The Great Public Fleecing

The American public has been misled into believing that the current financial crisis appeared suddenly without notice and the Government had very little time to react to it. This simply is not true.

I believe if you look into our current economic crisis you will find it was slow developing and created by our leading economic institutions. These financial institutions were not only aware of its potential failure but planned their escape years in advance in the event their risky financial dealings brought their fiscal house of cards crashing down upon their over extended financial empires.

In 1991, Goldman Sachs and other leading private investment Banks realized they had no safety net in the event their over leveraged financial dealings started falling apart and suddenly had to come up with cash to cover their financial transactions. Since they were private investment banks and not depository Banks, they were not covered by the security of the Federal Reserve System.

These private investment houses went to Senator Christopher Dodds, chairman of the senate sub-banking, Housing and Urban Affairs Committee, who agreed to author an attachment to a "bill whose primary purpose was to reform the Federal Deposit Insurance Corp, which guarantees commercial Bank deposits." (Washington Post, (5-20-2009 Congress's Afterthought, Wall Street's Trillion Dollars. Binyamin Appelbaum and Neil Irwin). Senator Dobbs submitted this attachment the evening congress adjourned for their Thanksgiving recess. This procedural move kept those voting on the bill from debating or questioning the changes to the bill.



It is interesting to note the Head of Investment Banking for Goldman Sachs in 1991, who obviously should have had knowledge of the fact there was no safety net in place for it, was Henry Paulson Jr., who was also the first United States Treasurer to use the powers granted by the Dodd's bill of 1991 to save Bear Sterns in 2008 funding its purchase by J. P. Morgan, a depository bank that technically did not fall under the authority of the Federal Reserve Board at that time.



Large investment institutions enact financial plans years in advance so they can be prepared for the future. The very basis of their accounting system makes this necessary. Yes, they have yearly accounting systems but they also have 5 year, 10 year, 15 year, and 20 year plans. As a result of this long range planning, investment institutions have a very good idea what their financial needs are going to be 15-20 years down the line.



Did the fact these giant economic institutions knew they had the ability to be bailed out by the Federal Reserve cause them to become ever more reckless in their financial dealings? I do not know if that will every be proved or disproved but it certainly was an incentive to force them to become less cautious. It is clear that during the years 2000-2008, Wall Street became increasingly more reckless in their financial dealings even creating financial packages that had no relationship to economic reality.



When the financial House of Cards crumbled, the public was told by then United States Treasury Secretary, Henry Paulson, and the Current Federal Reserve Board Chairman, Ben Bernanke, "These financial institutions are too big to fail, they must be saved." Secretary of the Treasury Paulson and Chairman Bernanke, using Federal Reserve funds, stepped in and saved these large financial institutions from failure. Of course they were using U.S. taxpayer funds so now we are on the hook for saving these giant private financial conglomerates. Private financial institutions that the average taxpayer is not even able to enter. Socialism for the largest private investment institutions in America. The very institution Wall Street rails against is the first one it relies upon to survive. I find that very strange.



So now you and I are on the hook to save these huge financial institution, who have known for 16 years they had a safety net in the event of a financial collapse made up of public funds not of private funds. As Jackie Gleason used to say portraying Ralph Cramden the bus drive, "How Sweet it is."



There was one very large private investment house not invited to the party by Secretary Paulson and that was Lehman Brothers, his chief competitor when Paulson was the CEO of Goldman Sachs. Lehman Brothers was the only large investment house allowed to fail. It was much larger than many of the companies saved by the federal government. I assume its failure was purely coincidence.



A sorry epitaph in any one's biography and one that will haunt Paulson to his grave.