It has been a very eventful couple of days It shows you just how bad things are becoming. It appears (as Aesop said – appearances are often deceiving) that our Government and the Federal Reserve are doing everything they can to prevent a collapse of our financial system. Let’s think about what is really happening. Remember – who caused this mess? The Federal Reserve – by its monetary policy. Who is solving this mess? The Federal Reserve – by printing money to buy real assets. Where did the Federal Reserve get this $85 billion? As Chris mentions below – out of thin air. They create this money.
Wouldn’t it be nice if you could print your own money to pay your bills or buy things? Not really – think it through. What would happen if everyone had their own printing presses and printed as much money as they wanted? You guessed it – money would quickly become worthless. This is exactly what is happening to the dollar. The Fed is printing vast amounts of money to prop up our failing monetary/economic system. What is going to happen to our money? The same thing will happen as we described above – inflation will skyrocket and our money will become worthless. It’s inevitable.
I’m sure that the stock market will rise tomorrow as people hail this move – we’re saved! Unfortunately, this bailout does nothing to solve the massive underlying problems that are causing all of this. This is simply another symptom of the much bigger problem our monetary system has created. What will the government do with Washington Mutual? When will we reach the point that we can’t bailout any more of these banks/corporations? We are rapidly approaching a cliff – much more quickly than anyone anticipated. When we fall off the cliff – you can bet that there is a plan waiting in the wings to somehow rescue us – which is what this is all about.
What is also very interesting is that you will never hear in the mainstream media how the Federal Reserve gets the money to bailout these institutions. Ever wonder why?
John Gilmore – 9/16/2008
WOW(!!) - Fed to Give A.I.G. $85 Billion Loan and Take 80% Stake
Dr. Chris Martenson
This is an incredible turn of events. This is the biggest news of the decade.
I was not expecting this sort of activity for another year or two yet.
The Federal Reserve has bought a majority stake in a private company in exchange for cash. Where did the Fed get this cash? It was created out of thin air.
In just in the past five days the Fed has vastly expanded its Treasuries for Trash(tm) program,begun accepting equities from stricken companies in exchange for cash or higher quality assets, and now has actually bought a gigantic insurance company.
I'll let this article from the NYT fill in the details.
In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people with knowledge of the negotiations.
The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.
Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.
But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.
Link to Article (no additional content, I posted the whole thing)
Here's my very direct and simple thought; the US dollar is toast.
The other central banks are doing what they can to stem the tide but, mark my words, sooner or later reality will catch up and the dollar will plummet. How can it not?
Think about it...the dollar is indirectly the obligation of the US but more directly the obligation of the Federal Reserve.
The Federal Reserve now sports a completely ruined balance sheet. So you would be right in asking yourself "what does a dollar represent, after all?"
If you find yourself stumped, you will be in the company of the rest of the world. Let me put it this way, if I were a Saudi Prince I'd be asking myself, "what exactly is the long-term direction of a currency that is backed by defective loans, unsaleable assets, and positions in failed companies?"
Indeed, that now describes the balance sheet of the Federal Reserve.
I cannot state this strongly enough - the stage is now set for a major dollar collapse and whether it does or not depends completely on the behavior of non-US financial entities. The die are cast and it remains to be seen if they turn up snake-eyes or not.