by Robert Murphy, Zero Hedge

San Jose State economics professor Jeffrey Rogers Hummel tells all his students that the easiest way to understand the Federal Reserve is to think of it as a giant, legalized counterfeiter. I had always known that the Fed and other central banks were like counterfeiters, but I still thought that the actual mechanics of open-market operations and so forth actually provided some important distinctions.

In large part because of my frequent email exchanges with Hummel, I now realize that I was being naïve. Once you understand the details of modern central banking, you are able to step back and see that it truly is a way for the government to use the printing press to pay its bills. All of the complicated process of targeting interest rates through buying Treasuries simply hides this essential point — and perhaps deliberately so.

An Old-Fashioned Monarch With a Printing Press

Before we examine Fed operations, let’s start with something simpler. Suppose there is a powerful monarch reigning over a large, industrialized country. The monarch has managed to wean his subjects off commodity money such as gold or silver, and instead they use fiat notes, rectangular slips of paper featuring the king’s portrait. The king has a printing press at his disposal, which gives him unlimited ability to create more slips of paper with which he can buy goods throughout his kingdom.

At first, one might think that our hypothetical king has infinite wealth. But upon reflection, we see that there are actually pragmatic limits on how much new money he will print up each year. It’s true that there are no legal constraints on how many notes he can create, but the more monetary inflation he sows, the greater the price inflation he will reap.

At some point, the monarch would actually make himself poorer in the long run by running the printing press too heavily in the present. For example, if he doubled the stock of money in one year, the resulting price inflation would destabilize his economy and cause much needless capital consumption. His subjects would be less willing to invest in their businesses and retirement portfolios, knowing that he might effectively confiscate their savings again through massive creation of new money. Foreign investors too would be wary of exposing themselves to his country if he made his fiat currency too volatile.

Because of these considerations, the monarch would no doubt run off new money every year from his printing press, but he wouldn’t overdo it. He would aim for a moderate level of constant price inflation, with the purchasing power of his fiat currency slowly falling over time in a predictable manner. Each year, the new influx of money into the economy would represent a transfer of wealth from all other currency holders into the king’s possession.

Now what if our monarch is really profligate? What if he wants to spend more money than the income and tribute he earns in his position as monarch, even including the amount of new money he dares to create each year with his printing press, can support? In this case, the monarch can still resort to old-fashioned borrowing. Therefore in any given year, the monarch can only spend what he collects in tribute (taxes), debt financing, and inflation.

Modern Counterfeiting, Fed Style

At first glance, our present monetary system is nothing like the simple tale of a king with a printing press. For one thing, the US Treasury is a distinct entity from the Federal Reserve. When the US federal government runs a budget deficit, it can’t simply have the Fed print up enough $100 bills to cover the shortfall. No, the Treasury always covers its budget deficits by issuing debt, referred to as Treasuries. These are bonds, IOUs sold by the Treasury to outside investors who lend the Treasury money today in the hopes of being paid back in the future.

But wait, there’s more to the story. One of the main buyers of this Treasury debt is the Federal Reserve itself. This phenomenon is especially pronounced during emergencies such as major wars and the current financial crisis. Indeed, in the second quarter of 2009, the Federal Reserve was the effective buyer of some 48 percent of the new Treasury debt issued that period, as part of its “quantitative easing.” It’s true, the Fed doesn’t show up at the Treasury auctions and directlybuy the new T-bills and so forth, but private dealers pay higher prices for the Treasuries knowing that the Fed is waiting in the wings to pick them up.

At this point let’s review exactly what happens when the Federal Reserve buys Treasuries from private dealers. Let’s say the Fed wants to buy $1 million worth of T-bills from Joe Smith. So it writes Joe a check for $1 million, drawn on the Fed itself. Joe hands the T-bills over to the Fed, where they end up on the asset side of its balance sheet. Joe then deposits the check in his personal checking account, which goes up by $1 million.

So at this point the Fed has increased the money supply by $1 million. In normal times, because of the fractional-reserve banking system, Joe’s bank would lend out $900,000 of the new deposit to another customer, so that the money supply would grow even further. But that’s not what interests us in this article, so we’ll leave that train of thought.

What we want to focus on is the effect of the Fed’s purchase on the US Treasury. By entering the bond market and buying Treasuries (with money created out of thin air), the Fed pushes up the price of the bonds. That of course means that their yield drops. So, for example, if the Treasury issues a T-bill promising to pay the holder $10,000 in 12 months, then the auction price determines how much money the Treasury actually gets to borrow now in exchange for this promise to pay back $10,000 in one year. If the demand is such that people pay $9,901 for each T-bill with a face value of $10,000, then the Treasury gets to borrow money for a year at an interest rate of 1 percent.

Already we see why the folks at the Treasury are big fans of the Fed’s “quantitative easing” program, in which Bernanke decided it was in the national interest to begin adding more than a trillion dollars’ worth of Treasury debt to the Fed’s balance sheet. If nothing else, the Fed’s massive buying of Treasury debt pushes up the auction price of the Treasuries, meaning the federal government can borrow at cheaper interest rates.

Now, if this were the whole story, it would be fishy but not nearly as bad as our hypothetical monarch with the printing press. Sure, the Fed would create new dollars (which would push up dollar prices of goods and services) in order to keep the Treasury’s borrowing costs low. But still, the Treasury would have to pay someinterest on its debt, especially for longer-dated debt with higher yields, like 10-year Treasury notes. So although the mechanism we have described would encourage the Treasury to run higher deficits at the expense of average people, who suffer from rising prices, things don’t seem nearly as crooked as they were in the case of our monarch.

Ah, but we’re not done yet. Not only does the Fed’s accumulation of Treasury debt artificially push down the interest rate, but the Fed gives the interest payments right back to the Treasury! After all, interest is how the Fed “makes money.” It writes checks on itself (created out of thin air) and accumulates assets, and then earns the interest and (in some cases) capital gains on the assets. But after the Fed pays its employees, pays its electric bill, and throws the staff Christmas party, it remits the excess earnings back to the Treasury.

For example, in fiscal year 2008 the Federal Reserve distributed to the US Treasury some $31.7 billion (page 173) of its net earnings. To repeat, much of this money consisted of interest payments that the Treasury paid out to the holders of its debt, who just so happened to be the Fed for much of it. So not only is the official rate of interest kept artificially low by the Fed’s money-creation, but the interest payments themselves are largely refunded to the Treasury, to the extent that the Fed ends up holding the Treasuries rather than outsiders.

All right, so the Fed (a) suppresses the interest rate on Treasury debt and (b) refunds virtually all of the interest payments on Treasury debt held by the Fed. And remember, the way the Fed does this is through creating new dollars out of thin air, in order to buy the Treasury debt from the original investors who lent money to the Treasury. Therefore the Fed is clearly giving aid to the US government’s deficit spending at the expense of everyone holding assets denominated in US dollars.

Still, the one thing holding back the complete recklessness of the feds is that they still have to pay off the principal of their bonds when they mature, right? In other words, all we’ve really shown is that the Fed allows the Treasury to run deficits virtually at zero interest expense, at least for debt held by the Fed. But this is still a far cry from our hypothetical monarch, who had a whole component of his expenses which he met year in and year out by running the printing press.

Sorry, but our own monetary system has the same feature. When the Treasury securities held by the Fed mature — so that the Treasury has to pay back the face value in principal — the Fed rolls over the debt. Over time, the nominal market value of the Fed’s holdings of Treasury debt continually grows. Barring a sudden reversal in this policy, the Treasury knows that it will never have to pay off this debt. For all practical purposes, any Treasury debt ultimately finding its way onto the Fed’s balance sheet is economically equivalent to our monarch running the printing press to pay his bills.[1]

We have just one last consideration. Up till now we’ve seen that the modern US government, with its complicated central bank and fiat money system, operates essentially as a king with a simple printing press, to the extent that the Fed is willing to accumulate larger holdings of Treasury debt. But what determines how much the Fed is willing to take on? At what point would the Fed decide to ease off on its open-market operations and stop creating so many new dollars to (indirectly) hand over to the government?

The ultimate constraint on the Fed’s operations is the same one our hypothetical king faced: investor and citizen backlash in response to rising prices. That is, the Federal Reserve can only absorb so much of the Treasury’s new debt each year because too much dollar-creation would lead to unacceptably high price inflation. Thus our profligate government, like the hypothetical monarch, must finance some of its spending through traditional borrowing from private citizens and other governments.

Conclusion

Stripped of its fancy terminology and confusing mechanics, modern central banking boils down to a legalized counterfeiting operation. If there were suddenly a widespread public outcry to “punt the press,” we can bet our hypothetical monarch would mobilize all his allies in the media to discredit the people threatening his source of revenue. In that light, we can understand the reaction today to people calling to “end the Fed.”

Hat Tip: National Expositor

by David Reilly, Bloomberg

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.’s own mid-September bankruptcy filing.

Saving the System

Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. He maintained during Wednesday’s hearing that the New York bank had to buy the insurance contracts, known as credit default swaps, to keep AIG from failing, which would have threatened the financial system.

The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed’s subsequent attempt to cover up buyout details and who benefited.

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.

Geithner’s Bosses

The New York Fed is one of 12 Federal Reserve Banks that operate under the supervision of the Federal Reserve’s board of governors, chaired by Ben Bernanke. Member-bank presidents are appointed by nine-member boards, who themselves are appointed largely by other bankers.

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

And yet the New York Fed played an integral role in the government’s bailout of banks, often receiving surprisingly free rein to act as it saw fit.

Consider AIG. Let’s take Geithner at his word that a failure to resolve the insurer’s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn’t in the loop.

“I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,” Paulson said.

Bernanke’s Denials

Fed Chairman Bernanke also wasn’t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he “was not directly involved in the negotiations” with AIG’s counterparty banks.

You have to wonder then who really was in charge of our nation’s financial future if AIG posed as grave a threat as Geithner claimed.

Read the rest here.

by Aaron Dykes

The NY Times reports that House Financial Chairman Barney Frank has met in private with Ben Bernanke to plan strategies for bracing against the overwhelming popular demand to audit the private Federal Reserve, voiced– piercingly for Bernanke– in Rep. Ron Paul’s bill, now with some 300 co-sponsors.

Frank’s part in meeting was to urge Bernanke to face reality– “Mr. Frank warned that he might have to embrace a version of Mr. Paul’s bill,” wrote the Times– now it was time to consider compromises.

However, responding to Bernanke’s top concerns, Barney Frank “vowed” that:

“he would “wall off” deliberations on basic monetary policy, and delay the release of information about the Fed’s financial operations to prevent traders from capitalizing on its moves.”

Bernanke’s “apocalyptic” fear of H.R. 1207 and the accompanying rise in public interest in the Fed, as the NY Times describes it, underscores the drastic survival mechanism of an institution that has historically relied on the secrecy provided by its bland exterior.

Mr. Bernanke initially reacted to the bill in almost apocalyptic terms. The G.A.O. audits, he told a House hearing in late June, could lead to a Congressional “takeover” of monetary policy that would be “highly destructive to the stability of the financial system, the dollar and our national economic situation.”

Why this fear has lingered overhead for so long may be simply because he knows that his thin-air empire can’t withstand a Constitutional examination. Bernanke worries about a “takeover” by Congress because he knows that it alone has the Constitutional authority to oversee the issuance of currency.

As Alex Jones’ Fall of the Republic reveals, Ben Bernanke told Congress in no uncertain terms, that an examination of its monetary policy would amount to a ‘takeover’ and instilled the fear that it would trigger further economic devastation.

The Federal Reserve should not have “independent” autonomy to direct the financial commitments of a nation, print its money at will and risk its stability.

Of course Congress’ constitutional power over money is enumerated in Article I, Section 8 of the U.S. Constitution:

The Congress shall have power… To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

If Bernanke is looking over its shoulder, it is because he knows the Fed’s days are numbered, and that any light (via even a soft audit) will only serve to further expose the improper occupation of the nation’s financial instruments by a private, self-interested global banking cartel.

“The Fed faces populist anger from left-wing Democrats and right-wing Republicans about its power and secrecy… It was alarming enough that… “End the Fed,” had just landed on the best-seller lists.”

Bernanke and his masters are obviously very unsettled by such a significant public outcry, and, as the NY Times notes, the fact that Ron Paul’s ‘End the Fed’ has reached the best-seller list.

In a Campaign for Liberty update, Congressman and Dr. Ron Paul (R-TX) discusses the impacts on monetary policy that recent events will have.  He also talks about the U.S. Dollar and the International Monetary Fund (IMF).

from EconomicPopulist.org

“We must break the Money Trust or the Money Trust will break us.”
- Louis D. Brandeis, 1913

When the economy appeared to be melting down last September, Wall Street bank representatives began showing up in Congress like mobsters walking into a mom-and-pop business looking for protection money.
“Nice economy ya got here.(crash!) It would be a shame if something were to happen to it.”

Mobsters and Robber Barons have a lot in common.
Neither has any respect for the law or morals, only for power. Neither can ever be satisfied with any amount of wealth. They will always need to steal more and more and more until they’ve completely bankrupted their victims.

We are now at the mercy of modern Robber Barons, and if history is any judge, it is either them or us.

Bank Wars

“The great monopoly in this country is the money monopoly. So long as that exists, our old variety and freedom and individual energy of development are out of the question.”
- Woodrow Wilson, 1911

On February 28, 1913, the House of Representatives released a report with the most banal name imaginable – Committee Appointed Pursuant to House Resolutions 429 and 504 to Investigate the Concentration of Control of Money and Credit.
In spite of the long-winded and innocuous title, the testimony in the report revealed to the world an unseemly and corrupt conspiracy of Wall Street bankers that threatened the very foundations of our democracy. Despite the dangers, many of the recommendations of the Pujo Committee were ignored until after the 1929 Crash.

Arsene Pujo

As a species and a nation, we seem to be doomed to repeat our mistakes.

Dirty political battles between Washington and eastern bankers are not a new concept in America. The Bank War between President Jackson and the Second Bank of the United States is the most obvious and public of these exchanges. Nicolas Biddle, the Second Bank’s President, purposely caused the 1834 Depression, by restricting the money supply, to use as leverage against President Jackson.

^{Src: The Smoking Argus Daily, Allison Bricker}

Unfortunately for Mr. Biddle, his arrogance regarding his ability to cause an economic collapse allowed his ego to get the best of him. He continued boasting, now publicly that relief would only come if Congress renewed the bank’s charter. When Pennsylvania Governor George Wolf, a previous supporter of the central bank was made aware of the bank President’s sentiments, he immediately came out against extension or renewal of the bank’s charter.

When someone mentions trusts and trust-busting, people tend to think of John. D. Rockefeller’s Standard Oil, J. P. Morgan’s Northern Securities railroad company, and Andrew Carnegie’s U.S. Steel.
What frequently gets forgotten is the Money Trust of Wall Street. The reason that it isn’t mentioned is because it was never totally broken. Instead the decision was to regulate it via the creation of the Federal Reserve. Nicolas Biddle’s dream was finally realized.

^{Src: The Smoking Argus Daily, Allison Bricker}

Our Financial Oligarchy

“Far more dangerous than all that has happened to us in the past in the way of elimination of competition in industry is the control of credit through the domination of these groups over our banks and industries.”
- Pujo Committee

“The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies and life insurance companies are his tools…Though properly but middlemen, these bankers bestride as masters America’s business world, so that practically no large enterprise can be undertaken successfully without their participation or approval.”
- Louis D. Brandeis, 1913

What frequently gets lost in economic discussions is that the current depression is different from all other post-WWII recessions. All previous recessions were caused intentionally by the Federal Reserve.
The Fed would raise interest rates in order to choke off inflation. Once the inflation was contained they would lower interest rate. Consumer demand, which was artificially suppressed by the Fed’s high interest rates, would then be released and the economy would boom.

That didn’t happen this time.

The Fed didn’t raise interest rates to choke off inflation. There was no consumer demand that was artificially suppressed, thus there was no pent-up demand that was waiting to be released when the Fed cut rates.
What little “less bad” news that we’ve heard with home and auto sales has been almost exclusively to do with the tax rebates for first-time home buyers and the cash-for-clunkers program. Both of these programs are limited in time and scope, and both bring future demand to the present, which will leave an even bigger gap in demand once they are finished.

What happened this time was an economic collapse that emanated directly from Wall Street. It’s source was bad loans that the bankers and rating agencies pushed onto the financial markets of the world, knowing full well that it was only a matter of time before they blew up and took down the world economy.
The economy didn’t collapse because of government regulations. It didn’t collapse because the government taxed too much or spent too little.
It wasn’t because the American consumer stopped spending.

It was because the financial system knowingly overpriced a major financial asset class, and then leveraged itself against that asset class in the vain hope that the Day of Reckoning never came.

The whole financial crisis only came to light because of what amounts to a falling out amongst thieves.

War Between the Ruling Kleptocracy

“Gentlemen: You have undertaken to cheat me. I won’t sue you, for the law is too slow. I’ll ruin you.
Yours truly, Cornelius Vanderbilt.”
- 1853

It is sometimes forgotten that the 19th Century Robber Barons spent much of their time wasting resources trying to crush each other.
For example, the Erie War crippled what should have been the most profitable railroad in the nation, not to mention the cost from the corruption of the entire New York Assembly. An even more colorful battle involved the Albany and Susquehanna Railroadthat resulted in hundreds of paid goons crashing trains into each other and engaging in shooting wars.

History has proven that the unrestrained greed of an unregulated economy is neither fair, nor efficient. It also often leads to economic crisis.

Wall Street knows that you can make enormous amounts of money during an economic crisis, and no crisis is more fortunate than the failure of a leading competitor. The perfect example of that is the Panic of 1907.

John Pierpont Morgan again used rumor and innuendo to create a panic that would change the course of history. The panic of 1907 was triggered by rumors that two major banks were about to become insolvent. Later evidence pointed to the House of Morgan as the source of the rumors.

J. P. Morgan

J. P. Morgan’s false rumors created a real panic and it threatened to bring down the entire financial center. Morgan then nobly contacted his European sources and managed to borrow $100 million worth gold bullion in order to stem the panic. History remembers Morgan as saving the day, and also helping to convince the public that we needed a central bank in this country.
Morgan didn’t save the system from a crisis of his own creation out of the goodness of his heart.

Of course Morgan did not go unrewarded. Recall from our story of two weeks ago that Teddy Roosevelt, despite his antitrust proclivities, allowed Morgan to purchase the Tennessee Coal and Iron Company for about $45 million when the true value was closer to $700 million, thus expanding Morgan’s steel empire.

If this sounds somewhat familiar, it should. Recall the failure of Bear Stearns.

Bear Stearns had been unpopular with the rest of the Wall Street oligarchy since it refused to participate in the bailout of Long-Term Capital Management in 1998, despite helping to create the problem.
The most suspicious fact of the Bear Stearns failure was the massive increase in short positions on March 10 and 11, with only five days left before expiration. Some insiders knew something they shouldn’t have. John Olagues makes a strong case that it was insiders at JP Morgan Chase that were shorting Bear Stearns and helping to create a “run” on their stock, knowing full well that they would be taking over the bank with the Fed’s help.

How would people at JP Morgan Chase know that ahead of time? They were in position to make the deal.

The Fed and U.S. Treasury brokered a deal for J.P. Morgan in haste without question. Usually, such huge deals or mergers would go through committees or FTC oversight, but none of that here –a quick weekend jaunt in the park. It was not surprising that no red flags were raised about J.P. Morgan’s chairman, James Dimon holding a board seat at the Federal Reserve Bank of New York when the deal was made.

Bear Stearns was bought by JP Morgan Chase at a price of $2 a share. A week later it was raised to $10 a share. Was it shame or a guilty conscience to caused JP Morgan Chase to give back a small amount of their quick profits?
JP Morgan Chase was in a position to profit from Bear Stearns demise, and another profit from its taxpayer-funded acquisition, just like in 1907.

Later on that year, JP Morgan Chase managed to purchase Washington Mutual, a bank with $307 Billion in assets, for the price of $1.888 Billion after the FDIC seized the bank.
Back in April JP Morgan Chase offered to purchase WaMu at a far, higher price, but WaMu refused.

“You should have sold to JPMorgan Chase in the spring, and you should do so now. Things could get a lot more difficult for you.”
- Treasury Secretary Paulson to WaMu CEO Kerry Killinger, August 2008

A Naked Coup

“We’re moving to an oligopolistic situation.”
- Kenneth Guenther, Independent Community Bankers of America, 1999

“The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else’s goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people’s own money.”
- Louis D. Brandeis, 1913

It’s too big of a coincidence that the biggest winners on Wall Street are also the most politically connected, and no one is more connected than Goldman Sachs.

Bush’s Treasury secretary, Hank Paulson, is a former Goldman C.E.O., and his replacement at Treasury, Tim Geithner, was mentored by Goldman alumni. Mario Draghi, who is leading the crisis response for the E.U., is a former Goldman vice chairman.

Merrill Lynch C.E.O. John Thain was once Goldman’s co-president, and Wachovia chief Robert Steel was a vice chairman. Ed Liddy, the new C.E.O. of A.I.G., was Goldman’s vice chairman. World Bank president Robert Zoellick was a managing director. Even Neel Kashkari, the 35-year-old tapped to oversee the $700 billion Troubled Assets Relief Program, served at Goldman as a vice president.

And the list goes on. Robert Rubin, President Clinton’s former Treasury Secretary, was once the co-chairman of Goldman Sachs. Jon Corzine, now the governor of New Jersey, is a former Goldman Sachs CEO. A top aide of Tim Geithner is former Goldman lobbyist Mark Patterson.
It’s so obvious, so in-your-face, that one must assume that Goldman Sachs feels itself invulnerable.

By now everyone should be aware that Goldman Sachs was the biggest beneficiary of the AIG bailout, to the tune of $12.6 Billion, and will be the winners again if AIG finally goes under.
With Paulson in charge of the Treasury at the time, it appeared that Goldman Sachs was bailing out Goldman Sachs. Rich bankers were bailing out rich bankers, and working-class taxpayers were footing the bill.

America has been purchased in a leveraged buyout. For about $5.2 Billion Wall Street has purchased the complete deregulation of the the financial sector, and unprecedented political influence that even now allows them to defeat any new regulations they choose. It’s actually a very good return on investment.

“America’s economic system is where it is today because gambling became the financial sector’s principal preoccupation. The pile of chips grew so big that the Money Industry displaced real businesses that provided real goods, services and jobs.”
- Harvey Rosenfield

This corrupt collusion between financiers and government officials was spelled out in no uncertain terms in Simon Johnson’s article, The Quiet Coup. Simply put, America is following the path of petty Banana Republics.

elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Johnson goes on to say that chaos and confusion are very much in the interests of the ruling oligarchy, as it lets them take things, both legally and illegally, with impunity.
This message is echoed by Matt Taibbi in his article The Big Takeover.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

It seems hard for you and I to believe that anyone, any group, would purposely engineer an economic crisis for personal benefit. That’s because you and I aren’t consumed with ego, greed, and lust for power like the bankers on Wall Street are today. History has shown, time and time again, that this is exactly what these people do. Why should now be any different?
Goldman Sachs and JP Morgan Chase have already benefited from the crisis.

The spirits of Nicolas Biddle and John Pierpont Morgan are alive and well today in the plush offices of Wall Street.