|
Search Precious Metal, Mining
and Financial News |
|
a |
3
Questions The Government Doesn’t
Want You To Ask About the Financial Crisis
(And 3 Shocking Answers!)
September 24, 2008
Bob Prechter, President of Elliott
Wave International (EWI), is no stranger to challenging the status quo. His New
York Times bestseller, Conquer the Crash, was published in 2002
before anyone was even talking about the current financial crisis.
In his recent 10-page market letter,
Prechter shifts his focus to the government’s role in the latest financial
turmoil.
Elliott Wave International is
offering the full 10-page report free if you’d like to read all 28 answers.
Visit EWI to download the full report, free.
Here are 3 questions excerpted from
the free report:
1. Didn’t Congress create the
Federal Housing Authority, Fannie Mae, Freddie Mac, Ginnie Mae and the Federal
Home Loan Banks for the purpose of helping the public buy homes?
You’re kidding, right? What happened
is that clever businessmen schemed with members of Congress to create privileged
lending institutions so they could get rich off the public’s labor. In return,
members of Congress got big campaign contributions from the privileged
corporations and, as a bonus, even more votes. The public’s welfare had nothing
to do with it.
Who celebrated when Congress passed
the latest housing bill? Answer: “The California Mortgage Bankers Association
applauded Congress for permanently increasing the size of loans Fannie Mae and
Freddie Mac can buy….” (USA, 7/28) The legislation exists to “protect the
nation’s two largest mortgage companies….” (NYT, 7/24) Who took out full-page
ads to encourage Congress to “enact housing stimulus legislation now”? Answer:
the National Association of Home Builders. Who celebrated when the
administration “unveiled a new set of best [sic] practices designed to encourage
banks to issue a debt instrument known as a covered bond”? Answer: “[Treasury
Secretary] Paulson was joined at the news conference by officials from the
Federal Reserve [and] the Federal Deposit Insurance Corporation…. Officials from
banking giants Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and
Wells Fargo & Co. issued a joint statement saying, ‘We look forward to being
leading issuers’” (AP, 7/29) of covered bonds. And voters still believe that
Congress is there to help the needy.
2. Who cares if a bank goes under?
Won’t the FDIC protect depositors?
The FDIC is not funded well enough
to bail out even a handful of the biggest banks in America. It has enough money
to pay depositors of about three big banks. After that, it’s broke. But here is
the real irony: The FDIC, as history will ultimately demonstrate, causes banks
to fail. The FDIC creates destruction three ways. First, its very existence
encourages banks to take lending risks that they would never otherwise
contemplate, while it simultaneously removes depositors’ incentives to keep
their bankers prudent. This double influence produces an unsound banking system.
We have reached that point today. Second, the FDIC imposes costly rules on
banks. In July, it “implemented a new rule…requiring the 159 [largest] banks to
keep records that will give quick access to customer information.” As the
American Bankers Association puts it, the new rule “will impose a lot of burden
on a lot of banks for no reason.” (AJC, 7/19) Third, the FDIC gets its money in
the form of “premiums” from—guess whom?—healthy banks! So as weak banks go
under, the FDIC can wring more money from still-solvent banks. If it begins
calling in money during a systemic credit implosion, marginal banks will go
under, requiring more money for the FDIC, which will have to take more money
from banks, breaking more marginal banks, etc. The FDIC could continue this
behavior until all banks are bust, but it will more likely give up and renege.
Remember, every government program ultimately brings about the opposite of the
stated goal, and the FDIC is no exception.
3. Who are the “homeowners”?
Everywhere you turn, news articles
are discussing how Congress, the President and the Fed are taking action to
“help homeowners.” People’s understanding of this statement is 100 percent
wrong. The homeowners in question are not the residents of the houses. The
homeowners are banks. Unlike some states, Georgia made its law very specific on
this point. Our local paper recently explained that, by recognizing the reality
of ownership, “Georgia employs primarily a nonjudicial foreclosure” and
therefore “has one of the fastest procedures in the country.” Specifically, “The
property owner gives the mortgage holder a ‘security deed’ or a ‘deed to secure
debt’. Technically, until the debt is paid, in full, the mortgage holder owns
the property and allows the borrower to possess it.” (GT, 8/6) In states where
the mortgage holder is deemed the property owner, the title is merely a legal
technicality. The day he stops making mortgage payments, he no longer owns the
property; the bank does. After foreclosure, many of those whom politicians and
the media call homeowners will simply go from paying interest to a bank to
paying rent to a landlord. For those with little or no equity, it’s not that big
a deal. The real devastation is happening in banks’ portfolios, and banks, not
home-dwellers, are the ones whom the government is trying to rescue, at others’
expense.
One might be tempted to charge
therefore that Congress makes its laws for the purpose of helping banks. This
idea, too, is incorrect. Helping banks is merely a side effect. The reason that
Congress creates privileges for bankers is to benefit politicians. They make
laws in response to campaign contributions from lending institutions,
real-estate organizations and builders’ associations. They also garner votes
from mortgage holders and, miraculously, from voters who think that their
“representatives” are being “compassionate.”
The previous 3 questions and answers
from Bob Prechter were excerpted from his recent 10-page market letter, The
Elliott Wave Theorist.
Elliott Wave International is
offering the full 10-page report free if you’d like to read all 28 answers.
Visit EWI to download the full report, free.
|