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Fed - Lender Of Last Resort 2 Destroyer

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Randolph Kinney

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https://www.linkedin.com/pulse/how-fed-went-from-lender-last-resort-destroyer-american-booth

Created in 1913 after the Panic of 1907, the Federal Reserve was founded to keep the public’s faith in the buying power of the U.S. dollar. After failing miserably in the 1930s, the Fed aimed to be more responsive.

With a few exceptions, virtually all of those at the meeting were PhD economists who had earned doctorates at MIT, Yale, Harvard, Princeton, and other top American universities. They met under the auspices of the Federal Open Market Committee (FOMC), the decision-making body of the Federal Reserve System. They believed a lifetime of study in economic theory and monetary policy had given them unique insight to steer policy for the most powerful central bank in the world, the lender of last resort for failing Wall Street banks, and the U.S. government’s last line of defense against utter financial chaos.

By the end of the meeting, the vote was unanimous. The FOMC officially adopted a zero-interest-rate policy in the hopes that companies teetering on the brink of insolvency would keep the lights on, keep employees on their payrolls, and keep consumers spending. It would even pay banks interest on deposits.

Free cash. We’ll even pay you to take it!

And the rest is history. Savings were destroyed and wealth transferred to the Wall Street fat cats. Government has systematically picked the pockets of the middle-class and caused the largest income inequality in the history of the US. Pension plans have been destroyed. As the labor force participation rate has fallen along with homeownership rate, dependency on food stamps and assistance payments have skyrocketed. Median incomes have stagnated or declined.

Wall Street and big banks are still in jeopardy if the economy goes into recession.
 

Mark K

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I agree completely with the article. Since we are in uncharted territory, the question is 'what now'?

How does one best protect his ***-ets and financial future in such a scenario?

I can't help but think that we're in for, maybe already in, a stagnating economy, similar to what Japan's been struggling with for the last 20 or so years. The borrow and spend mentality has to come to an end. Of course that will result in some falling, crashing in some cases, of real assets values.

The mindset and tax policies of encouraging debt and punishing savings and investing needs reversed if the US is to ever get on a reasonably stable financial footing. Unfortunately, I don't see it happening until we're at the edge of the precipice, or maybe over it, hanging onto a limb like Wylie Coyote.
 

Terrel L. Shields

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Government has systematically picked the pockets of the middle-class
For the life of me I cannot understand why the FED would not pay say 40% of mortgage payments directly to borrowers bank on behalf the borrower as long as they kept current, with the understanding at when the property sold, the gov would be paid back out of any profit in the sale. This would mean the bank has an income and the borrower isn't sit out into the street. This was how the FmHA handled those 1980s farmers who were hurt by low prices (and paying too much.) Rather than default, they were forgiven part of the loan with the understanding the gov would claw back part of that if the farm later sold for a higher amount. In fact, many of the farms did recover and farmers were able to keep farming or sell out. By direct payment of the mortgage, the bank would not have to foreclose, banks could then be required to lend on no more than 80% LTV, and prices would have stabilized lower, howbeit much higher than the bottom we saw. That would have propped up house prices instead of the entire residential inventory be driven down into the tank only to pop back up 2 years later and start recovering from a very low price.

The bankers didn't get the punishment they needed. Most of them should be in jail. Not to mention the bond rating agencies, etc. But the people hurt the worst were borrowers - some who never missed a payment - but were foreclosed on anyway because their property value went underwater and the FDIC demanded the bank foreclose. The bank didn't want to but had no choice. I will remember these people for the rest of my life...they didn't deserve this but they left the house spic and span anyway.

DSC04428 (Medium).JPG
 

jay trotta

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Connecticut
Perhaps some of us grew up after the Great Depression and learned from our parents the pitfalls of life;
The Greatest Depression is a totally different matter, and hopefully everyone has learned the New Lesson, regarding Bankers.......we'll see
 

Randolph Kinney

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Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
As someone has already said, "the system is rigged." Bad things have already happened and worse things are going to happen.

My father told me about the Great Depression. Paper money replaced gold and silver. That allowed unlimited "printing" of money and financing of debt.

The day comes when people can't borrow to live on simply because their income can't support zero percent interest. Car loans have negative equity but to sell new cars, they have to take a trade in with negative equity and roll that into new 8 year car loan that is 125% of the value of the car.

These car loans are defaulting along with student debt.
 

Terrel L. Shields

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Arkansas
The day comes when people can't borrow to live on simply because their income can't support zero percent interest
My grandfather who died in 1975 once remarked and my father agreed that the next depression everyone would have money but it wouldn't buy anything. That's pretty much what happened.
 

jay trotta

Elite Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
As someone has already said, "the system is rigged." Bad things have already happened and worse things are going to happen.

My father told me about the Great Depression. Paper money replaced gold and silver. That allowed unlimited "printing" of money and financing of debt.

The day comes when people can't borrow to live on simply because their income can't support zero percent interest. Car loans have negative equity but to sell new cars, they have to take a trade in with negative equity and roll that into new 8 year car loan that is 125% of the value of the car.

These car loans are defaulting along with student debt.

Read something about that the other day; Student Loans & Auto amount to about; $1.3 Trillion and Auto loan debt is Up 46% from 2009; the kids Graduating from College, with no jobs are going to manage their accounts with what ?? Auto costs are up 100%, New / Used and Repairs, even a cost of living increase won't keep up.
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
My grandfather who died in 1975 once remarked and my father agreed that the next depression everyone would have money but it wouldn't buy anything. That's pretty much what happened.

Weimar Republic (German: Weimarer Republik [ˈvaɪmaʁɐ ʁepuˈbliːk] ( listen)) is an unofficial, historical designation for the German state between 1919 and 1933. The name derives from the city of Weimar, where its constitutional assembly first took place. The official name of the state was still Deutsches Reich; it had remained unchanged since 1871. In English the country was usually known simply as Germany. A national assembly was convened in Weimar, where a new constitution for the Deutsches Reich was written, and adopted on 11 August 1919. In its fourteen years, the Weimar Republic faced numerous problems, including hyperinflation, political extremism (with paramilitaries – both left- and right-wing); and contentious relationships with the victors of the First World War.

However, the Weimar Republic government successfully reformed the currency, unified tax policies, and organized the railway system. Weimar Germany eliminated most of the requirements of the Treaty of Versailles; it never completely met its disarmament requirements, and eventually paid only a small portion of the war reparations (by twice restructuring its debt through the Dawes Plan and the Young Plan).[5] Under the Locarno Treaties, Germany accepted the western borders of the republic, but continued to dispute the Eastern border.

From 1930 onwards President Hindenburg used emergency powers to back Chancellors Heinrich Brüning, Franz von Papen and General Kurt von Schleicher. The Great Depression, exacerbated by Brüning's policy of deflation, led to a surge in unemployment.[6] In 1933, Hindenburg appointed Adolf Hitler as Chancellor with the Nazi Party being part of a coalition government. The Nazis held two out of the remaining ten cabinet seats. Von Papen as Vice Chancellor was intended to be the "éminence grise" who would keep Hitler under control, using his close personal connection to Hindenburg. Within months the Reichstag Fire Decree and the Enabling Act of 1933 had brought about a state of emergency: it wiped out constitutional governance and civil liberties. Hitler's seizure of power (Machtergreifung) was permissive of government by decree without legislative participation. These events brought the republic to an end: as democracy collapsed, a single-party state founded the Nazi era.

440px-50_millionen_mark_1_september_1923.jpg

50-million mark banknote issued in 1923, worth approximately one US dollar when issued. Nine years earlier, 50 million marks would have been worth approximately 12 million US dollars. Within a few weeks, inflation made the banknote practically worthless.

https://en.wikipedia.org/wiki/Weimar_Republic

Sort of parallels today's political environment.
 
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