Business Times - 02 Apr 2009
The worrying thing is that very few people seem to know exactly how the banking system is being rescued - and by whom.
IF YOU were to visit the US Federal Reserve's website, you'd find that it currently uses the following means to inject cash into the US economy: the Term Auction Facility (TAF, created on Dec 12, 2007); the Term Securities Lending Facility (TSLF, created on March 11, 2008); the Primary Dealer Credit Facility (PDCF, created on March 16, 2008); the Commercial Paper Funding Facility (CPFF, created on Oct 20, 2008); the Money Market Investor Funding Facility (MMIFF, created on Oct 21, 2008); and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (ABCPMMMFLF, created on Sept 19, 2008).
Most readers would find these names and the acronyms bewildering, and quite rightly so. The explanations of what these are, however, are much worse. Under the ABCPMMMFLF (which has been mercifully shortened to AMLF), for instance, this is what the Fed's website says: 'Eligible borrowers may borrow funds from the AMLF in order to fund the purchase of eligible ABCP from a money market mutual fund (MMMF) under certain conditions. The MMMF must be a fund that qualifies as a money market mutual fund under Securities and Exchange Commission Rule 2a-7 (17 CFR 270.2a-7) issued pursuant to the Investment Company Act of 1940 (Rule 2a-7). See 7.A. for further details on eligible ABCP under the program.'
Note that most of these facilities were created over the past 15 months in response to the collapse in the US banking system to complement the Fed's traditional means of liquidity injections, which was through repurchase agreements, or repos. And, to be honest, an extraordinary crisis probably justified extraordinary measures.
However, maverick but nonetheless respected music-cum-current affairs publication Rolling Stone (RS) believes otherwise. In its April 2 issue, its National Affairs correspondent points out that, at the start of the credit crunch in summer 2007, the Fed started buying repos at an alarming rate - US$33 billion in August, followed by US$48 billion in November. This escalated to US$77 billion during the Bear-Stearns rescue in early 2008 and US$115 billion in May 2008. These figures were readily available from the Fed's weekly reports but, oddly, at the start of 2009 the figure dropped to zero.
The reason, according to RS, is that the Fed has stopped using the transparent repo method and instead has invented the earlier-named instruments like the TAF, TSLF, MMIFF and so forth, all of which no one understands, to deliberately avoid accountability. And the reason it can do so without Congressional oversight is the Auditing and Accounting Act of 1950, which says no one can audit the Fed when it comes to monetary policy matters.
In other words, no one knows how much has been pumped into the US banking system so far and neither does anyone know who has been getting the money. The article mentions a possible US$3 trillion in loans and US$5.7 trillion in guarantees of private investments - and this is on top of the US$700 billion TARP (Toxic Assets Relief Program).
Extraordinary opaqueness
Granted, an extraordinary crisis calls for extraordinary measures. But why extraordinary opaqueness?
If this is a worry even to the most neutral of observers, more disconcerting is the assertion that questions about where the money is going are being actively discouraged by the incumbent administration - the attitude being a condescending 'it's too difficult for you to understand, best to leave it to the experts'.
Here's the clincher: those 'experts' are all ex-investment bankers with close ties to Wall Street - the very people who caused the collapse in the first place and who may be using the present crisis to further enrich themselves.
If these allegations are accurate, it confirms what we have said before in previous columns - namely, that there seems to be an unhealthy urgency within US officialdom to keep Wall Street happy at all costs by avoiding hard measures such as bank nationalisation, and to get credit flowing again as quickly as possible so that people will start borrowing again.
Critics of this approach have pointed out that instead of recognising that a hugely flawed banking system was the source of all the world's problems and therefore needs a complete overhaul, present efforts seek a quick return to that failed system by arguing that it only needs more regulation in order to operate successfully.
RS's revelations suggest otherwise. It alleges that Wall Street insiders have intentionally infiltrated the uppermost ranks of US officialdom and have turned the Fed and Treasury into their own 'black boxes' - opaque and unaccountable to no one for their actions because they and only they understand the complexity of the problem that they helped create.
The conclusion is that America has unknowingly turned over its political and economic future to the very villains that wreaked havoc on the world in the first place, and that Americans should as a result be very worried.
If this is true, then it isn't just every American who should be worried; it's everyone, everywhere else, too.
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