ATTN Americans: Constitutional Crisis

[Darth Wong]

It's quite scary how this kind of thing came about and has gone totally unnoticed by the majority of people.

Totally understandable, though. All the scammers have to do is make their products and activities too complicated for the average person to understand, and Adam Smith's vaunted "Invisible Hand" breaks its thumb.

[Vaporous]

I find it sad how I've noticed it, and can actually hear part of me writing it off. Hey, why not? It's just another violation of my rights, and another bit of everyones freedom gone. Used to it. That's scary.

[Uraniun235]

Can someone even post a link which explicitly states that the Federal Reserve is using or has used Treasury funds to back the Stearns buyout? (No, blogs do not count.) Part of the problem, I think, is that we have already heard a lot about the Fed loaning out a lot of money to banks... soooo, if the Fed can already loan hundreds of billions of dollars, what's the difference with them doing this other thing? I'm not saying that's the case, but it's all too easy for people with absolutely no understanding of the financial system to think so, and you can't expect to just stir people up into a frenzy over an issue when they don't even know there's an issue to begin with.

[Beowulf]

10 print "CUT TAXES FOR WEALTHY"
20 print "LOWER INTEREST RATE"
30 Goto 10

Conservative economists, three lines of BASIC. If I can get it to come on to underage male interns, I think we could send it to Congress.

The funny thing is that you could put it exactly that way, and most people wouldn't have a problem with it. Perhaps it should be re-phrased like this:

while (1=1)
{
echo "Help the wealthy hoard more money";
echo "Help everyone else borrow more money";
}

Sorry, I just couldn't bring myself to use BASIC

Then you've got taste. I just couldn't be arsed to remember the appropriate line of Perl to do it.

Code: Select all

while(1) {
print "Fuck the poor.";
print "Fuck the poor more.";
}

I believe that's what you wanted.

[Admiral Valdemar]

Can someone even post a link which explicitly states that the Federal Reserve is using or has used Treasury funds to back the Stearns buyout? (No, blogs do not count.) Part of the problem, I think, is that we have already heard a lot about the Fed loaning out a lot of money to banks... soooo, if the Fed can already loan hundreds of billions of dollars, what's the difference with them doing this other thing? I'm not saying that's the case, but it's all too easy for people with absolutely no understanding of the financial system to think so, and you can't expect to just stir people up into a frenzy over an issue when they don't even know there's an issue to begin with.

Just about any story on this has that information. And I always use blogs that support their accusations, so I don't see why they'd be left out here. The Market Ticker piece is a good summary of how wrong this all is. Personally, I trust the MSM as far as I can throw their collective arses.

You guys have been taken for a ride. This is your version of Northern Rock, but far worse.

[Beowulf]

Can someone even post a link which explicitly states that the Federal Reserve is using or has used Treasury funds to back the Stearns buyout? (No, blogs do not count.) Part of the problem, I think, is that we have already heard a lot about the Fed loaning out a lot of money to banks... soooo, if the Fed can already loan hundreds of billions of dollars, what's the difference with them doing this other thing? I'm not saying that's the case, but it's all too easy for people with absolutely no understanding of the financial system to think so, and you can't expect to just stir people up into a frenzy over an issue when they don't even know there's an issue to begin with.

Just about any story on this has that information. And I always use blogs that support their accusations, so I don't see why they'd be left out here. The Market Ticker piece is a good summary of how wrong this all is. Personally, I trust the MSM as far as I can throw their collective arses.

You guys have been taken for a ride. This is your version of Northern Rock, but far worse.

The article still talks about Fed profits that'd normally get rolled over to the Treasury. It's still Fed funds until it gets moved to the Treasury. Still doesn't mean that the power of the purse has been delegated to the Fed. If that were true, then any reduction of the interest rate would do the same, since it'd reduce the Fed profit, causing the amount the Treasury got to end up smaller. Unless you want to argue the existence of the Fed is a constitutional crisis in and of itself, the Fed lending funds for the buyout of Bear Stearns does not constitute one.

[J]

Do you honestly think the collateral, most of which is mortgage backed securities and hedges is going to turn a profit when housing is in the process of swandiving off a cliff?

Furthermore, the Fed lending funds to buyout an investment bank is already illegal under the Federal Reserve Act. That's why they setup a holdings company after the fact to launder the money which makes it quasi-legal instead of outright illegal.

[Uraniun235]

I just realized that MSM stands for "main-stream media". I'm a thickie.

Also I was asking because the link that Market Ticker had was pretty severely broken.

Wait a tick:

In layman's terms, the Fed earns a profit on its operations and sends this to the Treasury general funds. Any loss from the Bear Stearns bailout would be less profit for the government.

As I understand it, the Federal Reserve is not funded by the Treasury; the Federal Reserve operates at a profit, and submits the profits to the Treasury periodically. What we're talking about is that in the event money is lost, less money would be sent to the Treasury. This is money that has not been collected through taxation. I would also wonder as to the legal status of the Federal Reserve's profits prior to their transfer to the US Treasury. When are those assets considered to be US Government property: the instant they arrive at The Fed? The instant they are signed over to Treasury? Sometime in between?

Now, it's arguable that these are trivial semantic differences - but let's remember that "trivial semantics" is basically what allows the federal government to do as much as it does, that ridiculously overloading such clauses as "shall regulate interstate commerce" is what permits the federal government to do so much more than is actually specified in the Constitution. These legal details are really important - if Federal Reserve profits which don't make it to Treasury are public property, then yeah, it's theft. But if they're not Government property until the Fed has signed them over, then it doesn't seem like there's much to be legally done, except to change the law.



"But but but but THE CONSTITUTION"
Has already been violated. Repeatedly. By this and prior administrations.

What about Iran-Contra? Nobody went to prison over Iran-Contra. Reagan walked, despite claiming responsibility for it on broadcast television.

What about Guantanamo Bay and the various CIA interrogation camps around the world? I heard those were actually pretty illegal.

What about the use of torture which is, I heard, a violation of federal and treaty law?


It has already been established on this very forum that the rule of law is losing its grip in the United States. Are you genuinely this outraged because of the terrible crime of theft from taxpayers in order to bailout some fat cats? Where's the same outrage over the inhumanity of the actions of the American government, DAILY, around the world? Fuck those poor gits under the boot, the real crime is those bastards in Washington are getting a bit cockier about ripping off the taxpayers, right?

Yes, I think it sucks a big one that the financial sector gets yet another bailout, and I've already said that I'd love little more than to see a bunch of financiers lined up against the wall of the New York Stock Exchange and shot. But frothing at the mouth over "the Constitution being shredded" seems at once a gesture of hysteria, and a trivialization of the war crimes and other gross rights violations committed by this administration.

God damn, take a breather from The Market Ticker already.



(You could argue that allowing this to pass sets a dangerous precedent within American society. But I would argue that this is irrelevant, that there has not been sufficient civic virtue to really make a difference even back when Nixon was in the hot-seat. The Democrats held a majority in both houses of Congress - that was as much an opportunity to toss out Nixon and disgrace the Republicans as it was to "do justice", as much as any such concept can apply to US federal politics. Do you really think anything would have happened to Nixon if Congress hadn't been willing to tackle him for it? Do you really think the American people would have risen up and demanded, and received, action in 1974 had Congress dragged its heels on acting against Nixon? If your answer is "yes", you're a more faithful American than I am.)

Do you honestly think the collateral, most of which is mortgage backed securities and hedges is going to turn a profit when housing is in the process of swandiving off a cliff?

Furthermore, the Fed lending funds to buyout an investment bank is already illegal under the Federal Reserve Act. That's why they setup a holdings company after the fact to launder the money which makes it quasi-legal instead of outright illegal.

Illegal does not equate with "CONSTITUTIONAL CRISIS", and Beowulf said nothing about whether or not the Fed bailout was a good idea.

[Admiral Valdemar]

The Treasury backed J.P. Morgan with $30bn of their own funds at a time of rapidly deteriorating house prices and solvency. He the whole thing goes sour, you foot the bill, just as we have with Northen Rock being saved. Turn a profit, and that goes all to the bankers in on this.

I sure as hell wouldn't want them playing such dicey hands with my money at a time when the nation is all out of cash.

[Admiral Valdemar]

In any case, my outrage is at American apathy, as I've repeately stated on this board. That Bush is wiping the floor still with your laws is something I don't lose sleep over. But when your fiscal policy upsets the global gravy train, I take issue.

The assumption that other major acts of negligence by this government invalidates the outrage over the government maintaining the rich/poor divide is stupid.

[Beowulf]

The Treasury backed J.P. Morgan with $30bn of their own funds at a time of rapidly deteriorating house prices and solvency. He the whole thing goes sour, you foot the bill, just as we have with Northen Rock being saved. Turn a profit, and that goes all to the bankers in on this.

I sure as hell wouldn't want them playing such dicey hands with my money at a time when the nation is all out of cash.

Correction: The Fed backed J.P. Morgan. The Fed is a separate entity from the Treasury. Fed money isn't Treasury money, until it gets handed over. Neither of you have attempted to refute my argument:

If the Fed losing money on a deal is a effectively granting the Fed the power of the purse, then the Fed lowering interest rates, and therefore lowering profits is an identical situation, and therefore the existence of the Fed is a constitutional crisis.

[Uraniun235]

In any case, my outrage is at American apathy, as I've repeately stated on this board. That Bush is wiping the floor still with your laws is something I don't lose sleep over. But when your fiscal policy upsets the global gravy train, I take issue.

The assumption that other major acts of negligence by this government invalidates the outrage over the government maintaining the rich/poor divide is stupid.

Oh, right. Gitmo, Iraq, Iran-Contra, Watergate et al were/are all mere "acts of negligence" compared to the High Crime of bad fiscal policy. My bad.

[J]

If the Fed losing money on a deal is a effectively granting the Fed the power of the purse, then the Fed lowering interest rates, and therefore lowering profits is an identical situation, and therefore the existence of the Fed is a constitutional crisis.

The Fed derives almost all of its income from the yield of various US government issued securities. It does not and cannot set the yield of those securities, the yield on the securities is determined by the market, which may or may not be influenced by the rates set by the Fed depending on the mood of investors. The Fed sets a target rate, the market decides what it wants to do with it and that determines how much profit the Fed makes. The Fed has no direct control over how much money it makes and what it hands over to the Treasury. Note that in recent months, yields on T-bills and other government securities have gone up despite the interest rates being halved since last summer.

The Fed knowingly took $29 billion of bad collateral, which is likely worth pennies on the dollar. It will now stick the treasury with those losses through the withholding of its profits, if any. This is in no way similar to setting target interest rates.

[Admiral Valdemar]

Oh, right. Gitmo, Iraq, Iran-Contra, Watergate et al were/are all mere "acts of negligence" compared to the High Crime of bad fiscal policy. My bad.

Strange. I could've sworn THIS thread was about the government's fiscal policy and not about anything else I have expressed outrage on elsewhere. Care to stay on topic or kindly shut the fuck up, sir?

[Alan Bolte]

I think the major questions here, at least the ones I don't think I have an answer for, are:
1) Is the Federal Reserve authorized by the Federal Reserve Act to accept bad collateral for a loan, and by the letter of the law is what it accepted bad collateral? Obviously we all think that what it accepted is bad collateral, but when the subject is the legality of their action, the letter of the law matters.
2) Does the contract between the Federal Reserve Bank of New York and J. P. Morgan constitute a loan, or something else? A loan is legal, something else probably isn't. Certainly it's called a loan, but there are accusations it is closer to a purchase.

Whether the loan/bailout/whatever is a prudent course of action is important, but has no bearing on whether a constitutional crisis (or any sort of lawbreaking) is occurring.

[J]

I think the major questions here, at least the ones I don't think I have an answer for, are:
1) Is the Federal Reserve authorized by the Federal Reserve Act to accept bad collateral for a loan, and by the letter of the law is what it accepted bad collateral? Obviously we all think that what it accepted is bad collateral, but when the subject is the legality of their action, the letter of the law matters.

Under Section 13, Article 2 of the Federal Reserve Act, the only collateral the Fed is allowed to accept are US Government issued bonds & notes. Mortgage backed securities, investment notes, and so forth are specifically outlawed. If it's not US Government issued, the Fed cannot take it as collateral.

2) Does the contract between the Federal Reserve Bank of New York and J. P. Morgan constitute a loan, or something else? A loan is legal, something else probably isn't. Certainly it's called a loan, but there are accusations it is closer to a purchase.

Doesn't matter if it's a loan, purchase, or something else, since the Fed accepted mortgage backed securities as collateral, the entire deal illegal. It's specifically prohibited by the Federal Reserve Act.

[Rogue 9]

Ha. Constitutional crises are a dime a dozen. The whole existence of the Air Force is one, just to get started with. And then there's the thousand and one different contortions of the Commerce Clause to justify things in no way related to commerce. This is just one more to add to the pile.

Not that it isn't bad, but it's nothing new.

[Admiral Valdemar]

Ha. Constitutional crises are a dime a dozen. The whole existence of the Air Force is one, just to get started with. And then there's the thousand and one different contortions of the Commerce Clause to justify things in no way related to commerce. This is just one more to add to the pile.

Not that it isn't bad, but it's nothing new.

I'm ignoring silly things like the USAF, but the simple fact that the government is playing this game with the finances of the country, regardless of the Constitutional effects, is pretty alarming. No one cares, or no one has done anything truly effective as we can see by the list of other illegal practises the US is happy to inflict on its own people and others.

[Alan Bolte]

I'm having trouble reading the century-old legalese. Could you point out where it says that?

2. Discount of Commercial, Agricultural, and Industrial Paper

Upon the indorsement of any of its member banks, which shall be deemed a waiver of demand, notice and protest by such bank as to its own indorsement exclusively, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act. Nothing in this Act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount, and the notes, drafts, and bills of exchange of factors issued as such making advances exclusively to producers of staple agricultural products in their raw state shall be eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the government of the United States. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than 90 days, exclusive of grace.

[12 USC 343. As amended by act of Sept. 7, 1916 (39 Stat. 752), which completely revised this section; and by act of March 4, 1923 (42 Stat. 1478). As used in this paragraph the phrase “bonds and notes of Government of the United States” includes Treasury bills or certificates of indebtedness. (See act of June 17, 1929, amending section 5 of Second Liberty Bond Act of Sept. 24, 1917). As to eligibility for discount under this paragraph of notes representing loans to finance building construction, see this act, section 24).]

[aerius]

No one cares, or no one has done anything truly effective as we can see by the list of other illegal practises the US is happy to inflict on its own people and others.

I wonder about that sometimes. Americans claim to be individualistic and love their Constitution and Country yada yada yada. But despite their Constitution being shit on more times than I can count, the vast majority have done nothing. Where are the mass protests? Where's the civil unrest? Why aren't people even bothering to call their government reps to say "what the hell are you doing? It's bullshit and illegal!"

[Rogue 9]

I write my representatives all the time, and get a bunch of platitudes. Too many people are apathetic for them to care.

[Illuminatus Primus]

Don't bother Uraniun, you're just going to get more "I read this on the Market Ticker" and "this peer-group agrees!" before the inevitable boorish "I told you so" self-fellatio and obnoxious "I'm still making money off of it."

[Admiral Valdemar]

Don't bother Uraniun, you're just going to get more "I read this on the Market Ticker" and "this peer-group agrees!" before the inevitable boorish "I told you so" self-fellatio and obnoxious "I'm still making money off of it."

I certainly don't get everything from Market Ticker, in fact, I only found the site a couple of weeks ago. But none of that makes a difference when there was questionable legality in the whole deal.

And I'm not making money on any of this; a lot of the "I told you so" comes from Mike and Edi too, because they actually have common sense coupled with foresight. Still, it's great you added something here.

[Illuminatus Primus]

Don't bother Uraniun, you're just going to get more "I read this on the Market Ticker" and "this peer-group agrees!" before the inevitable boorish "I told you so" self-fellatio and obnoxious "I'm still making money off of it."

I certainly don't get everything from Market Ticker, in fact, I only found the site a couple of weeks ago. But none of that makes a difference when there was questionable legality in the whole deal.

And I'm not making money on any of this; a lot of the "I told you so" comes from Mike and Edi too, because they actually have common sense coupled with foresight. Still, it's great you added something here.

Heaven forbid anyone critique the manner in which you present a case for your point of view and hypotheses about what is going to happen - you guys have alienated a lot of people and this tendency is very strong in this subculture. But its definitely not helping spread the word and raising interest as much as it could.

[J]

I'm having trouble reading the century-old legalese. Could you point out where it says that?

It's in the 2nd half of the article. The first part deals with what is or isn't legal tender, and states that the Fed can accept legal tender as collateral. The highlighted section states that in addition to the above, the Fed may also accept US government issued securities, while all other investment bonds, securities, and so forth are not eligible as collateral.

2. Discount of Commercial, Agricultural, and Industrial Paper

Upon the indorsement of any of its member banks, which shall be deemed a waiver of demand, notice and protest by such bank as to its own indorsement exclusively, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act. Nothing in this Act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount, and the notes, drafts, and bills of exchange of factors issued as such making advances exclusively to producers of staple agricultural products in their raw state shall be eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the government of the United States. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than 90 days, exclusive of grace.

[12 USC 343. As amended by act of Sept. 7, 1916 (39 Stat. 752), which completely revised this section; and by act of March 4, 1923 (42 Stat. 1478). As used in this paragraph the phrase “bonds and notes of Government of the United States” includes Treasury bills or certificates of indebtedness. (See act of June 17, 1929, amending section 5 of Second Liberty Bond Act of Sept. 24, 1917). As to eligibility for discount under this paragraph of notes representing loans to finance building construction, see this act, section 24).]