Remember how the banking system was supposedly on the brink of failure last year? It turns out that those banks that are "too big to fail" are indeed even bigger and badder than ever. A year ago, the three biggest banks, JP Morgan Chase, Wells Fargo and Bank of America, accounted for 20% of the total deposits. Today they account for a whopping, mind-staggering 31%
The government (er, taxpayers) bailout of the big boys was a cleverly engineered ruse to put more power into the hands of the big banks, reduce competition and force the smaller banks into extinction. It makes perfect sense since the three banks are the "government printing press." They are the ones who create 99.9% (government coinage accounts for less than 0.1%; aside from that, the government prints exactly zero money) of all the money in America. We are beholden to them and have allowed our future generations the "privilege" of owing them trillions in interest payments.
The only way to stop this hydra monster is to simply refuse to do business with them. They create money by using our deposits. To stop their power and influence, the secret is simple: if everyone refuses to give them deposits (in other words, find a smaller bank) then they will be unable to create more money, debts and obligations. Otherwise, they will continue to garner more power and influence over our administration and Congress. Unchecked, you can rest assured that they will take more risk, seek greater profits and have the government behind them the next time they are in trouble.
If anyone saw the 60 Minutes program last night on credit default swaps, we need to add another component to their story. JP Morgan Chase, Citigroup, Morgan Stanley, Bank of America and Goldman Sachs hold the overwhelming majority of credit default swaps and other derivatives. These five own 80% of the total and account for about $250 trillion according to a report compiled by Fitch as reported by CFO.com (July 24, 2009). In case these numbers are mind numbing, $250 trillion is five times larger than the world's annual GDP. A collapse in derivatives, which are largely unknown and unregulated, has the potential to destroy the world's financial system. Now you know how powerful these five banks really are, what "too big to fail" really means and why Congress is scared silly!
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Along comes Barney Frank to the rescue. Barney is the chairman of the House Financial Services Committee. Never have we been a great fan of his but it may be that he is one of the few who gets it. Here is what he had to say at a recent town hall meeting:
"TheHouse will pass legislation this fall mandating a "complete audit" of the Federal Reserve."
The bill to audit the Fed, H.R. 1207, was introduced by libertarian Fed critic Rep. Ron Paul (R-Texas) and is backed by well over a majority of the House. Frank's comment suggests it won't just be left to languish in committee.
"I want to restrict the power of the Fed in a number of ways," said Frank in response to a question about the bill.
"They have had since 1932... the right to intervene in the economy almost whenever they" wanted to, Frank said, noting that the Fed relied on its extraordinary lending power to forward billions to financial institutions last fall. He intends to curtail that lending power, he said.
"Finally we will subject them to a complete audit," he said. "I have been working with Ron Paul, the main sponsor of that bill.
It is interesting to hear Barney and Ron team up. Barney Frank is among the most liberal and Ron Paul is among the most conservative members of Congress. Ron Paul has been the leading critic of the Federal Reserve System. It will be interesting to see what happens next. Wall Street will not take this one politely. The member banks that control the money supply will surely unleash the "Hounds of Lobby" on K Street and will be circling like vultures to change votes. As of now, the House has a majority of members supporting this bill. This will tell us who really has the power!
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