Thursday, July 24, 2008

Q & A

Question: Is the Federal Reserve part of the government?
Answer: No, it's the US central bank privately owned by bankers and run for bankers or in more formal fashion, "The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system[1] composed of (1) the presidentially appointed Board of Governors of the Federal Reserve System in Washington, D.C."

Question: What is Fractional Reserve Banking?
Answer: It's a Federal Reserve mechanism that allows affiliated US banks to loan out money at a 10/1 ratio to the amount of deposits in the bank, something gambling casinos cannot do in the running of their businesses as they must have enough cash on hand to cover all the winnings their customers make on any given day. In banking parlance, this is called 100 percent reserve banking where loans are fully covered by on hand cash, something that never happens in any bank allied to the Fed in the US. Because of FRB, banks generate money from nothing due to the fact the promise to pay off a loan is considered as "good" as cash which enables banks to create more loans to other people at the Fed's approved 10/1 ratio. (Note: Each loan can be ramped up 10/1.) Upon learning this little known fact about banking, one readily surmises that interest on loans becomes the real money maker here, not the principal, a concept that escaped yours truly for many years until now.

Click on Paul Gagnon's explanation as to why Money as Debt, forms the basis of our very strange financial system this country has had since 1913. It will blow you away.

Addendum. Click here to read Mike Whitney's latest blurb about banks. It will warm the
cockles of your heart.



Question: What is a hedge fund?
Answer: “Hedge funds are investment pools that are relatively unconstrained in what they do. They are relatively unregulated (for now), charge very high fees, will not necessarily give you your money back when you want it, and will generally not tell you what they do.

Ok...

Question: What was the Glass-Steagall Act?
Answer: "The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) and included banking reforms, some of which were designed to control speculation.[citation needed] Some provisions such as Regulation Q that allowed the Federal Reserve to regulate interest rates in savings accounts were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Other provisions which prohibit a bank holding company from owning other financial companies were repealed in 1999 by the Gramm-Leach-Bliley Act.[1]

Question: What is Investment Banking?
Answer: "Investment banks help companies and governments raise money by issuing and selling securities in the capital markets (both equity and debt), as well as providing advice on transactions such as mergers and acquisitions. Until the late 1980s, the United States and Canada maintained a separation between investment banking and commercial banks."

Oh...in essence, hedge funds, banks and investment banks can work together to generate $ in all kinds of ways including...

Question: What is Sub Prime lending?
Answer: A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

For mortgages, houses, as everyone knows, are used as collateral for all categories of buyers. As long as the housing market was hot, sub primers could sell their houses at a profit (to pay off their loans) and move on while SP lenders reaped enormous profits even though the financial base on which their monies were made consisted of vapor at best. When the housing market collapsed, the now worthless SP securities of deposit, which were converted into Collateralized Debt Obligations (aka Toxic Waste) and plugged into many different kinds of derivatives, (somewhat risky financial instruments sold to investors designed by hedge funds, investment banks and banks, among others, to generate additional income) not only destroyed entities like Bear Sterns and Fannaes Mae & Mac but also polluted investment portfolios located in countries all over the world.

Question: Who is Henry Paulson Jr.?
Answer: "Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs. He joined Goldman Sachs in 1974 in the Chicago Office and became a partner in 1982. From 1983 until 1988, Paulson headed up Investment Banking Services for the Midwest Region and became Managing Partner of the Chicago Office in 1988. In 1990, he was named Co-head of the firm's investment Banking Division, and in 1994 he rose to the position of President and Chief Operating Officer. In 1998, he was named Co-Senior partner, and with the firm's public offering in 1999, became Chairman and CEO."

Question: Who is Ben Bernakie?
Answer: Dr. Bernanke has already served the Federal Reserve System in several roles. He was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005; a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).

Question, What is the current economic situation?
Answer :
Bernakie: "The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities....The deteriorating performance of subprime mortgages in the United States triggered turbulence in domestic and international financial markets as investors became markedly less willing to bear credit risks of any type....Many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain."

To read another view on the economy, click here.

Question: How can Fannie Mae and Mac be saved?
Answer: - The Mother of all Bailouts
Ron Paul talks about the bailout out of the housing industry and how it really just destroys the dollar and adds enormously to the debt.

Also, slipped into the bill, was the stipulation that ALL credit card transactions must now be reported to the IRS.


Any questions?

Had to add one last blast on Q &A. Click on Uncle Sam to read William Grieder's gem, Economic Free Fall? to see why trouble awaits us all as we move toward the abyss of 2009.
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