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The Leveraged Buyout of America
Posted on Aug 26, 2013
By Ellen Brown, Web of Debt
Lokey notes that US Treasuries are now being bought by banks in record quantities. These bonds stay on the banks’ books for Fed supervision purposes, even as they are being pledged to other parties to get cash via repo. The fact that such pledging is going on can be determined from the banks’ balance sheets, but it takes some detective work. Explaining the intricacies of this process, the evidence that it is being done, and how it is hidden in plain sight takes Lokey three articles, to which the reader is referred. Suffice it to say here that he makes a compelling case.
Can They Do That?
Countering the argument that “banks can’t really do anything with their excess reserves” and that “there is no evidence that they are being rehypothecated,” Lokey points to data coming to light in conjunction with JPMorgan’s $6 billion “London Whale” fiasco. He calls it “clear-cut proof that banks trade stocks (and virtually everything else) with excess deposits.” JPM’s London-based Chief Investment Office [CIO] reported:
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Another Argument for Public Banking
All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that their loan-to-deposit ratios are low not because they cannot find creditworthy borrowers but because they can profit more from buying airports and commodities through their prop trading desks than from making loans to small local businesses.
Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that we the people need to own some banks ourselves. Publicly-owned banks can direct credit where it is needed in the local economy; can protect public funds from confiscation through “bail-ins” resulting from bad gambling in by big derivative banks; and can augment public coffers with banking revenues, allowing local governments to cut taxes, add services, and salvage public assets from fire-sale privatization. Publicly-owned banks have a long and successful history, and recent studies have found them to be the safest in the world.
As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.
Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her websites are http://WebofDebt.com, http://PublicBankSolution.com, and http://PublicBankingInstitute.org.
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