Fed, Banking Regulations, Capital Flow, Crisis, Part 16
The W shaped recession of early 1980s effected the most of developed world, adversely. There was a short recession between January and July 1980, followed by a short period of growth and a deep recession from July 1981 to November 1982. The second recession was severe, by all means. Once again Federal Reserve tried to fix economy by raising the interest rates to control very high inflation, they named “stagflation”. The unemployment peaked in November and December 1982 when it reached 10.8%, highest since Great Depression, and still the highest, to date. In mid-1982, it reached the level of 25% in Rockford, Illinois. In November 1982, West Virginia and Michigan had unemployment rates, as high as 16.4%. The inflation rate peaked at 13.5% in 1980. Federal funds rate rose to 20% in June 1981. Prime interest rate eventually reached 21.5% level in June 1982.
Tax payers sponsored Federal deposit insurance was raised from $40,000 to $100,000, encouraging the heightened reckless behavior in financial institutions. Guess who paid for these reckless practices in financial industry? Of course, tax payers. By mid-1982 the number of bank failures reached the mark of 42 and Federal Deposit Insurance Corporation (FDIC) spent 870 million dollars of tax payers’ money to keep various banks functioning. In 1983, another 50 banks failed, surpassing the previous record of 43 failures, set up in 1940, during Great Depression. FDIC listed 540 banks, as institutions, at the verge of failure.
In 1984 Continental Illinois National Bank and trust Company was declared “too big to fail”, and was rescued by 4.5 billion dollars of tax payers’ money. This was a rescue package for banks like Manufacturers Hanover Trust Company, Bank of America and Citicorp, as well because these banks were not in a position to write off the loans to Continental Illinois. In the midst of these losses, the Tangible Net Worth of 616 billion dollars savings and Loans industry, was essentially zero, by 1981. By 1982, the 5% percent deposit requirement for Savings and Loans (S&L) institutions was lowered to 3% which meant that a 2 million dollars investment could loan up to 1.3 billion.
Between 1980 and 1983, a total of 118 S&Ls with assets of 43 billion dollars, failed. Federal Savings and Loans insurance Corporation (FSLIC) spent another 3.5 billion dollars of tax payers’ money on these failures. By the end of 1982, a total of 415 S&Ls were insolvent. Is it really hard to understand the cause of this crisis? Anyone can figure it out, except government. Without any doubt it is the fiat money and fractional lending. If the gold standard or any other standard like silver, for example, was still in place and financial institutions were not allowed to lend more than they owned, the crisis would have not happened, and there would have been no tax payers sponsored bailouts.
Keynesians, often say that financial crises happen due to the lake of government regulations. But, you can easily figure out that these crises, actually, happen due to government regulations. Under the influence of big, rich and powerful banking lobbies, if government did take away gold standard and allowed fractional lending, there would have been no high inflation rates, in the midst of very high unemployment, also termed as “stagflation”. The fact that the prices kept hiking at the record rates, in spite of the increasingly reduced overall consumer buying power, due to very high unemployment rates, proves that the extra money, causing inflation, was fiat money being generated through fractional lending.
When there is not real productive force behind the generation of money, and it is being generated out of thin air, the consequences are disastrous, as we can clearly see in this scenario. I mean the big banks were getting rich by money generated through fractional lending, and poor tax payers had to bail them out when they became insolvent due to their own reckless practices. This also proves that government is also not a good keeper of our tax money.
We do not pay taxes to handover to rich corporations going bankrupt due to their own reckless practices. Do tax payers have a share in their profits when they make billions in profits? Of course, not. If this is true than why do we have to take responsibility of their losses? They should grow up and be responsible for their own actions. This is the simple principle in Capitalism, “You keep what you make or lose”. Do not screw up tax payers for your own ridicule.
My friends, what is known as “financial crisis” in contemporary world, is the result of ‘pro banks’ laws, loved and liked by bank lobbies, sold out politicians and corporate media. If money is strong and baked up by real tangible value, not paper, it is very less likely to cause high inflation and insolvency in financial institutions. Even if there are any higher rates of inflation, caused by various factors, the limited supply of money, backed by real tangible value, has the ability to fix it, effectively, in a very short period of time. This whole fiat money hoax is created to make it possible for big bankers to get rich over night at the cost of tax payers.
This unlimited supply of fiat money is a conspiracy between government, and big banks and corporations. In this way, both government and banks can grow at a very high rate, all at the expense of tax payers. When sovereign debt or debt owned by financial institutions becomes insolvent, they always have tax payers to bail them out. Unfortunately, we are always told that it is being done for “our own good”, and under the influence of partner in crime, big media, we always seem to accept this excuse.
This is never done for our own good, and it will never be for our own good. By all means, it has always been corporate welfare, done to benefit rich people, and it will always remain as corporate welfare, not our good. Does someone bail you out when you are in trouble? After all, you are a citizen and tax payer of this country, too. There is something innately wrong with this picture. All we need to do is to wake up, and vote out the corporate crooks of both major political parties. Ladies and gentlemen, it is ‘the time’ for ‘We the people’ to take back our country from big corporations.