Over the Top Fed Actions Feed Conspiracy Thinking

Given the fact that it is the target of more than a few conspiracy theories since it was created in 1913, the Federal Reserve System, more commonly known as the "Fed," in media and finance parlance, could be acting with a bit more prudence during these dark economic times. But no, it's gone ahead and damned the depression by doing what the New York Times described as the "unthinkable": bailing out Bear Stearns while giving away hundreds of billions to banks and other institutions whose labyrinthine securitization of our debt economy started this whole mess in the first place.

In other words, rewarding the criminals and screwing the victims.

That kind of behavior is only going to make the conspiracy theorists even cozier. When you already think the Fed has made a serious living from doing everything from transferring public wealth to private hands to signing off on the assassination of John F. Kennedy, you're not going to start thinking better of them when they offload billions onto Bear Stearns, which is a securities firm and not a bank at all. You're not going to get the opposition to stop parroting the usual party lines about the Fed being a privately owned bank that screws Americans by charging interest or compromises the overall interests of the United States by unconstitutionally printing up money like it was going out of style. You're only going to further invigorate them.

That, my friends, is known as reality.

Which is something the Fed doesn't seem to be connected to anymore, judging by how it has, in the words of Bloomberg's Craig Torres, "thrown out four decades of monetary history" in favor of not only bailing out obvious criminals, but also taking on their worthless debt as collateral. The move makes zero sense to anyone outside of those who understand the back channels of America's tangled financial networks, which are beginning to look more and more like Ponzi schemes by the minute. The fact that the Fed has taken on America's prodigious debt, and the already drowning Fannie Mae and Freddie Mac have loosened their capital requirements to do the same, there's nowhere to go but down, down, down for the economy, no matter how many billions of dollars -- or "liquidity" -- the Fed or their partners in crime manage to inject. In other words, to mangle Shakespeare, the Fed's recent actions are full of money and fury, signifying nothing.

"The Fed is trying to encourage more reckless borrowing and spending," argues Peter Schiff, president of Euro Pacific Capital and a longtime caller of bullshit on the irrational exuberance that debt securitization. "Obviously, its bailout of Bear Stearns creditors means that Americans are going to absorb their losses. The Fed is monetizing the mess and spreading out the losses among those who own dollars, whether in their savings or income. They're the ones being asked to shoulder the burden."

What kind of burden? It depends on who you ask. I'm not alone in arguing to anyone within earshot that the recession we're in -- and if you don't think you're in one, I'll have what you're smoking -- will rival if not outdistance the Great Depression. Others, like the Bush administration, who kick-started this recession with a program of easy money, batshit spending and rampant militarism, seem to think, as the president laughably asserted, that "our financial institutions are strong and that our capital markets are functioning efficiently and effectively." But that suspiciously rosy estimation could not be further from the truth.

"We've never had this type of this crisis before," Schiff adds by phone, on the way to a television appearance where he no doubt delivered the same doom prophecy, "and we never had this type of Fed trying to hold onto the economy. Why is it up to the Fed to stop this from happening? If recession is what we need, then postponing it won't help. We've got to restore order to the economy, and the Fed doesn't want to process that short-term pain, so its replacing the pain with one that will hurt even worse later."