The other day in the grocery store, I watched as the lady just ahead of me paid an incredibly high total for her goods with a credit card. Shortly thereafter, that brought to mind the largest scam in the history of the USA.
When the Fed Gov't bailed out the speculative banks (and AIG, et.al.) a few years ago, I suspect that the public in general missed the biggest part of that scam. But before I get into that portion of the story, let's consider the following. [If this weren't so tragic, it would be comical beyond belief.]
Here's what happened. The richest one-tenth of one percent of the people in this country, through speculative banking, did this:
1. created bizarre financial instruments such as credit default swaps which were supposed to guarantee or "insure" investments; [Technically, they weren't "insurance policies", so no money reserves were required to back them up.]
2. created mortgage-backed securities, lied about their quality, and sold them to investors on a grand scale...along with the bogus credit default swaps.
As we all know, the whole scam went bust when subprime mortgages defaulted in large numbers. But they were just the trigger of the crisis. The underlying causes were: the lying about the quality of the mortgage-backed securities; and the phony credit default swaps which were backed by zero reserves. Then the investment banks told the Fed Gov't that they were "too big to fail", and the Gov't sold that lie to the public. Next came the $787 billion bailout. Unfortunately, that was just a small part of the scam.
The main ripoff was the following. The Gov't made approximately $13 TRILLION in loans available to those banks...at far less than one percent interest. They were the same banks that were the richest in the country, fraudulently sold shabby products, gambled it all...lost...and then had the Gov't bail them out AND loan them huge amounts of money at almost zero percent interest.
Let's imagine this--- I interview Hank Paulson, Ben Bernanke, and several prominent economists, and they all agree... "Yes, obviously it was a scam. If those few banks had failed, the economy would not have collapsed. Things would have gotten bad, but with adjustments, the market would have corrected itself. Smaller banks would have filled in the gaps. We should have let them fail and made the $13 trillion in loans (at less than 1% interest) available to American housholds. They borrow money every single day with credit cards...at anywhere from 9% to 22% interest. Imagine what it would do for Main Street and the economy if every household had a $15,000 loan at less than 1% interest, instead of a credit card balance of thousands at, say, 12-15% interest."
Not only was the financial bailout and loan program a scam, but the money was not used as intended. Originally, the Gov't was going to buy up all the "toxic assets"; instead, the money was simply given to the banks to do with as they pleased. They made more bets. There are still approximately one quadrillion dollars worth of credit default swaps out there...guaranteeing nothing.
So, as I sit here sipping Wild Turkey and shooting through my window at a target outside, I wonder: why does the Gov't loan money to super-rich banks at almost zero percent interest instead of to households?...and, why do we commoners put up with mega banks at all? There are plenty of smaller, local banks that would love to have our business. I suggest we boycott the big boys. Immediately. Let them eat credit default swaps.
By the way, I heartily recommend the movie, Where the Buffalo Roam... and the documentary film, Buy the Ticket, Take the Ride. Gonzo galore.
Just my opinion.
Dr. Gonzo
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