I made a huge mistake. I gravely underestimated the extent to which in-the-know investors and traders on Wall Street would tolerate—nay, cheer—the Federal Reserve and the government’s direct support of stock prices. That’s right, the Too-Big-To-Fail banks, supported by the Federal Reserve and government, are buying up stocks of companies in order to prop-up the stock market, thereby creating (for the time being) the illusion all is well with the economy. Let us take a look at how this is being done, who is doing it, and why it is being done. All the while keeping it simple.
A very brief background. The housing bubble peaked in December 2006. Thereafter, house values declined eventually triggering huge losses on Wall Street in the spring and fall of 2008. The players hardest hit were those who made the riskiest bets—banks, insurance companies, and lenders Fannie Mae and Freddie Mac. The bets were so risky, the loses so great, the entire global financial system was teetering on collapse. To cover their bad bets the players called on the Washington D.C. to bail them out with taxpayer money. The Bush bail-outs came and so did the Obama bail-outs. Still, stock markets around the world crashed week after week for seven months. The Dow had gone from 11,516 in Sept. 2008 down 43% to 6,547 in March 2009. It was looking pretty dire until two incredible and despicable decisions were made in Washington D.C., Wall Street, and the Federal Reserve.
It is critical to understand these three entities. Think of a triangle. At each of the three corners stand enormous centers of power:
1) Washington D.C.(the President’s administration and Congress).
2) Wall Street (investment companies and banks).
3) Federal Reserve (the central bank of the U.S. Note, the Federal Reserve is not a branch or office of the U.S. government. The Federal Reserve is a private corporation.)
All three of these centers of power, D.C., Wall Street, and the Fed, are using each other to both profit and to save themselves from destruction. They are so incestuously intertwined that each depends on the sickness of the other for survival—at any expense. Insider-info, corruption, looking the other way, bribery, and greed are the life blood of this three-headed monster. Once you see and understand this triangle, you can make sense of how money is moving around and why. Each has something of value that the other needs and wants. (Our Founding Fathers knew of these kinds of financial relationships, as they have always existed in one form or another. Our Founders had initiated safe guards to protect us from them, but have since been eroded. I will save that article for a later date.)
Now, back to March 2009. In March 2009, the Dow had crashed all the way down to 6,547 points. In order to “save” the system, the power centers contrived two cover-ups to fool We The People. Washington D.C.’s plan: Prop-up the stock market to save retirement accounts and hopefully raise public confidence encouraging people to start buying stuff again, hiring employees again, and vote for them again. Wall Street’s plan: Make a ton of money. Federal Reserve’s plan: Expand their power and control. Total, complete, and direct government intervention in the private markets. With what money? Taxpayer money of course, and by printing worthless paper money.
First, the Federal Reserve was given the green light by D.C. to print trillions in worthless paper money. With this money the Federal Reserve gave it to the banks with orders to use the money to buy up stocks in the stock market. Thereby halting falling prices of stocks. The banks made tons of money in profits as they basically created their own rising stock market. While mom and pop were selling their investments, the banks were buying. And buying. And buying. The banks are still buying. I suspect that is why the Dow is up 277 points today—on no good news. Today is the last day of the second quarter. Second quarter statements will be mailed to pension recipients, 401k participants, and IRA investors next week. Must…raise…quarterly results. Must…keep…the illusion…going.
Second, Wall Street banks clamored to get these worthless home loans off their books in March 2009. If the banks had to continue reporting loses on the value of “assets” they held on their books, their depressing business reports would destroy their own stock prices. So, Washington D.C. helped out the banks by suspending FASB accounting rules. With FASB suspended, the banks were allowed to mark the value of the home loans on their books to whatever value the bank saw fit. Washington D.C. wanted the banks to keep their doors open to the public so to create the illusion of normality, thereby avoiding a public run on the banks. Washington D.C. allowed the banks to hide their insolvency. FASB accounting rules are still suspended to this day.
Beginning to see how this triangle works?
There’s more. Oh so much more. But, that is how the sham began.