The Federal Reserve's 'breathtaking' $7.7 trillion bank bailout

The big thing to remember is that the US dollar is, fundamentally now, a Federal Reserve Bank Note. (It actually says that on US dollars if you look at the fine print)

In older times, private banks would issue their own bank notes. These were basically used like paper money, and could be redeemed at that bank for gold coin.
Of course all of those banks had issued 10+ times more bank notes than they kept actual gold coins ready in their safes, but the bank notes were viewed as valid because of the bank's Reserve Assets. If worse ever came to worse, theoretically the bank could sell off all the investment assets they owned and be able to come up with the gold coin. That would constitute a "run on the bank" but at least the bank notes were backed up, in a sense, by actual assets.

The whole Federal Reserve Bank system was based off this construct.

The issue is that the US Treasury collects taxes in the form of Federal Reserve notes. People need Federal Reserve notes to pay taxes to government. So what the Federal Reserve does holds a great deal of sway.
It's almost like they're in control of a big chunk of the federal budget.

 

Kode

To your point about self interested 2008 interventions. lets be abundantly clear.... large economic interests put their thumb on the scale of governance and economic policy in an uncountable variety of ways. So, it is not at all shocking that this also happened in conjunction with the 2008 crisis.

It seems laughable to me to propose that there is some sort of missing oversight regime which would significantly reduce this problem. What ever oversight might be proposed would be designed by exactly the same interests that gamed the system in 2008. These interests are remarkably insidious in their penetration into all the significant political and economic processes of our country. Frankly, they will lobby for this change or that change with the logic that these are changes that will protect the system and make it more transparent.... and the net result will be to have greater control by exactly the same people who caused the problem. It is like having drug cartels propose how to improve the effectiveness of the DEA

All that said.... the fundamental logic of 2008 was that we feared the domino effect of allowing the collapse of large financial institutions. And so we saved them, and allowed them to further game the system to enrich themselves..... under the logic that this contemptibly unfair policy would be better than risking a full scale economic collapse.

And, overall.... what was done, unpalatable as it was, did in fact stabilize a world economy that gave every indication of teetering on the brink of catastrophe

 

All I've read about that so far in this thread has just been tropes, no logical explanation or basic overall analysis of why that was needed.

So I'll ask you: How did a bailout prevent catastrophe? Please explain that logically. Why was the money better spent on the bailout than, say, something else like less taxes, or giving away free money to everyone, or bailing out the homeowners instead of the banks?

We can't accept something like that as a fact without at least a little basic explanation of the rationale and logic behind it.

If you only argument is 'something was bad, government fixed it', that's logically deficient.
Government didn't make this wealth appear out of nowhere, you know, they moved it away from somewhere else.

 

So why were they not stripped of their insolvent banks and thrown in jail?
Just throw your hands up?
Give them massive rewards for killing their banks?

These folks are the oldest of old money and they are ripping us off blind.

 

This is great thank you, I would prefer a new thread so it doesn't get mixed up with other non related comments

 

how do I start up a small bank, I want some of the next round of handouts

 

You basically make risky loans, making profit, and then if something big ever goes wrong the Fed will come in and buy those worthless crap loans from you.

Imagine if I could sit at a table and play Black Jack for money, and when the other people sitting at the table with me lost enough money, there was somebody else to step in and cover almost all our losses.

When the Fed issues more money to buy worthless crap loans, it causes inflation.

 

sure, I would love that, gamble and if I lose... have the fed bail me out when I lose, perfect, sign me up

 

These banks wanted more business but couldn't find anyone else to lend money to, so they turned to subprime borrowers, a group of people who had previously been denied loans.

Then the banks packaged up those mortgages into derivitive bundles and sold them to someone else, typically gullible pension funds. The new buyers thought the investments would be low risk, and had slightly higher returns than normal.