USA File: Advancing American communism by emergency: Fed eyes Nordic economic crisis of 1991-93, proposes "temporary" nationalization of US banks

What we are witnessing is an incremental, partial nationalization of the U.S. banking system. Northern Rock in the UK is peanuts compared to what the New York Fed is up to.

-- Steven Randy Waldman, PhD candidate in finance, University of Kentucky; quoted in New York Sun, March 12, 2008

The establishment of a government- or government/private-run central bank with a monopoly over money supply is a key plank in the venerable Communist Manifesto. Such banks exists in most of the world's wealthier countries. The nationalization of private banks on a wholesale basis, however, indicates a move toward full-blown, unabashed communism.

The current convulsions in the global economy, as during the Great Depression of the 1930s, are prompting governments, communist and otherwise, to turn to the nationalization formula to rescue society. In February, for example, British Prime Minister Gordon Brown's Labour government introduced legislation to nationalize mortgage giant Northern Rock after the Treasury rejected a private rescue for the only British bank to suffer a run on deposits in a century. In Venezuela red dictator Hugo Chavez, heedless of the woes endangering the "durability" of his counterpart in Zimbabwe, Robert Mugabe, is threatening to nationalize both farms and banks to tackle domestic food shortages and a credit crunch that is allegedly hurting farmers in that country.

The Fed apparently likes the solution adopted by Britain's Labour government and Venezuela's revolutionary dictatorship. On March 14 fearless British journalist Ambrose Evans-Pritchard, who blew the lid off the Clinton Administration's nefarious activities in the 1990s, reported: "The US Federal Reserve has taken the boldest action since the 1930s, accepting $200bn of housing debt as collateral to prevent an implosion of the mortgage finance industry and head off a full-blown economic crisis." Today Evans-Pritchard reports that the Fed is ruminating over a "temporary" nationalization of US banks, a direction that even overtly socialist president Franklin Delano Roosevelt was wary of following. Instead, FDR declared a "bank holiday" and created the Federal Deposit Insurance Corporation in 1933.

Fed eyes Nordic-style nationalisation of US banks

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 2:58pm BST 31/03/2008

The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.

The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.

A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region's economy to its knees.

It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.

Scandinavia's bank rescue proved successful and is now a model for central bankers, unlike Japan's drawn-out response, where ailing banks were propped up in a half-public limbo for years.

While the responses varied in each Nordic country, there a was major effort to avoid the sort of "moral hazard" that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.

Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.

"We were determined not to get caught in the game we've seen with Bear Stearns where shareholders make money out of the rescue," said one Norwegian adviser.

"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.

Stefan Ingves, governor of Sweden's Riksbank, said his country passed an act so it could seize banks where the capital adequacy ratio had fallen below 2pc. Efforts were also made to protect against "blackmail" by shareholders.

Mr Ingves said there were parallels with the US crisis, citing the use of off-balance sheet vehicles to speculate on property. All the Nordic banks were nursed back to health and refloated or merged.

The tough policies contrast with the Fed's bail-out of Bear Stearns, where shareholders forced JP Morgan to increase its Fed-led rescue offer from $2 to $10 a share. Christopher Wood, chief strategist at brokers CLSA, says the Fed's piecemeal approach has led to "appalling moral hazard".

"Shareholders have been able to lobby for a higher share price only because the Fed took over the credit risk on $30bn of the investment bank's dubious paper. The whole affair also amounts to a colossal subsidy for JP Morgan," he said.

Source: The Telegraph

In confirmation of the Fed's reported intention to control all banks in the USA the Times Online reports that US Secretary Treasurer Henry Paulson's current proposals for financial reform will merge the Securities and Exchange Commission with the the Commodity Futures Trading Commission but, by his own admission, do nothing to prevent a repeat of the current credit contraction in the US banking and loan system. In short, Paulson is engineering a power grab by America's political elite which, despite the lip service paid to patriotism and free enterprise, is infatuated with socialism and world government.

US Treasury Secretary Henry Paulson to overhaul bank controls
March 31, 2008
Suzy Jagger in New York

Henry Paulson, the US Treasury Secretary, has said that sweeping reforms that he will propose today for the regulation of America’s financial system will not prevent a repeat of the present credit crisis that has overwhelmed Wall Street.

Mr Paulson is scheduled to speak in Washington to unveil a range of proposals that would involve the biggest overhaul of the supervision of America’s banks and insurers since the Great Depression.

The former Goldman Sachs chairman and chief executive will recommend that a number of regulatory agencies be scrapped altogether and that the policing of financial institutions be streamlined from Washington. Under his plans, the US Federal Reserve Bank and the Securities and Exchange Commission (SEC) will become much more powerful and state regulators effectively will be sidelined.

At present America’s financial system is overseen by several agencies that have emerged piecemeal over the past 150 years. The Office of Thrift Supervision (OTS) monitors savings banks, while the Comptroller of Currency, which was set up in 1863, regulates national banks and the US operations of foreign banks.

Commercial banks are regulated by the Federal Reserve, but investment banks also answer to the US Treasury, the SEC, the US Accounting Board and to various state regulators.

Last week, the Federal Reserve allowed investment banks to borrow money cheaply at its lending window, alongside its member commercial banks. Such a move – made to ensure that all banks had access to credit - was unprecedented.

It is understood that Mr Paulson will propose scrapping the OTS, merging the SEC with the commodities regulator – the Commodity Futures Trading Commission – and making the Fed responsible for all banks. He is also understood to be planning two new agencies, one to scrutinise the way in which mortgage lenders sell home loans and the other to regulate insurers.