Posted by: John Gilmore | September 16, 2006

U.S. Treasury Considers Buying Stakes in Banks

We are seeing governments and central banks around the world ‘injecting’ capital into the financial system. You’ll notice that when a government and/or central bank ‘injects’ money (also referred to as a ‘bailout’) into a private corporation (Example: AIG) or bank, often the government and/or central bank receives equity in that corporation or bank in return (article below). As an example, the Federal Reserve received an 80% equity stake in AIG when it provided $85 billion in funding. Where did they get this $85 billion? It was created out of thin air and $85 billion was added to the debt of the United States government. Nice arrangement if you can get it. It also appears that $85 billion wasn’t enough – yesterday AIG needed an additional $37 billion from the Fed. Things are beginning to get really ugly.

If we, once again, strip away the rhetoric – what is really happening? Governments (United States included) and central banks (around the world) are buying majority stakes in corporations and banks. It is being done under the guise of shoring up the financial system – deceptive, but effective. While the people of the world think that governments and central banks are doing whatever they can to alleviate the financial ‘crisis’ – there is actually a long term plan at work here. Control of the financial/banking system is being consolidated rapidly under the central banking system (now including investment banks). We even see the Federal Reserve considering loaning money directly to corporations (articles began appearing yesterday) – bypassing the crippled banking system. When was the last time they did this? The Great Depression.

This is not an ‘inevitable’ result of the current crisis. If we stop listening to the lies – we begin to see what is really happening – financial control of the world continues to be consolidated into the hands of a very few, powerful people.

Yesterday, central banks around the world lowered short-term interest rates by 50 basis points. Is the current financial crisis a result of the ‘cost’ of money or is this a ‘liquidity’ problem? It’s a liquidity problem – banks aren’t lending and credit markets are frozen. Does it matter that it costs you less to borrow money if you can’t borrow money? No, it doesn’t. So, why would all of these central banks lower interest rates in this environment? I believe it’s all about appearances. By doing this, they ‘appear’ to be doing something that will positively impact stock markets. The reality is that this does nothing to help or solve the problem. The charade continues.

As I’ve said before – the underlying problem isn’t the credit markets or the banks or any of the hundreds of reasons we hear about on the news everyday. The problem is our monetary system that requires exponential growth. This will not correct itself until the monetary system changes. Where does all of this lead? Can governments bailout financial/banking firms forever? Of course not. This financial ‘crisis’ will eventually spread to governments the world over. Governments receive revenue from this ‘system’ and are already saddled with massive debt. It won’t be long before we start hearing that the entire system needs to change. How will it change? We’ll be told that we need a ‘coordinated’ financial system without national boundaries – without national currencies – eventually leading to world government controlling a coordinated world financial system.

Of course the Bible tells us all of this. We’re simply living during times when we can watch all of the details play out.

jg – October 9, 2008
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U.S. Treasury Considers Buying Stakes in Banks
New Tack Comes Amid World-Wide Emergency Rate Cuts
By DEBORAH SOLOMON
Wall St. Journal
October 9, 2008

WASHINGTON—The Treasury Department is considering ways to inject capital directly into banks, possibly by taking equity stakes, as the financial crisis continues to worsen.

Treasury Secretary Henry Paulson, in a marked shift in rhetoric, played up Treasury’s newfound authority to “to inject capital into financial institutions” in remarks Wednesday. Mr. Paulson, who won approval from Congress to buy $700 billion worth of distressed assets, had previously focused on Treasury’s plan to buy mortgage-related securities from financial institutions that are having trouble getting the assets off their books.

As the financial crisis continues to escalate, Treasury has begun fleshing out ways to use its authority to make direct injections into financial institutions, according to a person familiar with the matter. Treasury is figuring out how to structure such infusions so that banks can recapitalize and begin lending.
No such moves are imminent, but the fact that the department is engaging in such discussions is an indication of how the crisis is constantly morphing. Such a move was not under consideration just a few days ago but has become more of a possibility in recent days as the stock market has plunged and the credit crunch shows no signs of easing.

Treasury wants to design something voluntary that encourages healthy institutions to participate. Treasury is discussing whether to buy preferred stock or find some other way to inject capital into the firms.

In remarks to reporters on Wednesday, Mr. Paulson said its new authority extends beyond just mortgage-related assets to “any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability.”
The U.K. government this week announced a plan to take stakes in a range of domestic banks.

Coordinated Rate Cuts

On Wednesday morning, the world’s central banks launched a large coordinated attack against the widening global financial crisis, lowering short-term interest rates in unison.

U.S. Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke testify before the House Financial Services Committee on Sept. 24.
The emergency interest-rate action, which involved the Fed, the European Central Bank, the Bank of England and others, is a sign that fears that the financial crisis could cripple the global economy are spreading rapidly.

But the rate move failed to soothe jittery investors. The Dow Jones Industrial Average closed Wednesday at 9258.10, down 189 points, or 2%. The index has fallen 14.6% so far this month. Oil fell $1.11 to $88.95 a barrel, on signs of weakening global demand. Investors continued to flock to safe-haven U.S. Treasury bills, and away from riskier debt such as junk bonds.

One of the chief threats to the global economy is that banks and other financial institutions are hoarding cash, which makes it harder for businesses and households to finance their day-to-day affairs. Lower interest rates reduce the cost of borrowing for banks, businesses and households, and potentially boost confidence. But it’s far from clear whether the lower rates will make banks and other lenders, which are gripped by fears of defaults by borrowers, any more willing to lend.
The U.K. government this week announced a plan to take stakes in a range of domestic banks. As recently as a few days ago, the U.S. Treasury was not considering any capital injections. But it has become more of a possibility as the stock market has plunged and the credit crunch shows no signs of easing.

Treasury wants to design something voluntary that encourages healthy institutions to participate. It is discussing whether to buy preferred stock or find some other way to inject capital into the firms.

In remarks to reporters on Wednesday, Mr. Paulson said its new authority extends beyond just mortgage-related assets to “any other troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability.”
On Wednesday, central banks in the U.S., the euro zone, the U.K., Canada, Sweden and Switzerland each cut short-term interest rates by a half percentage point, noting that “the recent intensification of the financial crisis has augmented the downside risks to growth.” Acting on its own, the People’s Bank of China also cut rates, as did Australia’s central bank, a day earlier. Later, central banks in South Korean and Taiwan cut interest rates, too, and Brazil’s central bank cut reserve requirements on cash and term deposits.
______________________________
Central Banks in Global Show of Force

Central banks around the world acted in concert Monday, hoping a half-percentage-point rate cut would restore confidence to battered markets, WSJ’s David Wessel reports. (Oct. 8)

The global scope of the move was unprecedented, and the cuts marked the first time central banks across the Atlantic have moved in tandem on interest-rate policy since just after the Sept. 11, 2001, terrorist attacks in the U.S. The Fed has not moved rates since April, when it lowered them to 2%.

The moves likely mark just the beginning of broadened government efforts to keep the world-wide credit freeze from strangling the global economy. “For all central banks, this is not the end of the story,” says Laurence Meyer, vice chairman of Macroeconomic Advisers, a forecasting firm, and a former Federal Reserve governor. “We’re facing a potentially severe recession.”

—Jon Hilsenrath, Joellen Perry and Sudeep Reddy contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com

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