expense, then the Fed and Treasury administrators should have criminal charges brought against them, the accounting firms of the companies pledging these junk mortgages and other financial junk should be closed down and RICO charges brought, and the banks themselves should be wiped out. I have urged the appropriate Washington oversight committee to open an investigation along these lines."

Well said, Dr Hudson! If investigators can prove that the Fed exchanged US treasuries for MBS securities and other toxic assets that they knew were worth less than the amount they provided via short-term loans,(repos) then it is reasonable to assume that the Bernanke's quantitative easing (QE) program operated under the same guidelines. That means, that the $1.25 trillion QE program--which was supposed to extend credit to consumers and businesses--was actually a scam designed to transfer a gigantic load of capital to the very people who gamed the system and precipitated the biggest financial meltdown since the Great Depression. Without question, that misallocation of capital has deepened the recession and sent unemployment skyrocketing. We need to get to the bottom of this.

http://www.counterpunch.org/whitney03152010.html

[eShirl]

1. k&r

[FarCenter]

2. Of course they exchanged Treasuries for mortgage backed securities

They had to, because the investors would no longer provide credit to US borrowers unles it was backed by the US Governments power to tax.

It was obvious that those homeowners in CA, AZ, NV, and FL were going to walk away from their mortgages instead of paying them down. And that the owners of leveraged commercial buildings were going to go bankrupt.