Bailout Nation Read Online Free Page B

can’t wait to see what the hell is gonna happen next month.

Chapter 2
    The Creation of the Federal Reserve, and Its Role in Creating Our Bailout Nation
    I am a most unhappy man. I have unwittingly ruined my country. A
great industrial nation is controlled by its system of credit. Our system
of credit is concentrated. The growth of the nation, therefore, and all
our activities are in the hands of a few men. We have come to be one of
the worst ruled, one of the most completely controlled and dominated
Governments in the civilized world.
    â€”President Woodrow Wilson 1
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    A s much as I tried to steer clear of writing a history of central banking, it was all but impossible. Any examination of bailouts in the United States would be incomplete if the role of the Federal Reserve System were omitted. I will endeavor to keep it brief and relatively painless.
    It is crucial to understand the role of the Fed, and how it has radically expanded over time, if you are to have any hope of comprehending the modern era of Bailout Nation. Since March 2008, so many different financial bailouts have been funded directly by the Fed—into investment banks, government-sponsored enterprises (GSEs), brokerage firms, money market funds, even the overall stock market—that we could not discuss bailouts intelligently and avoid mentioning the Fed. It is front and center in this mess.
    The role of emergency fixer was not part of the Fed’s original mission statement. At the end of the eighteenth century, prior to the creation of a central bank, currencies from as many as 50 nations were circulating in the United States. A single currency, backed by a strong authority, was needed to maintain some semblance of order. For any young and growing country, this was a necessity.
    As originally conceived, the central bank had a narrow task. It was brought into existence for eminently reasonable and defensible purposes: to establish financial order, to allow for the creation of needed credit for the country, and to resolve the issue of the fiat currency (money that has value by virtue of the government declaring it has value).
    From those relatively modest monetary and fiscal powers, the Federal Reserve has evolved into something that would be unrecognizable to its founders. Under the guise of economic expediency, the Fed has grabbed power, dramatically widening the areas of its responsibility. Since the 1990s, the Federal Reserve System, a private corporation registered in the State of Delaware, has behaved as though it were in charge of anything economic—moderating the swings of the business cycle, maintaining interest rates, supporting the value of depreciating assets, even intervening in the stock market.
    During the economic collapse and credit crises, there was a distinct lack of financial leadership in the United States. With President Bush’s approval rating at historic lows, the White House showed little inclination to face the storm. As the many crises began heating up in 2007, the leadership vacuum was apparent. It was into this empty space that the Fed inserted itself, seizing more and more authority. It wasn’t so much a power grab as a reluctant filling of the void. Steve Matthews, writing for Bloomberg, observed, “What started as a meltdown in the market for subprime mortgages has turned into a worldwide credit and economic crisis. Bernanke, now the Fed chairman, has responded with the most aggressive expansion of the Fed’s power in its 95-year history.” 2
    Paul Volcker, the well-regarded former Fed Reserve chair, was aghast at how much authority the central bank had claimed as its own. Following the Fed-financed shotgun wedding of Bear Stearns and JPMorgan Chase, he told The Economic Club of New York: “The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central