Tuesday, September 16, 2008William Grigg
Don't be so glum: The "common people" can't count on an $85 billion lifeline from the Fed. We just get to pay for it.
During the frontier period, when the government that afflicts us was still in its pupal stage and (therefore) most of North America remained relatively free, Washington employed an interesting method of stealing land from various Indian communities.
Indian nations such as the Nez Perce, who were organized in fiercely independent bands, posed something of a challenge to Washington, since there was no central oligarchy that could be seduced or intimidated into betraying the entire tribe. So the Feds had to take an incremental approach, negotiating separate treaties that pilfered property tract by tract until the targeted Indian tribe was left with a pitiful, resource-poor and indefensible territory.
At that point, the Feds would designate a small group of people, distinguished for their singular lack of character, as "spokesmen" for the entire community. This group of "treaty Indians" would be used to consummate the land-grab by signing treaties that supposedly bound the entire tribe, including those who had rejected the agreement.
Chief Joseph of the Nez Perce was admonished by his father never to sell the land where his ancestors were buried. He faithfully followed his father's advice not so much as to touch a copy of a treaty, lest the White Man's government take this as a form of consent. Yet he and his band were among those whose lands in the Wilamette Valley were turned over to the Feds as the result of an agreement signed, ostensibly on their behalf, by a group of "Treaty Indians" led by a traitor who, appropriately enough, had been given the name "Lawyer. "
Joseph memorably compared this transaction to a hypothetical case in which a man who doesn't wish to sell his horses discovers that his neighbors had "sold" them anyway.
Today, the Regime ruling us uses routinely uses the same trick, but approaches it from the opposite direction. Rather than creating small front groups that agree to surrender our homes, lands, and other cherished possessions, the Regime, consulting only those carefully protected from accountability, "buys" on our behalf things that are not only useless but harmful to us.
Whichever end of this trick is pointed at us, the desired end result is the same one suffered by the Indians: Complete dispossession and reduction to peonage.
Perhaps I was too distracted to notice, but I don't recall a spontaneous outpouring of public demand for a taxpayer-financed bailout of Fannie and Freddie, the costs of which will eventually run into the trillions of dollars. In that case, however, there is an almost imperceptibly thin thread of public accountability, since Congress -- acting with the desperate haste it displays only when carrying out an errand on behalf of the Power Elite -- passed a patently unconstitutional measure "authorizing" the Secretary of the Treasury to bail out Fannie and Freddie.
This means that the electorate, which installed and tolerates Congress, shares some responsibility for this crime.
However, it's impossible to blame the electorate for the most recent act of mega-larceny, the Federal Reserve's $85 billion bailout of the American International Group. This was done by the FED -- an nominally private entity that exercises immense political and economic power without constitutional standing or accountability of any kind. Congress didn't appropriate the necessary funds for that bailout. Nor was the money set aside through executive action, the entirely illegal method now commonly used to commit the United States to immensely expensive undertakings such as wars of aggression against distant, helpless countries.
The FED's action amounts to the $85 billion purchase of a private company, on behalf of the federal government, using public funds -- without political accountability of any kind. Outrageous as it is, this action may have the healthy, if thoroughly unintended, consequence of illustrating just who actually runs our political system and economy.
As the immensely perceptive economic analyst Michael Rozeff points out, on this Constitution Day we have witnessed an unprecedented arrogation of power by the unelected government that actually rules us. True power in our putative republic is actually exercised by the oligarchy that created, empowered, and controls the Federal Reserve.
Oh, sure, that oligarchy will allow elected officials to play-act the role of representatives or "Deciders," and every once in a while it will countenance a very limited form of political competition. But the really serious business -- such as the disposition of the lives of the subject population in wars, or the re-allocation of their wealth for the benefit of politically favored constituencies -- is simply too important to be left to the vagaries of representative politics. Thus we are routinely reminded that some issues are insulated from the public by being enshrined as part of the sacred "bipartisan consensus."
The nationalization of AIG is on that list, which explains why today we hear a palpably relieved silence from Capitol Hill, when the air should be shredded by expressions of bitter outrage over the FED's action. "Until this week," notes the Financial Times, "it would have been unthinkable for the Federal Reserve to bail out an insurance company...."
Actually, this was never "unthinkable" at all. Current FED Commissar Ben Bernanke has actually gone on record touting the Central Bank's ability to exnihilate what it's pleased to call "money" in any quantity its supervisors deem necessary in order to buy up anything it desires. And as I predicted almost exactly three years ago, the collapse of the debt bubble has left the FED and its controlling oligarchy in a position to conduct the "big buy-out" -- the nationalization of practically everything in the supposed effort to prevent a depression.
"There's no limit to what the Fed is prepared to do," points out investment analyst Richard Daughty, the widely quoted "Mogambo Guru." "The only tool it has is inflation--creating money out of nothing. And Bernanke has explicitly stated that the Fed has the statutory means to use the money it creates to buy anything and everything, including stocks, bonds, houses, and raw land. It's entirely possible that someday we'll see the banking cartel literally owning everything--and Americans are letting this happen."
Given that the FED claims the power to buy both investment instruments and real property, why couldn't it buy an ailing insurance conglomerate? But then again, AIG is not your typical insurance company. It has affiliates in some 130 countries (some of which are now experiencing an old-fashioned bank run) and "counter-party relationships" with nearly every major financial institution on the face of the globe. That's a somewhat florid way of saying that AIG owes everybody money, and if it can't pay its debts, the entire financial services industry may collapse.
The problem here, of course, is that AIG is going to collapse, despite the FED's willingness to custom-print the company tens of billions of "dollars." AIG has been deeply involved in insuring the secondary mortgage bond market. This is why, over the past several years, its value has collapsed like a deflated souffle.
According to letter sent by former AIG CEO Hank Greenberg just yesterday, AIG has lost "over 90% of its value." That has to be considered a criminally self-serving estimate of AIG's actual worth. Greenberg, it should be remembered, was forced out as CEO about three and a half years ago in the middle of an Enron-style accounting scandal in which the company admitted to overstating earnings by $1.7 billion.
Owing to the firm's size, historic reputation, political clout, and prominent place on the Dow, an investigation never made significant headway, and we have no way of knowing the extent to which the company's accounting was corrupt. So when Greenberg admits that the company has lost something north of ninety percent of its value, we are justified in rounding its actual value down to zero and simply letting nature run its course.
That's how things would work out for an honest entrepreneur whose business simply didn't work. But that's not how such things play out for the Power Elite. Picture the world financial market as a hugely overbuilt skyscraper resting on a badly compromised foundation. The core pillars supporting the structure are rotten and about to collapse, and the failure of any one would rapidly induce failure in all of them. The sensible approach would be to get as far as possible from the impending collapse. The Power Elite's approach is to force to work in the basement shoring up the mortally stricken building while the Important People evacuate.
That won't work, of course, and the inevitable collapse will wipe out those left in the basement -- but, hey, that's just the price that has to be paid to save the Important People, who are, after all, more Important than the rest of us.
Deranged financial commentator Jim Cramer didn't take refuge in metaphor to express -- and endorse -- the perspective presented in my illustration. "Frankly, I don't really care if my community bank is doing well," insisted Cramer. "I care about AIG and the fate of Western banks, all of which have relied on AIG at some point for a risk transfer."
Let banks fail across the length and breadth of the land; let millions be left destitute, and misery be poured without mixture on the heads of the common folk -- the FED must protect the interests of super-rich criminals at AIG and kindred institutions.
The anxiety over AIG's fate reflects its role not only as a pillar of the global financial system, but the prominence of the company within the Power Elite. This has been pointed out by the Christian Science Monitor, a publication that has hardly earned a reputation as a purveyor of "conspiracy theories."
Greenberg was a major fund-raiser for the Bush campaign, and is on very good terms with China's ruling elite. He is a member of the Council on Foreign Relations, for which AIG has long been a major donor. Just as significant is AIG's pioneering work as a provider of "terrorism insurance," a new field in which the nominally private company has worked on intimate terms with the Department of Homeland Security.
This creates a new and particularly troubling variety of moral hazard. A market for terrorism insurance requires an ongoing, and preferably growing, terrorist threat. This provides a perverse incentive to preserve the interventionist foreign policy that helps sustain the terrorist threat: The State has a ready-made rationale to expand its power, and the provider of terrorism insurance can keep increasing the premiums.
AIG is thus not merely a tentpole of the world financial system, it's an important pillar of the corporatist Warfare State. All the more reason, then, why it should be permitted to collapse immediately. But that's just not how things are done, of course. Nationalizing AIG was an immediate priority for the FED, but now the precedent has been set, there's no reason for the banksters to quit until they own everything or the dollar sloughs off its remaining value, whichever comes first.