STAFF NEWS & ANALYSIS
US Panel Blames Banks for '08 Meltdown, but not Central Banks
By Staff News & Analysis - January 26, 2011

Financial Crisis Was ‘Avoidable,' Inquiry Panel Finds … The panel appointed by Congress to investigate the causes and consequences of the financial crisis has found that there is plenty of blame to go around. The Financial Crisis Inquiry Commission's nearly two-year examination of the 2008 crisis lays blame on two presidential administrations, an alphabet soup of regulatory agencies and big players on Wall Street … The full report is expected to be released as a 576-page book on Thursday. It was based on 19 days of hearings and interviews with more than 700 witnesses. – NY Times

Dominant Social Theme: Please don't look behind the curtain. It wasn't excessive monetary stimulation that caused the financial crisis but Wall Street greed.

Free-Market Analysis: We've often indicated that one of the dominant social themes of the power elite is "Wall Street did it." When it comes to financial meltdowns and the myriad of other disasters that afflict central banking economies, the best defense is perhaps a finger pointed at fatcat bankers and their firms. It worked after the Great Depression and that's been the playbook ever since

Now comes yet another attempt at casting blame on Wall Street for the 2008 financial crisis (see article excerpt above). Featured yesterday in both the New York Times and The Wall Street Journal, the conclusions of the Financial Crisis Inquiry Commission are right out of the elite playbook. No matter what the economic destruction, the mechanism of central banking must not be blamed. And apparently the Commission has managed to avoid doing so.

It is the Anglo-American elite that has the most to lose if central banks are identified as the main culprit of the 2008 meltdown. For the past 100 years, a small group of wealthy banking families has busily propagated central baking's debt-based money system around the world. But the damage they cause has been concealed and reports like the one that the Commission has just come up with are in our view part of a larger strategy of damage control.

Central banks, coordinated by the secretive Bank for International Settlements (BIS), constitute the financial spine of the global economy. But the booms and busts that inevitably occur as a result of central banking tend to ruin small businesses and further concentrate financial power in the hands of a few. This is the desired result from the point of view of the power elite, but it is a conclusion that is neither to be explained nor endorsed.

There is some truth to the idea that Wall Street was responsible, at least partially. But Wall Street – at root – is merely a transactional mart that creates liquidity for securities. In the 20th century, and now the 21st, Wall Street has served as an adjunct to central banking credit expansion and even facilitated it. Wall Street is in the money-service business. It makes financial widgets and markets them.

It is central banking that caused the 2008 meltdown – and as the largest and most powerful central bank, the Federal Reserve must shoulder the most blame. This is not the Commission's conclusion, however. According to the Wall Street Journal, the Commission's draft report "says that ‘the prime example' of the system's shortcomings was ‘the Federal Reserve's pivotal failure to stem the flow of toxic mortgages' over the past decade."

This is nonsense. It wasn't "stemming the flow of toxic mortgages" that caused the meltdown but artificially low interest rates and the over-printing of money-from-nothing. The Fed's ever-generous production of fiat currency caused a great euphoric boom that led to all sorts of irrational financial behavior, including offering low-rate mortgages to people who couldn't afford them.

It is amazing that this sort of finger-pointing is still taken seriously in an era when the Fed's leading critic Congressman Ron Paul is assuming oversight of the Federal Reserve for the House of Representatives. Ron Paul has been exceedingly blunt about the damages resulting from central bank money printing. One cannot now argue that Paul's argument is a "fringe" one – but it receives little play in the Democrat-driven Commission conclusions.

It should. In the 20th century, establishment critiques of central banking practices were rare. In the 21st century, the advent of the Internet has exposed the mechanics of modern finance and made its fraudulent elements clear. In concert with Congress – and Wall Street – the Federal Reserve creates money at the touch of an electronic button and transfers those electronic digits to its commercial bank currency-distribution network. It is a mad system that has replaced gold and silver with electronic digits and paper currency.

None of this critique – which is widely known today – apparently finds its way into the Commission's conclusions, set for release tomorrow. This is not for lack of effort. According to the Journal, "The panel interviewed hundreds of witnesses over its year-long investigation and collected millions of pages of documents." Obviously effort was expended, but the results are no different than conclusions of, say, the 1930s, when bankers and Wall Street tycoons were generously blamed for the failures of the Fed. Here's some more from the Journal summary:

The draft report says "dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis." It also points to "stunning instances of governance breakdowns and irresponsibility," including at American International Group Inc., which made giant bets on the mortgage market, and Fannie Mae.

The report cites burgeoning mortgage fraud around the country in the years running up to the meltdown and notes that major financial institutions packaged loans into securities that they had reason to suspect didn't meet their standards. It also cited the proliferation of exotic securities such as derivatives and the rise of a lightly regulated shadow banking system. The draft report says that the failures were widespread, even including the public.

In fairness to the panel, there were tensions between the Democratic majority and the GOP minority. The Journal reports that Republicans wished to be more forceful about allocating blame to the global credit bubble, though it as yet unclear whether the Fed itself would be blamed for creating the bubble. Both sides apparently, blamed financial institutions' excessive leverage and credit-rating agencies that graded issues optimistically.

What is most ironic about this report is that central banks have issued another US$20 to US$50 TRILLION into the market in the past two years in order to try to salvage the world's essentially unsalvageable dollar-reserve system. This is money that cannot be "sterilized" or otherwise fully removed no matter what Ben Bernanke maintains.

The currency apparently is beginning to circulate now and this will cause tremendous price inflation. Food riots are already beginning in Africa and the Middle East over high food prices. The damage is just beginning, even as the US Commission is gravely determining who is to blame – and missing badly.

The Commission has arrived at misguided conclusions. It may be said that such terrible conclusions are purposefully misguided, or perhaps they are merely the result of willful ignorance. What is clear – in our humble opinion – is that the Commission misjudges the mood and knowledge of the average American. Many people are well aware now of how the money system operates and where the money comes from that has been lavished on ruined companies – trillions and trillions of dollars.

After Thoughts

The anger is growing as times grow tougher. Efforts at deflecting blame from central banks will likely not have any significant effect in the 21st century. Too many know too much. It seems to us a change is coming.

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