For those who missed it, Simon Black explains in his blog article The Federal Reserve just hijacked American democracy. Excerpts in italics with my bolds.
It was only Tuesday of last week that the Fed Chairman testified before a committee of concerned senators who thought the Fed may be tightening monetary policy (i.e. raising interest rates) too quickly. This was a valid concern; rapid interest rate hikes DO create a LOT of risks. And one of those risks is that asset prices– especially bond prices– plummet in value.
And yet last week the Fed Chairman completely rejected this risk, telling worried senators flat out that “nothing about the data suggests to me that we’ve tightened too much. . .” In other words, he believed the Fed’s rapid interest rate hikes posed ZERO risk.
Talk about a terrible prediction; just THREE DAYS LATER, one of the largest banks in the US imploded, multiple bank runs unfolded across the country, the bond market fell into turmoil, and the Fed had to essentially guarantee the entire US banking system in order to restore confidence. (More on that in a moment.)
The mental image of bank runs in America, just days after the Chairman dismissed
any risk, is the Fed’s equivalent of the Afghanistan debacle. It’s shameful.
But what’s REALLY concerning is the Fed’s response to this panic– their de facto guarantee of the entire US banking system. Because ultimately they just put YOU on the hook for the potential bond losses of every bank in America. I’ll explain–
So when the FDIC decided to guarantee every depositor at Silicon Valley Bank, including those with balances exceeding $250,000, it means they’re bailing out SVB’s wealthy customers at the expense of big Wall Street banks.
But most people seem to have missed the real story…
because the ACTUAL bailout is coming from the Fed, not the FDIC.
Despite the Chairman’s terrible prediction in front of the Senate Banking Committee last week, the Fed now seems keenly aware of the risks in the US banking system. They realize that there are LOTS of other banks that are sitting on massive unrealized losses, just like SVB. So in order to prevent these banks from going under, the Fed invented a new facility they’re calling the “Bank Term Funding Program”, or BTFP.
But the BTFP is really just an extraordinary lie designed to make you think that the banking system is safe. They might as well have called it, “Believe This Fiction, People”, and I’ll show you why.
How Bank Credit System Works
Whenever people borrow money from banks, we normally have to provide some sort of collateral. Banks make home equity loans using real estate as collateral. They make car loans where the car is collateral. Manufacturing businesses borrow money using factory equipment as collateral.
Well, banks do the same thing when they borrow money. And sometimes banks will even borrow money from the Federal Reserve. This is actually one of the reasons why the central bank exists– to act as a “lender of last resort” if banks need an emergency loan. And when banks borrow money from the Fed, they have to post collateral too.
Instead of automobiles and houses, though, banks use their financial assets as collateral– specifically their bonds. This is actually codified by law (12 CFR 201.108) whereby Congress lists specific assets that the Fed can accept as collateral when making loans to banks. The list is basically different types of bonds. But this is the root of the problem. Banks are in financial trouble because their bond portfolios have lost so much value. Some banks (like SVB) are even insolvent because of this.
So now, through the BTFP, the Fed will now accept banks’ sagging bond portfolios
as collateral, but loan the bank MORE money than the bond portfolios are worth.
Let’s say you’re an insolvent bank that invested, say, $100 billion in bonds. Those bonds are now worth $85 billion, and your bank is about to go under. “NO PROBLEMO!” says the Fed. The bank simply posts their bond portfolio (which is only worth $85 billion) as collateral, and the Fed will loan the bank the full $100 billion… as if those losses never occurred. It’s a complete lie. Everyone is pretending that the banks haven’t lost any money to give you a false sense of confidence in the financial system. “Believe the Fiction, People.”
Remember that banks in the US have more than $600 billion
in unrealized bond losses right now.
And that number will keep increasing if interest rates continue to rise. So this means that the Fed has essentially guaranteed that entire $600+ billion. Commercial banks won’t lose a penny— they can now pass their financial risks down to the Federal Reserve.
This isn’t a bailout… it’s a time bomb.
We can keep our fingers crossed and hope that this time bomb never explodes. But if it does, the Federal Reserve is going to be looking at hundreds of billions in losses… which would trigger devastating consequences for the US dollar.
This means that everyone who uses US dollars… including every man, woman, and child in America, is ultimately on the hook for the potential consequences of the BTFP. And that’s what is so remarkable about this: the Fed just made this decision all on its own. Congress didn’t pass a law. There were no hearings, no judicial oversight, no votes.
Instead, several unelected bureaucrats who have been consistently wrong
got together in a room and decided to guarantee $600+ billion in bank losses…
and stick the American people with the consequences.
- This is the same organization that said in February 2021 that there was no inflation.
- The same organization that said in July 2021 that inflation was transitory and would pass in a few months.
- The same organization that said in June 2022 that they finally understand “how little we understand about inflation.”
- The same organization that said THREE DAYS before SVB’s collapse that “nothing about the data” suggested any risks with their policy actions.
The Fed has been wrong at every critical point over the past few years. And they’ve now unilaterally signed up every single person in America to a $600+ billion bank bailout without so much as a courtesy phone call to Congress.
This is apparently what Democracy means in America today. We’ve all been subjected to endless vitriol over the past few years with people on all sides howling that “Democracy is under attack.”
Well, we just watched an unelected committee of central bankers hijack democracy
and stick the American people with a potential $600+ billion bank bailout.
What can we do to protect ourselves?
We need answers please?
Not sure what to tell you Holly. I tend to agree with those saying that the next election in the US will be the last one, if the current corrupt regime again engineers its victory.
“Congress didn’t pass a law”
The legal loophole used for the bailout is explained below:
“When the Biden Administration announced on Sunday that customers of collapsed Silicon Valley Bank and Signature Bank would receive a full return of their lost deposits, it tapped a single exception to banking law that otherwise caps protection for cash and cash equivalent deposits at $250,000.
The exception, known as the Systematic Risk Exemption (SRE), is a caveat in the 1991 Federal Deposit Insurance Corporation Improvement Act (FDICIA), a law that requires that the Federal Deposit Insurance Corporation (FDIC) impose the “least cost” on taxpayers when it uses its Deposit Insurance Fund (DIF) to wind down failed banks.
The law — which limits the FDIC’s power to guarantee deposits — emphasizes that the agency must choose the least costly method, even if doing so inflicts losses on a failed bank’s uninsured depositors, creditors, and shareholders. In theory, the statute incentivizes government officials to pay out no more than the act requires.
However, the exception, invoked four times in response to the 2008 financial crisis and pared down under the Dodd-Frank Act, can extend reimbursement to uninsured deposits when the U.S. Treasury Secretary decides that the additional FDIC assistance would lessen “serious adverse effects” to economic conditions or financial stability, otherwise bound to happen under the “least cost” response. To use that authority, the Secretary must first obtain authorizing votes from two-thirds of the FDIC’s board and two-thirds of the Federal Reserve’s Board of Governors, plus consult with the president.”
Thanks for clarifying olesmithy