The Bankers of Oz
The Lion thought it might be as well to frighten the wizard, so he gave a large, loud roar, which was so fierce and dreadful that Toto jumped away from him in alarm and tipped over the screen that stood in a corner. As it fell with a crash they looked that way, and the next moment all of them were filled with wonder. For they saw, standing in just the spot the screen had hidden, a little old man, with a bald head and a wrinkled face, who seemed to be as much surprised as they were. The Tin Woodman, raising his axe, rushed toward the little man and cried out, "Who are you?"
"I am Oz, the Great and Terrible," said the little man in a trembling voice.
- The Wizard of Oz, L. Frank Baum
Recently, Bloomberg News released an extensive online review of all of the various means of funneling funds to the financial sector by the Federal Reserve System. They culled through almost 30000 pages of documents that the Federal Reserve fought to hide on various grounds, one of the principal rationales being that it would put those banks that used it at risk because of the perception that they were weak and would thus be unable to access the usual credit markets; they would then be prey to the circling vultures that hunted these poor creatures and as they dove on them, would destroy them in the market. The report is eye-opening, and much has been made of the extent to which the Federal Reserve served up billions to support foreign banks.
Understand something about the data in this report. In late 2008, there was uproar over the $700 billion TARP bill, which passed despite massive public opposition; the funds in this report are entirely separate from TARP and are in addition to that funding. How? Financial problems were arising in 2007 as the housing market began to decline and the Federal Reserve began various funding mechanisms - 'windows' - through which different entities could obtain exceedingly low cost loans from the Fed. These were supposed to be collateralized with assets pledged by the borrowing entities, but the process was dodgy since the collateral was questionable and at times, included common stock. What's the problem with common stock? The point of collateral is that if the borrower fails, there's something left of value to compensate the lender but if the borrower fails, then their common stock itself is worthless. If these banks had at least pledged toasters kept in the backrooms for those of us who opened new accounts, the Fed would at least be able to furnish their lunchrooms with brand new toasters.
But apart from the salaciousness of it all, so what? What does it mean to some guy who's trying to raise kids and write a website for families? How does it affect my little portion of the world and more importantly, how does it affect my parenting?
- First and foremost, we are now living in what one pundit referred to as a "corporate republic" in which vast amounts of money work to control society via the media. Releasing this information could seriously damage banks and create even greater havoc than we endured when Lehman collapsed in late 2008. And while this information dump doesn't pertain to TARP, the Treasury Secretary's comments to lawmakers certainly qualifies: if we don't pass this bill, then there will be huge civil disorder and we'll have to declare martial law. When you hear something, exercise your common sense and try to work through it to ascertain if it's really that bad.
- On the heels of the corporate republic, it's the lesson that you shouldn't expect them to look out for you. Ain't nobody doing that but you, sport, so you need to watch your spending and not get into debt for stupid reasons.
- When you read or hear something, understand that what you're hearing isn't the whole story and be ready to have to find the whole story. When the Fed first opened these windows, the need was obvious but the entire mechanism was downplayed by the Fed as to how extensive the use would be. As the movie version's line goes, Pay no attention to the man behind the curtain.
- Follow the money. Businesses exist for one reason only and if the owner hasn't got a clue of who you are when you're talking to him, then they're less likely to give a damn about your life.
- Don't believe everything that's said to you, and this is one that I'll be touching on in the next several days with the older kids. Who's saying it and how much would they really know? Underlings are sometimes like mushrooms since it's best to leave them in the dark and cover them with lots of dung. When the TARP took effect, I had a conversation with the branch manager of our bank and according to that person, yes, we took a little bit of that money because we were advised to do so and we've since paid it back in entirety. That was over two years ago and when I reviewed this Bloomsberg report the other night, I found that my bank had been tied to the Fed via one of the windows and were carrying a loan balance through this program for an average of 400 days. So right about the time that I talked with the manager, my bank was tapped into the Fed window for survival money.
Ultimately, it goes back to a recurrent paternal theme with my children, and that's to encourage a questioning and skeptical nature as they age. It's not something that I ever expected to do as I held them through the night, but events no longer leave any choice.
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