Greenberg’s Law of Reverence

Principles are not great because a revered person spoke of them. A person is revered because he or she spoke of great principles.

Let’s Talk About Bernie’s Capitulation To The Democratic Establishment

Newslogue has the article Let’s Talk About Bernie’s Capitulation To The Democratic Establishment. The article has many positive things to say about Bernie Sanders, but it also wants us to be aware of this critique.

… Bernie is not our leader. He isn’t. The extent to which the establishment has sunk their talons into him proves that we can’t afford to allow him to lead us. They will use him to steer us in unwholesome directions and guide us away from our desire to destroy their sick institutions. “Bernie says” should not be received with any more authoritative weight than “Noam Chomsky says,” “Julian Assange says” or “Caitlin Johnstone says”; it should always be taken as data about someone’s opinion, never as gospel truth.

There are a number of interesting quotes from authorities about the danger of just trusting to authorities. Maybe that makes their quotes to be paradoxes, but I think they are right.

Remember Greenberg’s Law of Reverence.

Principles are not great because a revered person spoke of them. A person is revered because he or she spoke of great principles.

The Fed Could Have Also Helped Main Street Instead of Just Wall Street

In this post I am going to perform a little magic trick.  At the end, I will reveal how I did it.

The Federal Reserve Bank (FED) bailed out the banks with a program it called Quantitative Easing(QE). The QE progam bought toxic assets from the big banks to rescue them from insolvency.  These toxic assets were Collateralized Debt Obligations (CDOs).

A CDO is a financial intrument that Banks sold to the public.  It pays high rates of interest, which is why buyers wanted them so badly.  The flow of interest payments to the investors was funded by the mortgage payments of the package of mortgages that comprised the CDO.  They became toxic assets when enough of the mortgagees could no longer afford to make their payments.

The FED bought CDOs so that the Banks no longer had the obligation to pay the interest.

The Fed just created the money to buy these assets.

What if the FED had bought actual mortgages directly instead of buying packages of mortgages in the form of CDOs?  They could have told the mortgagees that they wouldn’t hold them responsible for payments if they couldn’t make them.  After all, some  of the mortgagees aren’t paying anyway.  The difference is that we wouldn’t have so many homeless people who were foreclosed upon, and we wouldn’t have vacant houses that are deteriorating before our very eyes as weather and vandalism take their toll.

As I tried to dig up references to justify what I wrote above, I came across a few surprises.

Forbes has the article Bernanke Admits To Congress: We Are Printing Money, Just ‘Not Literally’

“Where does the Fed get the money to buy [assets],” Congressman Keith Rothfus asked the Chairman.  “Do you create the reserves,” he queried in a follow up, receiving a simple “yes” from Bernanke.  And finally, the money shot: are you printing money? “Not literally,” the Fed Chairman surprisingly responded.

YouTube video of explanation of Bernanke’s Financing of the Asset Purchase

These securities purchases were financed by adding to the reserves held by the banks at the Fed; they did not significantly affect the amount of money in circulation.  The Fed has multiple ways to unwind the large-scale asset purchaes (LSAPs) including selling the securities back into the market.

If I left it there, I can use that as proof that the Fed just created the money to buy the toxic assets.  If you view the video, you will see some sleight of hand to prove that it did and it didn’t do what you think you just saw.

Then there is the New Economic Perspectives article Where Did the Federal Reserve Get All that Money?

John Carney just wrote a very nice piece, showing that not only was the Fed able to find buyers for its assets but that markets actually bought them back at a premium. Bernanke addresses the second objection in his remarks below – idle balances don’t chase any goods – but it’s the financing of the asset purchases that I want readers to understand, because this is fundamental to understanding Modern Monetary Theory (MMT).

This article refers to the Bernanke video above.  The above link is to the relevant 5 minute excerpt of a lecture.  The Board of Governors of the Federal Reserve System has links to the full lecture The Aftermath of the Crisis.

When I saw the 5 minute snippet of the lecture, I saw some amazing sleight of hand.  As I was mulling that over, I came across the New Economic Perspectives article mentioned above, it looked like even experts whom I respect got taken in.  I was pleased to see that in the comment thread that followed that article, there were a few who caught the trick that I saw.

Here is only a part of the conversation that gives you an insight to the sleight of hand.

Right. But those were risky assets, and I’m saying that this is not a full accounting.

Do we know what kind of losses the Fed has yet to realize?

Say you paid $2 trillion in risky assets with a face value of $2.5 trillion, which may pay 10% interest or may pay nothing and lose 50% of its value. Say it’s 50-50, but you’re levered 20:1– owing $1.9 trillion in debt. You’re either going to make $200 billion or lose $200 billion… on your $100 billion gamble.

Now the Fed buys the stuff off you for $2 trillion and you pay off your debt. You realize no gain, but you weren’t expecting to, anyway. You’re more liquid than before, with far less risk.

The Fed, however, realizes $125 billion in interest on $1 trillion in assets, which it dutifully turns over to Treasury. What’s not mentioned is the $125 billion loss on the rest. Sure, the $125 billion would have gone to the you, and is now at Treasury. But there’s a $125 billion loss at the Fed that also would have gone to you.

And that assumes the Fed pays you fair value for those assets, which is pretty unlikely. Suppose the market price for your assets was falling– maybe you would have only realized $1.8 trillion if you sold to anyone else. That doesn’t matter to the private sector, but that’s still another $200 billion subsidy to the private sector.

And so on.

That drew another possibly more interesting response, but I can’t go on forever quoting everything I have read.

The trick I played is using some of Bernanke’s words that I believe to be true to prove a point, while asking you to ignore Bernanke’s words that at best are trying to avoid revealing the truth.  The meta-trick is that what I did is exactly what Ron Paul and Rand Paul do all the time.  They do it to make a false point, but I do it to reveal the truth, if you believe me.

Maybe I will write another blog post trying to explain where are all the mirrors in this house of mirrors.

Evangelii Gaudium, Apostolic Exhortation of Pope Francis


53. Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality.
56. While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.

No to a financial system which rules rather than serves

I must admit I haven’t read all 288 pages yet, but having the link here will make it easier to read more of what the Pope has to say.  I am sure that there will be many misinterpretations of his words that will be published in the faux news media in the future.  To check if they are true to his intentions or not, you can always come back here to read the words yourself.

Perhaps this exhortation has given President Obama courage to say what is reported in my previous post Obama Gets Real.

I have classified this post under Greenberg’s Law of Reverence so that you know why I think this exhortation is important. Hover over the previous link to see the law.

Paul Krugman | Alan Greenspan, Doing His Best to Make Things Worse

Truthout has republished The New York Times article Paul Krugman | Alan Greenspan, Doing His Best to Make Things Worse.

But academic credentials are neither a necessary nor a sufficient condition for having your ideas taken seriously. If a famous professor repeatedly says stupid things, then tries to claim he never said them, there’s no rule against calling him a mendacious idiot – and there are no special qualifications required to make that pronouncement other than doing your own homework.

Conversely, if someone without formal credentials consistently makes trenchant, insightful observations, he or she has earned the right to be taken seriously, regardless of background. One of the great things about the Internet is that it has made it possible for a number of people meeting that second condition to gain an audience. I don’t care whether they’re Ph.D.’s, professors, or just guys running blogs – it’s the work that matters.

I have already coined Greenberg’s Law Of Reverence to cover this situation.  Also, when I publish statements from people like Paul Krugman, I usually try to avoid mentioning the awards that they have won, unless to disparage the award.  Readers like RichardH will know what award in particular that I am not mentioning.

Tell Scott Brown To Stop Attacking Women’s Health Care

The Elizabeth Warren campaign sent me an email titled, “Stop Distorting Ted Kennedy’s Record”, that wants me to sign onto a letter shown below.  However, I think they are taking the wrong approach.  Even though I signed the letter, I attached the following comment:

As a volunteer for Elizabeth Warren and a collector of signatures for her primary ballot access, I must tell you that you are taking the wrong approach.

Politicians distort other politician’s records all the time. The public does not care that much, they are used to it.

This approach to what Brown is doing plays right into Brown’s bit about this is not being the Kennedy seat. It also sounds a little whiny. What famous politician got nowhere by asking, “Tell him to stop lying about my record?”

Instead, attack Brown’s policy because it is the wrong policy.

Previous accommodations for religious reasons to allow personal non-compliance with legal mandates were an attempt to be reasonable.  Give these Republicans an inch, and they want to take a mile.  They cannot use the granting of previous accommodations which were granted out of the goodness of people’s hearts to ask for even more accommodations.  The previous accommodations were a stretch to grant in the first place.

Granting an accommodation so a person can block the right of someone else to get health care is not a reasonable (or perhaps not even a Constitutionally permissible) thing to do.

I suppose you could mention that even with his Catholic principles firmly intact, Senator Kennedy understood the limits of granting accommodations.

In referring to Senator Kennedy, we might wish to remember Greenberg’s Law of Reverence.

We do not quote a revered historical figure because of our reverence for that person, we revere that historical figure because of what he or she said that is worth quoting.

I am being a little weaselly in this post because I used the Warren campaign’s headline, “Stop Distorting Ted Kennedy’s Record” to attract your attention. Let me know what you think of that. Would you have read the post if the headline had been “Tell Scott Brown To Stop Attacking Women’s Health Care?” [Without waiting for feedback, I changed the headline.]