“The problem came about because we spent too much, we borrowed too much, we printed too much money, we inflated too much and we over-regulated. We are looking at the collapsing of a market which is unstable. It is unstable because of the way it came about. It came about because of the monopoly control of money and credit by the Federal Reserve system and that is a natural consequence of what happens when the Federal Reserve system creates too much credit.”
Internet conspiracy theorist? No, Ron Paul, candidate for Republican presidential nomination. Those words were from a speech to Congress in 2008 urging a “no” vote on TARP, the Mother of All Bailouts.
Three years later, with the crisis switching up a gear from banks to sovereigns and Europe teetering, Paul predicted “they will probably bail out Europe next”.
That they did. This week, the Fed led a coterie of central banks in a dramatic market intervention which cut the cost of US dollar funding to European banks in half. Drunk on this latest round of credit shots, world stockmarkets popped up 5 per cent, as they do every time the Fed cranks up the presses.
Ron Paul was predictably unimpressed: “Bankers should take their dreaded haircut rather than making innocent people pay for their mistakes. The losses should be limited and liquidated, rather than perpetuated and rewarded. This is the only way we can recover.”
Time wins more converts than reason. Despite being ignored by the mainstream media for years, Paul is now running between second and fifth in the polls for the Republican presidential nomination.
Although he’s up against the usual GOP field of gun-toting show ponies, ideological crackpots and corporate stooges, the modest congressman from Texas is thought too radical.
After a recent TV debate, host network CNBC took down an internet poll which had Ron Paul thrashing his rivals. His supporters were “gaming” the poll, said the network. There was no evidence.
A civil libertarian and stickler for the constitution, Ron Paul voted against Dubya’s invasion of Iraq, the Patriot Act and the TARP bailout. He wants Fort Knox and the Federal Reserve audited, and the gold standard returned.
Needless to say both Wall Street and the military industrial complex – and Republicans and Democrats – are equally leery.
Fox News, which is pushing Newt Gingrich, gave Paul a spot of airtime the other day. A Barbie-blonde presenter attempted to fit him up with a sex scandal of the confected “do you deny…?” genre. It backfired.
The presenter simply couldn’t nail him as Paul a) doesn’t have that ”girls in the hot-tub” look about him, b) has a penchant for telling the truth, and c) displays the uncommon trait of common sense.
They haven’t been able to snare or discredit him yet, so they ignore him so assiduously that people are beginning to suspect he must be onto something.
He is fond of pointing to paradox, for instance the Fed lending to the banks at close to zero and then the banks lending it back to the government at 3 per cent – by buying Treasury bonds – after the government has given it to the Fed in the first place for free (by expanding the Fed’s balance sheet).
If Ron Paul looked prescient for his call on Europe this week there was sure-fire vindication after the Bloomberg news agency won its freedom of information lawsuit against the Fed and revealed the central bank had funnelled
$US13 billion in funds to US banks without disclosing it to Congress.
Bear in mind the Fed, unlike other reserve banks, is owned by private banks. Wall Street if you like. The Fed and the big banks fought for more than two years to keep details of the largest bailout in US history a secret. Now the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $US1.2 trillion on December 5, 2008, their single neediest day.
The abuses are legion, well worth a read. Morgan Stanley, for instance, took $US107 billion in Fed loans in September 2008, “enough to pay off one-tenth of the country’s delinquent mortgages” while it was telling everybody it was healthy. That was before TARP.
The rub with hiding things, with lax accountability, is that confidence in public institutions suffers. Indeed the capitalist system is based on trust, trust that a counterparty will pay, that an institution won’t run off with your money, that you are being told the truth.
And so it was that this week we reported in these pages that our own Treasury and Reserve Bank had been purging information about bank guarantees from the public database.
“The banks requested us to remove it!” was one excuse. They had better pray the banks don’t request them to jump off a cliff.
The other excuse was that this public information was “confidential”. Treasury took a week to come up with that one. Public one day, confidential the next – they must have been boning up on their Aldous Huxley.
Already, the bankers know they can’t fail, so they can take more risk. If Ron Paul is right and a system which rewards failure is destined to fail itself, then the only thing standing between here and disaster is credible and transparent regulation.