Fed Up: The Bush-Paulson Financial Reform Plan Is a Bogus Scheme

By Danny Schechter, AlterNet. Posted March 31, 2008.

President Bush has finally heard those of us who have been railing for financial reform, and putting Wall Street under what the Jamaicans once called "Heavy Manners," a set of rules and regulations aimed at trying to stabilize the volatile markets and curb avaricious banks who have managed in less than a decade to bring a house of cards down upon themselves and the rest of us.

Suddenly in the run-up to April Fools day, and in rapid order, the "Lions of Legislation on the Hill, and the warring candidates on the campaign trail have discovered that the financial system is on the verge of collapse.

"Do something" is the mantra, as a flurry of new "plans" displace old ones, all aimed at fixing "the mess." The LA Times reports: "congressional Democrats are turning up the heat on the White House and Republicans in Congress to respond more aggressively to the mortgage crisis when lawmakers return next week from their spring recess."

In response, despite its obsession with surges and bombing Iraq back to its idea of "normalcy," the White House says it now feels our pain and has decided to act. Well, at least, to let former Goldman Sachs CEO Hank Paulson, now our Treasury Secretary, (in the tradition of former Goldman Sachs exec Robert Rubin who followed the same career path) impose yet another new pacification plan.

Paulson's has studied the crisis, studied it deeply, and realized the culpability of the brokers and the banks in engineering the disaster. His solution: kick the ball over to The Federal Reserve Bank. He's enlisting the Fed foxes to guard a Wall Street chicken coop at risk from a dangerous form of bird flu. (The technical term is "greeditis" enabled by regulatory arthritis.)

He knows that most Americans -- and most of the media -- think the Fed is a neutral government agency with a public interest mandate. They think it has the expertise and the power to swoop down and save us from our misery despite the fact that eights months of rate cuts and capital "injections" have failed to stem the contagion of collapse.

The New York Times pictures the exercise clinically in positive terms as a police raid, sort of like a SWAT team.

"WASHINGTON -- The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the nation's hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades."

Sorry to disabuse the newspaper of record and anyone who believes this formulation but the Fed Is a private agency with no Constitutional authority run by bankers for bankers. It is a privately owned central banking system. Bankers sit on its many boards. The banks in turn get to borrow money at rates the Fed sets, and tack on interest and fees for loans. The Bank is there to do their bidding, and save them from themselves. When they run into trouble, they are often bailed out.

Bankers pressed for the Fed's formation in a secretive if not deceptive manner: As one historical account explains: "On Sunday, December 23, 1913, two days before Christmas, while most of Congress was on vacation, President Woodrow Wilson signed the Federal Reserve Act into law. Wilson would later express profound regret over his decision, stating: "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world -- no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.

In fact, in its most recent "unprecedented" intervention to save Bear Stearns with monies leant to JP MorganChase through the NY Fed, it turned out that the President of JPM, Jay Dimon, sat on its board. It also appears that it was JP Morgan Chase really that had to be saved because it was so "entangled" with Bear. If you think this was a conflict of interest, think again. Self-interest seems to be their only interest.

Anyone who has looked carefully at the plan knows the odds of it working are nil. The Washington Post explained that it "could require congressional action stretching over several years and would not help the economy out of its current credit crisis." Adds the Wall Street Journal: "If all the changes get made, they would represent a complete reworking of the U.S. regulatory system for finance. Such an outcome would likely take years and would also require major compromises from an increasingly partisan Congress. The proposal, obtained by The Wall Street Journal, is likely to trigger messy feuds over turf at a time when confidence is what's needed."

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Danny Schechter writes a blog for MediaChannel.org. He is the author of "Embedded: Weapons of Mass Deception: How the Media Failed to Cover the War on Iraq" (Prometheus).

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