back of bona fide creditors. That is why preferred stock was preferred by existing stockholders to loans and guarantees (which have priority in case of bankruptcy), not to mention the conditions that Congress thought it had laid down calling for these institutions to renegotiate mortgages to bring them in line with the debtor's ability to pay.
What time frame are we talking about here? Evidently one in which Mr. Paulson will have left the administration, sticking his successor with the losses and, presumably, the blame.
salaries and even larger stock options. Meanwhile, the smarter money managers were beginning to shift their funds out of the U.S. economy in a wave of capital flight of a magnitude not seen since Russia in the mid-1990s.
The key is, what is to be corrected? Is it not the financial market itself?
This is where he seeks to spread the disinformation that the explosion of debt that now burdens the U.S. economy has not been the case of Americans saving. It is the result of autonomous credit-creation by the commercial banking system. The basic financial principle of modern banking is that loans create deposits. The bank loan comes first then the deposit or saving.
rate much higher than that which the bank can borrow from the Federal Reserve or in the money market in general. One benchmark global rate to bankers is the London Interbank Borrowing Overnight Rate (LIBOR), and the other is the Federal Reserve's discount rate to banks. (Japanese banks also provided loans to large financial institutions at under 1% per year,
spurring the international carry trade, borrowing cheap in yen and then converting the funds into other currencies and lending at a higher rate.)
for banks that have made bad gambles. The legal reality is that in order to invest in hedge funds and similar casino capitalism gambles (or in Broadway plays and other high-risk ventures, for that matter), prospective financiers must sign releases attesting to the fact that they can afford to lose their money.
Well, not exactly. The world economy has been awash in the U.S. payments deficit, which has swollen the reserves of central banks in the creditor nations from Asia to Western Europe. These central banks have recycled $4 trillion their dollar inflows to the United States under dollar
hegemony. Rather than seeking a "higher return," central banks have found themselves o liged to invest in low-yielding U.S. Treasury securities, or somewhat higher Fannie Mae and Freddie Mac securities. These returns are much lower than U.S. investors have sought in buying up foreign companies and their stocks, whose price appreciation far exceeded the rate that foreign economies were able to recoup on their dollar recycling to the United States.
round of global trade talk.
foreign countries are not to develop a financial system more highly regulated, an agriculture more aimed at feeding their own people. They are not to block capital outflows from the United States based on ³free² credit creation to buy out their commanding heights as the IMF imposes austerity plans and forced privatization sell-offs on Third World and post-Soviet countries while cutting taxes at home in the face of an escalating U.S. trade deficit and rising foreign military spending.
misinform, as are most lobbying efforts by the banking and financial sector. One can only hope that Congress will question his testimony that has repeatedly followed this line with more acumen than prompted its earlier acceptance of the Treasury's bailout act. It's time to clean up this act.