Fri Dec 14, 2012, 01:44 PM
Ian62 (604 posts)
Is the Federal Reserve using money laundering techniques to cleanse banks' balance sheets?
Drug lords and terrorists use third party intermediaries to cool off and sanitize hot, dirty, and therefore useless money into pristine-clean and productive money that can be used in legitimate commerce. Itís called money laundering.
Characters operating in the shadows also use a form of reverse money laundering to defile clean money or redirect dirty money while masquerading its source so it can be siphoned away, re-channeled and put to use financing illicit activities such as terrorism. Think of it as repatriating dirty money and expatriating clean money.
The Federal Reserve also operates its own financial Laundromat for troubled, in some cases criminal banks. The Fedís loan laundry and downscale resale consignment shop first takes in the wash by purchasing non-performing, and therefore largely worthless financial assets (loans and loan-backed securities) to remove them from the books of private banks. (Another variant is for the Fed to swap the banksí bad paper at face value for federal debt instruments, which replaces the banksí non-performing assets having little, if any, resale value, with safe, interest-paying and highly marketable assets.). The Fed then launders the loans by reselling them back to the same group of banks at a fraction (10 percent or less) of the face-value price it paid the banks for them. Once the banks repurchase the spiffed up dirty loan laundry, it not only has turned a nifty 90-percent-or-more profit on the turn around, it also has a new asset it can put back into the stream of financial commerce at a price reflective of its true value.
Like hedge funds, the Fed is a perfect vehicle to transform bad assets into good. It is weakly overseen without an independent audit and thus is able to intermediate the transformation of bad, illiquid assets into money (and near money) and then back again into valuable financial assets, all done secretly and anonymously. Unlike the polite, donít-ask-donít-tell fiction of private hedge-fund money laundering, however, the Fed says outright, ďDonít ask, because we arenít telling,Ē even when asked again and again.
Immediately after the 2008 financial meltdown, the Fed laundered more than $2 trillion in worthless assets held on the balance sheets of private banks. According to a watered-down 2011 audit of the Fed by the Government Accountability Office (GAO), there have been $16 trillion in Fed bailouts to banks and corporations around the world since the financial meltdown in 2008. Since that report, Bloomberg has reported on an additional $9 trillion in secret, off-balance-sheet Fed transactions that the central bank refuses to discuss. Now, Ben Bernanke is ginning up assembly-line washing machines at the Fed with QE∞ to spin an opened-ended, $40-billion-monthly cleansing campaign to purchase worthless mortgage backed securities from banks at face value, which could run to an additional $1.3 trillion loan laundering accompanied by downscale resales.
QE3 (or QE to infinity as there is no limit) is no mere financial Laundromat; it is a full-service loan laundry and downscale resale facility that not only cleans the banksí balance sheets but also sterilizes the entire operation to prevent it from producing immediate price inflation. It illustrates the way the Fedís loan laundry and downscale resale facility works:
0 replies, 363 views