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The Great Bank Robbery of 2008
Robert P. Murphy
Mises Institute
Wednesday, October 1, 2008
The Paulson bailout failed in the House. If it isn’t a death blow to the plan, it should be. This is not an economic plan: it is a heist.
It will go down as The Great Bank Robbery of 2008.
The economics behind it are nonsense, but we are naïve if we spend much time even considering the “arguments” for it. This is a money and power grab, pure and simple.
Just as magazine covers today feature scantily clad women that would have been scandalous a generation ago, in the same manner Paulson’s proposal — made in broad daylight and on national TV! — is almost naked in its audacity.
Austrian economists tend to be libertarians in their political views, and they are often chided for not keeping these systems hermetically sealed and separated in their minds. Fortunately, this alleged vice is a virtue in our present situation. Because of all the mumbo jumbo thrown around to show why the plan is necessary, some very sharp academic economists are in a tizzy trying to treat this as an extra-credit question, rather than a crime scene. That is a waste of time.
(ARTICLE CONTINUES BELOW)
In this article, we will of course cover why the Keynesian justifications — coming from a “free-market” administration — are nonsense. But in the grand scheme, that’s not entirely relevant. People didn’t seriously consider the testimony of the tobacco company CEOs about the nonexistent dangers of smoking, because everyone knew those executives stood to lose billions from the settlement. So by the same token, no one should pay much attention to the official statements made by Henry Paulson, since he stands to personally be put in charge of doling out hundreds of billions of dollars to some of the most powerful people on the planet.
The Keynesian Fallacy: The Paulson Plan Won’t Create Wealth
In very simple terms, the Paulson Plan is a straight-up transfer of $700 billion — and counting! — from the taxpayers to a few big financial institutions. (Some smaller banks are complaining that they don’t own the exotic mortgage-backed derivatives, but rather simple mortgages. They do not believe they will see a dime of the Paulson money.) It’s easy to get all twisted around, but just remind yourself of this: the Paulson Plan has the federal government borrow $700 billion (through issuing Treasury debt) in order to buy assets from Wall Street banks. (We are neglecting the time delay in the program; the entire $700 billion wouldn’t be spent all at once.)
Some analysts think that the price paid for these “toxic” assets is important. No it isn’t. The government officials running this operation will dole out the favors on both ends, when the mortgage-backed securities are coming and when they are going. Neglecting this insight, some people want to say that if the government pays $700 billion for a portfolio of assets that is really only worth $400 billion, then the taxpayers really only lost $300 billion, not the full $700 billion.
Yet this thinking is naïve. The taxpayers are not going to be treated as equivalent to shareholders of a firm that just acquired $400 billion in assets. The taxpayers are not going to get a cut of the monthly mortgage payments (less the servicing costs on the $700 billion in new debt) tied to the government’s massive portfolio. Instead, the government will simply bump up its annual spending by a few billion dollars. Maybe it will have to spend the money on homeownership programs, or homebuilder job retraining, but the net income from those government-owned assets certainly won’t translate into a dollar-for-dollar tax cut.
And then at some point — during a future Republican administration, no doubt — there will be a push to “privatize” the secondary mortgage market, and the government’s portfolio at that time will be auctioned off at very generous prices to politically connected institutions. For example, maybe the $400 billion portfolio is auctioned off for $250 billion. (Perhaps the big banks have to set up subsidiaries owned by minorities and women who get preferential treatment in the bidding process. But whatever the ruse, they will find a way to justify the low prices.) When all is said and done, the government will have played hot potato with the MBS, and the national debt — borne by taxpayers — would be $450 (=$700-$250) billion higher. The favored financial institutions would be “up” roughly the same amount, collectively. (Throughout, we are ignoring the timings of the payoffs and the effect on present discounted value.)
It is the crudest Keynesianism to view the Paulson Plan as an injection of capital or “liquidity.” That money has to come from somewhere. If it is taxed or borrowed, then it is just a shell game; the liquidity is drained from elsewhere, to be injected into Wall Street.
Besides taxing or borrowing, the government has a trump card: it can have the Federal Reserve simply create the new money out of thin air, by engaging in some “Open Market Operations.” Yet even in this case, real wealth still hasn’t increased. Certain nominal figures, like “aggregate asset values” might go up. But that’s not very relevant, because the economy isn’t really richer. After all, there aren’t more tractors or office buildings just because Bernanke allows the monetary base to grow more rapidly. So what happens in this case is that prices rise; people find it harder to buy milk, bread, and gasoline. But the Wall Street fat cats are fine with the general price hikes, because they got their hands on the newly injected funny money early in the game.
But Won’t the Credit Markets Collapse?
Some observers would admit the legitimacy of my analysis above. “However,” they might say, “the Paulson Plan, or something like it, is necessary to avert a total meltdown of the financial system. We’re not trying to boost aggregate investment, so much as clearing out a clogged pipe.”
This talk of a breakdown in the financial system is a bogeyman. Steve Landsburg does such a great job of exploding this myth that I will simply quote him:
So what’s special about banks [that they deserve a bailout]? According to what I keep reading, it’s that without banks, nobody can borrow, and the economy grinds to a halt.
Well, let’s think about that. Banks don’t lend their own money; they lend other people’s (their depositors’ and their stockholders’). Just because the banks disappear doesn’t mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they’ll be able to find each other.
… [A]s any user of match.com can tell you, the technology for finding partners has improved since [the 1930s]. When a firm wants to raise capital, why can’t it just sell bonds over the web? Or issue new stock? Or approach one of the hedge funds that seem to be swimming in cash? Or borrow abroad?
… I’m not sure these big Wall Street banks are really necessary, and I’m not sure we’d miss them much if they were gone. Maybe there’s something I’m missing, but if so, I think it should be incumbent on Messrs. Bernanke, Paulson and above all Bush to explain what it is.
Conclusion
The Paulson Plan is a heist. It is a grand scheme in which the public will end up owing hundreds of billions of dollars to holders of new debt claims issued by the US Treasury. The plan won’t “prop up” asset values and it won’t provide any real stimulus to the economy.
Despite the dire warnings — coming from the same folks who brought you the Iraq invasion to remove WMD — there is no threat of a financial meltdown. If Goldman Sachs failed, the sun would still rise the next morning.
Far from providing stability and confidence, the Fed, Treasury, and SEC’s recent moves have ensured that US capital markets will now function with the same efficiency as public education in this country. The Paulson Plan is one more step in the socialization of America, but it is also a great bank robbery.
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25 Responses to “The Great Bank Robbery of 2008”
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October 1st, 2008 at 11:02 am
Join Cindy Sheehan In Saying No Bailout For Billionaires…
http://www.usalone.com/no_billionaire_bailout.php
October 1st, 2008 at 11:05 am
Andrew Jackson
“You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”
http://www.youtube.com/watch?v=ErFOsoKzpD0
October 1st, 2008 at 11:22 am
Steve Landsburg is quoted in the above article as stating:
“Banks don’t lend their own money; they lend other people’s (their depositors’ and their stockholders’).”
Wrong, banks lend money they create out of nothing the very moment the loan is extended. If it were other people’s deposits that banks were loaning, then their lending activities would never expand the money supply.
Landsburg then asserts:
“Just because the banks disappear doesn’t mean the lenders will.”
Yes, but if too many banks disappear, then not even the FDIC will be able to prevent a large portion of the MONEY SUPPLY from disappearing, and a severe money supply contraction is the very thing that caused the Great Depression of the 1930s.
If the American people don’t use their newly discovered power to influence Congress to institute a debt-free money system in place of the current debt-based system, then we will soon pass the point of no return (if we haven’t already):
http://forum.prisonplanet.com/.....ic=59754.0
October 1st, 2008 at 11:31 am
Here, Here !!! Where is the honesty from the “Greatest Generation”??? I see masses of people, of that age group, that are willing to lie to cover up the fact that they are not who they’ve been made out to be. The media has done everything it can to make us look like lazy, undereducated, rebelous youth. That is not what I see. I see a generation of patriots that are being wrongfully imprisoned and harrassed for exercising their first amendment rights. People who put the truth before their safety. While the baby boomers are driving around in $250,000 RV’s, doing nothing but enjoying a life free from thought. I’m sure there are exceptions… I’ll write again when I find one. Power to the People…
October 1st, 2008 at 11:32 am
Say no to fiat currency and the foreign banking cartel/The Federal Reserve!
October 1st, 2008 at 1:02 pm
I agree that our government and many in our country are mentally lazy and would much prefer to be “yes” people than think for themselves. Since when is it un-patriotic to ask questions? Answer: Since the Bush administration has been in office!!!!!!!!!!!!!!!!!!!!!!! All hail the great and powerful OZ!!!!!!!!!!!!!!!!
October 1st, 2008 at 1:38 pm
http://www.youtube.com/watch?v=uw5dP5gy2Vs
“They want a fascist planet with the superwealthy ruling it all
Since we’re too independent, America must be led to fall
When our credit’s been exhausted to subdue the Middle East,
They’ll install our debtor nation in the body of The Beast
Traitor…Dare call it treason”
–Cornbread Mafia
October 1st, 2008 at 3:45 pm
__________________________________________
http://www.ExposingChristianity.com
The pen is mightier than the sword.
- Everything in Christianity has been stolen from religions predating it by hundreds to thousands of years.
- Judaism, Christianity and Islam are all programs to keep spiritual knowledge away from the populace in order to keep humans enslaved by the global elite.
- Nearly everything in the bible consists of symbolism, allegories and twisted truths that are to be taken literally by the masses.
- Contrary to what most people have been indoctrinated with, Judaism, Christianity and Islam are relatively new religions. Humanity goes back tens of thousands of years. These three have worked relentlessly to keep us from spiritual knowledge and using this power, of which all of us have.
- The survival and prosperity of this vicious hoax on humanity requires only ONE thing- A LACK OF KNOWLEDGE!
http://www.ExposingChristianity.com
October 1st, 2008 at 4:34 pm
Good article, for the most part.
Keynesian economics says that if Govornment injects capital to avoid or remediate a depression, it has to be given to the CONSUMERS, in order to increase demand, not banks or industry. This, in turn stimulates employment, production, investment, etc.
To give any money to these banks to help cover their bad paper written with our mortgages as security will NOT increase credit. They will do exactly what they have been doing with the hundreds of billions that Bernacke has been ‘lending’ them for months; this is namely to invest it in commodity futures that raise prices (oil, food, metals) and real assets.
How many know that the Fed gets 6% of all money it prints for the Treasury?
Here’s an idea to send to your representatives:
1) No foreclusures on homes or small business for 5 years.
2) Use the FHA and SBA to make short term loans and refinancing available to citizens.
3) Tax every trade in commodities futures.
4) Seize the Fed and give Congress control of the money supply, as the Constitution provides.
5) Independant councils and Grand Jury indictments for Bernacle, Paulson, Bush, Greenspan, and all those who violated the trust of office and the law to enrich themselves and their friends. Treason sounds like a good bet.
6)Seize the ill-gotten assets, including the dozens of lear jets and 600,000,000 of fine art held by the Fed.
7) Let the banks that engaged in theft via deivatives and MBS to fail and send the guilty parties the way of Enron executives.
It’s a good time to ‘clean house’ and get the foxes out of the hen house.
October 1st, 2008 at 6:22 pm
This is all so confusing. I just know we are being scammed like the loan sharks!
October 1st, 2008 at 6:25 pm
Thanks, Building 6,
That’s quite possible. I wasn’t arguing the viability of the Keynesian model. I don’t want to get to deeply into semantics, I was just pointing out that the model that we’re looking at now, with the current criminal regime, is not Keynesian. What we’re seeing here is pure Corporate Socialism (Fascizm) -THIEVERY. Keynes basically premise was that the economy had to be stimulated with demand, not supply.
It was actually invented by Dr. Keynes (not Rothschild), who definitely was a big cheese before and during WWI and was doubtless hob-knobbing with the big boys at the Paris Peace Conference and the League of Nations.
Keynes shook things up during the depression by suggesting that the ‘bailout’ should be GIVEN directly to PEOPLE, rather than LOANED to businesses or banks. That is the fundamental difference between Kenes and the liberal socialists that had been bailing out the companies until his model was employed.
FDR deviated a skoshe, by setting up the CCC and the NYA and hiring the unemployed to build infrastructure and fix roads, etc. Given the state of our bridges, this may be much better use of $700B welfare plan for the big banks and Wall Street..
If you have any info on Keynes and Rothschild, that’d be really interesting study.
Don’t let them do it!! This may be the last chance we have to take back our heritage and put down the warmongering pigs…
Pat
October 1st, 2008 at 7:08 pm
Mr Robert P. Murphy. Please be very careful in your every day life.
Even avoid sins which other people consider them small.
The path for you being a saint is open.
October 1st, 2008 at 7:18 pm
THE BUSH CRIMINAL GANG WINS AGAIN
The senate in a Three to one margin passed the Wall street bailout plan ,Once again Bush and his stooges sock the public square on the chin.Wall street fat cats are rewarded with billions of tax payer dollars while Joe six pack gets to keep the same headaches . Through media ass wipers and a lapdog senate using fear and bogus information bush has hoodwinked the public again .The truth of the matter this bailout is not going to rescue one homeowner nor is it going to create one job.This bad mortgages are going to be wrapped up into a bundle and sold to china for a nickel on a dollar.
October 1st, 2008 at 8:32 pm
It hasn’t gotten through Congress yet. Call, e-mail, write your Congressmen!! DO IT NOW!! Tell everyone you know. Passing our debts on to our children is not what America is all about. Bieng sucker-punched in the wallet by your elected officials isn’t either.
We gotta let them and the world know that we know this has nothing to do with mortgages and everything to do with greed.
That was the only thing that stopped them last time, three short months before election and they don’t want to lose…
I will be calling and e-mailing until the answering machines fill up.
Pat
October 1st, 2008 at 9:01 pm
I’m itching to Ride into DC. We need to Organize.
We Can change the Banking System, Remove unchecked loan practices.
So it doesn’t Strangle our Childrens children.
4 years of difficulty is not a bad sacrifice.
Speak Out America!
October 1st, 2008 at 9:06 pm
Alex your new web site is starting to look like Vegas with all the moving glitter. This is going to put a cog in the wheel of your quest for the movement of truth.
October 1st, 2008 at 9:12 pm
Well, Here in Holland our government simply bailed out the Fortis bank for 4 billion euros.
And all of our political parties agreed; a day later.
Left, Right, Wrong.
No voting, just doing and in case of objection, continue doing.
That’s Holland nowadays: corporate government that does not need votes.
(o yes, it’s 4 billion in a country of 16 million people.)
October 1st, 2008 at 10:28 pm
#1 It is not “corporate socialism”.
The only conceivable way it could be seen as “corporate socialism” is if the Fed was bailing out CORPORATIONS. The Fed is NOT bailing out corporations. The Fed is bailing out WALL STREET. The difference is that they are giving money to speculators through the financial infrastructure of the corporations.
This fictional paper is not worth anything and adds NO value whatsoever to the economy. We should let it fall. The ONLY word to describe this is FASCISM. “Corporate socialism”? Please. Are you suggesting that the government is not controlled by the VERY PEOPLE they are proposing to bail out? Of course they are. And THAT IS FASCISM.
#2 There IS an economic collapse under way, and it has been under way for some time, like it or not.
If the banks fail, you think that the economy can function???
So if I run a business, and its time to print paychecks, how exactly will this happen? Who will create the MONEY for the paychecks?
Santa Claus???
The Easter Bunny???
Will you be happy if your employer gave you an “IOU”?
Will you be happy if your employer gave you some of the product that it makes?
Does you employer have a large stash of gold coins in the basement?
WHO will pay the employee’s of the nation and the WORLD?
What the Hell do you mean by, “Borrowers will still want to borrow and lenders will still want to lend”? Who will write the checks? Where will they come from? Uranus?
Unless your employer is a leprecon or a coin minting factory you aren’t going to be paid.
And even if they WERE, how do you pay your bills with gold coins? Will you send the gold coins through the MAIL??? In an ENVELOPE???
Even if Bill Gates and Warren Buffet decide to start a private bank (they would need approval from the Fed first, lol), they don’t have anywhere CLOSE to the amount of money required to supply all the paychecks in the country; even IF they could liquidate their entire net worth.
How ridiculous.
The monetary system of free trade economy is DESTROYED, its DONE. BYE BYE (and no, not like on the trading floor, that is finished). KAPUT!
There are three options:
1) Anarchy and world starvation. (We do nothing, and everybody is fucked).
2) Fascism and world starvation. (We bail out the banks and everybody except the fascists are fucked).
3) Within the Constitutional law, we put the federal government into bankruptcy reorganization, keep the (real) banks afloat, so what I described above does not happen, and build back the infrastructure that we desperately need and haven’t touched for 40-50 years. This will get real THINGS produced, these THINGS (not fictional paper) will support the market economy and support our national sovereignty so we can take our Constitution back.
You see, Free trade is about destroying the Nation State in order to destroy the power of the Constitution. If you have one WORLD GOVERNMENT, you have just destroyed the Constitution, because now fascist pigs will make all the decisions. Fascist pigs like to hide BEHIND “free trade” and “free markets” so nobody can find them.
“Free trade” and “free markets” are a TOOL of the fascist elites. They shipped all our jobs overseas (the REAL jobs) and then set up a gambling casino where speculators use monopoly money to get rich. Their “riches” have met the wall called “REALITY”.
You see the “credit crunch” is really just a big, fat, thick wall called “REALITY”. The technical reasons for it are not important. It was FAKE for the last 30 years. It was a snake that ate itself to survive. No matter WHAT technical tweaking you wish to perform all the snake could ever do is eat more and more of itself.
Right now, the snake is beginning to eat its most vital parts. It has grown, big and fat and needs food more than ever, unfortunately, its “food” is its OWN BODY.
Previously, the snake did not know it was eating itself, then in July of 2007, the snake realized that it was eating itself, but it knew that if it stopped eating, it would die. So this “economy” in the form of a “snake”, started to eat vital organs like “the dollar”, when it couldn’t do that anymore, it started to eat PEOPLE! People need food, so the snake shifted its speculative looting operations to the price of food, this is starving the third world. The price of food and oil went up which fed the snake, but then also HURT the snake at the same time, remember these are VITAL ECONOMIC organs!
Now, what’s left of the snake is big and bloated and it needs food more than ever, so now it wants to not JUST eat its own fake dollars, it wants to eat YOUR dollars!
The banks won’t lend any more money because they know the other banks are ALSO fake. The fakers are afraid of the other fakers. What is left of reality is what they are trying to consume. The very last morsels in the whole equation. The consumer. The snake will eat the consumer (the brain) of the economy.
This will surely kill it, but starvation is the closer route to death for the snake so it feels that if it just eats its own brains and adds that brain matter to the fake economy this will give it the strength to breathe another breath.
Solution:
KILL the snake. Replace it with a human who produces for the economy. Don’t allow this human to ever eat itself.
You see for the stupid and numb, eating oneself to save oneself from cultivation work is tempting. If you eat your own leg, you don’t have to go outside and do real (physical) work. You can stay inside and decide (speculate) which limb will come next. Easy, quick, money (death).
Fight the urge to eat yourself. Instead, cultivate (industry) and create new ways to cultivate (technology) so the work is not as hard and the crops are more fruitful.
And my God, PLEASE do not stop cultivating (shut down industry) and then give away or promise your body parts (speculation, bonds) for someone else’s cultivated crops (free trade). Because not only will this policy kill you eventually (credit crunch), but when you realize what you have done you will not have any limbs left (machine tools, education) to find the means to cultivate (industry) like you once did.
“Service economy” is another word for “cannibalism”.
October 1st, 2008 at 11:02 pm
Know matter which way it goes moving friendlier towards neighbors should help. Better to know the enemy than to sit and wonder who’s in your alley.
October 2nd, 2008 at 4:34 am
http://www.nowallstreetbailout.com/
October 2nd, 2008 at 7:00 am
a heist to say the least !!!!!!!!!! all criminals !!!!!!!!!!!!! and the senators who voted and reps are all acomplicers of the dirty deed !!!!!!!!!!!!!!!!!!!!!!! vote them out !!!!!!!!!!!
http://www.youtube.com/watch?v=gf6xadMwGz0
October 2nd, 2008 at 7:24 am
They want a fascist planet with the superwealthy ruling it all
Since we’re too independent, America must be led to fall
When our credit’s been exhausted to subdue the Middle East,
They’ll install our debtor nation in the body of The Beast
Traitor…Dare call it treason
http://www.youtube.com/watch?v=uw5dP5gy2Vs
October 2nd, 2008 at 3:07 pm
good words , you speak the total truth.please put me on your e-mail list.and please, please dont ever shutup.
October 2nd, 2008 at 3:18 pm
i just read it again. it,s soo fucking tight! you are on point exactly.keep thinking , thr more people like you in this world , the better off we are!
October 3rd, 2008 at 1:23 pm
“CORPORATE WELFARE IS OFF THE TABLE!” This is so clerly nothing more than a last minute raid on the cookie jar before the new administration gets into office. A wealth transfer program, pickpocket in broad daylight. The audacity of it is staggering. Paulson goes around waving his hands on all the talk shows and we’re supposed to get all askeert. The timing is auspicious, no? We know there are no coincidences when it comes to the NWO banking cartel. What other conclusion can one draw then they are out to destroy the U.S. middle class? The way they threaten us, and then when the people finally get the lilly-livered Congress to act on our behalf, the rich fux tank the market. What a ploy, but no one is mentioning it.
No one in the MSM or in the Congress except our good buddies Ron Paul and Dennis Kucinich are even remotely suggesting we revise or repeal the criminal Federal Reserve “Act.” THAT is what is really needed here. CRISIS=OPPORTUNITY and we’re totally missing the boat! And we probably will never learn until it is too late. When the media is controlled by a few rich fux, and I shall spare the ethnic slurs, it is useless to hope.
IMHO, WHAT WE NEED IS TO ORGANIZED GENERAL STRIKE BEFORE IT IS TOO LATE. A GENERAL STRIKE AND SHUT DOWN THE SYSTEM. I’m no Communist or Labor organizer, but a stay at home or sit down strike is the only way folks. Sorry to say, it may never happen until we’re all living in tent cities or surrounded by razor wire. Your iPOD won’t do you much good there.
GOD BLOODY BLESS AMERICA. Land of the free! Live free or die!