Wednesday, March 19, 2008

Fed's Bank Bailout is Illegal

Phaedrus has arrived at the conclusion that government rescues of failing banks are illegal under the law. The proof for this serious accusation follows shortly, but first consider the gut-wrenching hypocrisy of it all...

The government has always told us that whatever happens, the banking system must never be allowed to fail. Quite why such a failure should be regarded as so cataclysmic is never really spelled out, it is simply taken for granted that only stupid people would question the assertion - so no one ever does. On other hand, mere INDIVIDUALS who go belly-up simply have to take the full hit themselves; no one in government appears to give a damn when hard-working people lose their homes and wind up in shitty trailer parks in the middle of nowhere. Politicians utter a few solemn platitudes about 'regrettable individual tragedies' and that's the extent of government 'help' that ordinary folks can expect.

But after all, this is America and Americans don't expect other people to wipe their butts for them. If we screw up and take on more debt than we can afford, then it's our own fault and we just have to live with the consequences. So why should the banksters be treated any differently? They have made lousy financial decisions, too, and for such people who are soooo much smarter than the average Joe, it's really inexcusable. Perhaps we can understand ordinary folks getting into difficulties, because finance can be a complicated business, especially in today's world. But what excuse do the lenders have, pray tell me? Oh yeah, go back to square one and repeat the mantra: "the banking system must never be allowed to fail."

So there we go: two sets of standards. But wait! There's rather more to it than that which everyone seems to have overlooked. Not all lenders enjoy such immensely valuable government patronage. Sure, the Big Guys at the top do - Goldman-Sachs, Merrill Lynch, Lehman Brothers, JP Morgan and all the other Jewish-owned merchant banks and many other large, Jewish-controlled commercial banks, too. There are broadly two types of lender: the 'well-in ones' which are typically Jewish-owned on the one hand, and the 'independent outsiders' on the other. The first category get their asses covered by the government (the taxpayers in other words) but the second category don't. They're on their own like you and me. They're smaller players and if they crash, they crash and burn; there's no safety net for them.

This is the broad picture of the lending market that we've lived with for several generations. Naturally of course, all banks have to compete with each other for deposits and loans which is done primarily through the various interest rates they each offer. The illegality under discussion lies solely with the LOANS side of the business, however. Banks need borrowers, and borrowers vary considerably. Their risk profiles vary greatly. Some are far more likely to be able to repay their loans than others. Some are good risks, to whom low rates can be offered; others are bad risks, to whom credit, if granted at all, will not come cheap. If the playing field were level, this really wouldn't matter at all. Banks are free to decide for themselves to whom they grant loans and they're fully entitled to reject risky applicants. However, there's a little matter of what economists call 'opportunity cost' in doing this, because a certain proportion of the borrowers who get turned down would in fact have turned out to be good business after all. They wouldn't have defaulted and the bank, for charging its added risk premium, would have done very nicely out of them; better than a regular customer with a good credit history, in fact.

Can you see the problem yet? Probably not. No one seems to have, so I'll spell it out as clearly as possible. The banks I refer to above as the 'well-in ones' have a distinct advantage over the 'independent outsiders' because they KNOW for sure that in the event they over extend themselves with bad loans, the taxpayer is gonna bail them out. This means their 'risk horizon' is much more benign than that of the 'independent outsiders' and because of this, they can afford to offer more competitive rates to sub-prime borrowers and thereby grab a greater share of this large segment of the market. In short, the situation created by Fed intervention IS ANTI-COMPETITIVE AND CONSEQUENTLY ILLEGAL! And this deplorable situation isn't unique to the US, either.

Across the water in the UK., the situation is uncannily mirrored by the Bank of England, where the same patronage and support of the big names is enjoyed - and once again those big names are Jewish ones. For a period of several years, the UK, like the US, had a mountain of cheap money to on-lend and competition for borrowers among the banks was intense. Again, as in the US, some lenders were effectively 'government insured' whilst others weren't. Once again, the 'well-ins' were able to offer rates to borrowers that didn't accurately reflect the borrower's risk profile - again pricing the smaller independents out of their rightful market share. Again, this is also ILLEGAL UNDER EU LAW. And it is rightly regarded as a very serious offense. Hopefully someone somewhere with some influence will read this and act on it, because it really is one of the great cons of the early 21st century - and as ever, you and me are paying for it.

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