Wall Street Drinking and Driving

Imagine your kid going out on a Friday night borrowing the car, and then drinking and driving resulting in an accident, causing injury to bystanders. Would you buy them a car of their own the next day? In fact would you buy them a new sports car just because they asked for it?

I'm giving this example as a comparison to the current financial crisis on Wall Street. George W. Bush stats the cause is that “Wall Street got drunk.” And now they got into an accident affecting many middle class Americans, thus far.

The solution proposed by Henry Paulson, Secretary of the Treasury was a bill, that has become law, after 'much' debate and controversy. Much of the controversy stemmed from the price tag attached of originally $700 Billion and now $810+ Billion US dollars for the Treasury. Granted this is a large amount, but the only justification for that specific number was offered by a Treasury spokeswoman to forbes.com in that “[they] just wanted to choose a really large number,” and that “it’s not based on any particular data point.”

Additionally, the bill does not address any of the issues causing the rise of the situation. In particular foreclosures, subprime loans, jobs, or the derivatives’ market as a whole.

I can't help but wonder if there's a conflict of interest with Paulson being former CEO of Goldman Sachs (GS). This is the same company who invented a lot of these financial tools such as block trading, commercial paper, and risk arbitrage, etc. Some even created under his watch. It could account for why certain monies were allocated towards institutions in which GS had financial interests at stake. Such as AIG, whose main trading partner was GS.

I don't want to elaborate on the outrageous provisions attached to the amended bill in order to get the buy in from Congress officials. But rather, it strikes me that there is immense concern towards the hefty price tag. Certainly there should be, however, are we not seeing the forest through the trees? There disproportionate attention towards this figure when there are other monetary figures of a much more grave a concern. Those being the:

•1.57 Trillion dollars in loans to bailout Wall Street prior to the introduction of the Bill by the Federal Reserve.
•2.3 Trillion dollars that the pentagon admitted went 'missing'. This was announced by Defense Secretary Donald Rumsfeld on Sept 10, 2001. The day after, the budget analyst office was destroyed in the 911 attack against the Pentagon.
•One Quadrillion dollars. The amount held globally in derivatives, in which mortgage backed securities are a part of.

I've never heard of Quadrillion before as referenced to monetary figures. That's a one with 15 zeros after it! The reason being is because it is more than the combined value of all assets of the Earth, estimated to be 100 Trillion dollars.

Maybe there's more to this bill than meets the eye. I propose though, it most likely has more to do with the sweeping authority it gives to the Secretary of the Treasury, offering a Carte blanche to spend without transparency, oversight, or judicial review. I would not be surprised if it were used to purchase the toxic debts possessed by GS.

Going back to the scenario I first posed regarding the drunk-driving incident. What would you do? At minimum I would take the keys away! So as it relates to this situation, I believe the Federal Reserve Bank of New York should be nationalized. The confusion of this proposal lies in the fact that the general public does not know that the Federal Reserve is neither Federal nor a reserve. It is the largest and most important of the twelve Federal Reserve Banks of the United States and is in charge of implementing the monetary policy in the United States.

It is responsible for 3 US dollars of debt for every dollar in circulation, mostly due to lack of any oversight. It has engineered credit crises such as the current one faced by America by not preventing and encouraging the use of junk investments as AAA credit rating investments via credit default swaps and other mechanisms; thus bypassing the regulations. This could be argued to be against the letter of the law if not against the spirit of the law.

Another major issue I take up with the Bank is that it creates money for personal use in the purchase of corporate assets such as 47 Lear jets or an astounding $300 Million art collection accompanied with a private curator. If nationalized, then they would be forced to go before congress prior to any spending.

In terms of savings that nationalization would bring is quite significant. On this bill alone, the savings in annual interest payments would be more than 35 Billion US dollars. And since they are the number one supplier of debt, these interest savings would be extended over all that debt. Additionally, all the profit that the Bank would accrue could go towards repaying the Federal debt. It would provide an opportunity to clean up the books and audit the company thus sending a clear message to the world and the other eleven US Federal Reserve Banks that the government has a vested interest in the proceedings of its economy, as apposed to a third party.