Bailouts – Reality vs. Fiction

By Ziad Abdelnour
Wednesday, February 22, 2012

Albert Einstein once said, “The definition of insanity is doing the same thing over and over again and expecting a different result.” We, the people of the United States of America, appear to have gone insane by allowing the Federal Reserve to bail out businesses here and abroad.

The Fed, itself a private banking cartel, has shown a complete disregard and contempt for the members of Congress who are supposed to be monitoring its activities. It has consistently resisted calls for transparency in its policy formation and its execution of monetary control. The chairman of the Federal Reserve may take a call from the president, but the president cannot tell the Fed what it will and will not do. The president may appoint the chairman of the Federal Reserve System and its Board of Governors, but he does so from a predetermined list of candidates given to him by the Fed itself. Frankenstein’s monster is not only alive but very much in control!

The Federal Reserve was created to prevent banking panics and wide swings in the economy by holding inflation in check and protecting the value of our currency. It was given autonomy to protect it from political influence so politicians couldn’t give away economic perks just to get reelected. The Fed has strongly resisted any effort to apply any kind of oversight to its activities by claiming they are attempts to politicize the Fed, but let’s examine the record.

Nearly every Fed chairman in the past 60 years has manipulated interest rates to brighten the economic outlook for incumbent presidents or newly elected presidents who won by large margins. The purchasing power of the U.S. dollar has fallen 94 percent in the past 100 years. The only way you can create inflation is by creating more money that is backed by the same reserve assets; the Fed is the only entity that can create more money. Ben Bernanke’s quantitative easing (QE) programs have pumped billions of unfunded dollars into the economy, thereby setting us up for massive inflation in the very near future. If this isn’t a form of financial terrorism, it is incompetence of the highest order.

It causes one to wonder what Albert Einstein would think about the “solutions” rolled out to fix our debt problem. Would he find it insane that total credit market debt has actually risen to an all-time high of $53.8 trillion, up $533 billion from the previous 2008 peak? Our leaders have added $6.1 trillion to our National Debt in the last four years, a mere 66% increase.

Would Einstein find it insane that the governing elite would encourage the 4 biggest banks, that were the main culprits in creating a worldwide financial collapse, to actually get bigger? The largest banks in the U.S. now control 72% of all the deposits in the country versus 68.5% in 2008. The Too Big To Fail are now Too Bigger To Fail. Rather than liquidating the bad debts, breaking up the insolvent banks, selling off the good assets to well run banks, firing the executives, and wiping out the shareholders & bondholders foolish enough to invest in these badly run casinos, the powers that be chose to protect their fellow .01% brethren and throw the 99% under the bus. The Fed’s latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed.

It is a fool’s fantasy to think we can live in a globally connected economy and never have a situation arise where the government prudently steps in to prevent a failure that might lead to catastrophic ramifications. In most cases, I believe it would be much better to let bailed-out companies fail when they have mismanaged themselves, rather than waste taxpayer money propping up greedy idiots who are trying to salvage their own bonuses.

The wiser course would be to penalize the CEO or board of directors who drove the company to the brink of failure. The most obvious punishment would be the elimination of any “golden parachutes” or bonuses for the executive and seizure of all company-derived assets, including any attempts to hide company assets in the spouse’s name. When C-level executives come to the realization that managing a company is not a game and that there are serious consequences for their actions, we will see fewer instances of requests for bailouts.

The system can recover from bankruptcies, as it has done throughout history. Would the world really have come to an end had AIG gone into bankruptcy or Goldman Sachs been forced to liquidate and close its doors?

Bankruptcy cleans out the system. What’s wrong with that? South Korea went through this in the late 1990s. They didn’t have anyone to bail them out, and they had to go through the pain. Sweden did it in the early 1990s. Mexico did it. Russia did it. The list goes on and on. Competent people take over the assets from incompetent people and rebuild from a solid base. Business has always been survival of the fittest and Darwinism at its best.

Isn’t this what capitalism is all about?