The 11th Hour: Bailout in Simple Terms

I received the following in my e-mail today. Topic is the Bailout Bill…I thought it might help some grasp a better understanding on the situation/bill at hand. I listed the link to the site at the end of the post. (Note – I know it looks long, but it is an easy read.)

The 11th Round: The Wall Street Crisis and Bailout Bill Explained

Posted September 29, 2008 by Michael Nystrom

September 29, 2008

The following story illustrates the root cause of our current financial crisis: the flawed and immoral banking system, headed by the private Federal Reserve Bank, which relies on ever expanding debt creation.

Not one in 1,000 understand it, but if you can grasp this, many once confusing aspects about the world we live in will become clear. While the majority of Americans have no understanding of what follows, you can be certain that the bankers at the Federal Reserve and the brokers on Wall Street understand it perfectly.

The story is adapted from the book The Future of Money (pp. 50 – 53) by Bernard Lietar. Your thoughts, comments and discussion are welcomed and appreciated below.

The Eleventh Round

Once upon a time in a small village, the citizens used barter to conduct all of their transactions. Every day, people walked through the marketplace with chickens, eggs, hams and bread, and engaged in prolonged haggling and negotiations among themselves to exchange what they needed. However, at key periods of the year, such as harvests or if someone’s barn needed repairs after a big storm, people recalled the old tradition of helping each other out with a sense of generosity and community spirit. They knew that if they had a problem down the road, others would help them in return.

One day, a stranger with shiny black shoes and an elegant black hat came to the village and observed the marketplace with a sardonic smile. When he saw one farmer running around trying to corral the six chickens he wanted to exchange for a big ham, he could not refrain from laughing.

“Poor people,” he muttered under his breath. “So primitive,” he said. The farmer’s wife overhead him and challenged the stranger.

“Do you think you could do a better job handling chickens, stranger?”

“Chickens, no,” he responded. “But there is a much better way to conduct business and eliminate all that distasteful hassle,” he said.

“Oh yes, how so?” asked the woman.

“See that tree there?” the stranger replied. “I will go there and wait for one of you to bring me a large cowhide. Then have every family come visit me. I’ll explain to you the better way.”

And so it happened. He took the cowhide, and cut perfect leather rounds in it, putting an elaborate and graceful stamp on each round. To each family he gave ten rounds, and explained that each round represented the value of one chicken.

“Now you can trade and bargain easily with the rounds instead of the unwieldy chickens,” he explained.

It seemed to make sense. Everyone was impressed by the banker with the shiny shoes and impressive hat.

“By the way,” he said after each family had received their ten rounds, “in one year’s time, I will come back and sit under the same tree. I want each family to bring me back 11 rounds. That 11th round is a token of appreciation for the technological improvement I just made possible in your lives.”

But where will the 11th round come from?” asked the farmer with the six chickens.

“You’ll see,” said the man with a reassuring smile.

Analysis

Assuming that the population and its annual production remain the same during the next year, what do you think happened? Remember that the 11th round was never created. Therefore, some of the families had to lose some of their rounds – even if they managed their affairs well – in order that other families gain the 11th round for the banker. Put another way, for each ten families that gain an additional round, one family must go completely bankrupt!

While it was much more convenient to exchange the rounds instead of the chickens on market days, the new game also had the unintended side effect of actively discouraging cooperation that was traditional in the village. Instead, the new money game was generating a systemic undertow of competition among all the participants. Under the new system, when a storm threatened the crop of one of the families, people became less generous with their time to help bring it in before disaster struck. It was every man for himself!

Commentary

This is how today’s flawed monetary system – guided by the Federal Reserve – operates in our lives and society. It is at the root of the crisis that we are facing today. The 11th round represents the interest that we are all struggling to pay on our debts, lest we too succumb to bankruptcy. But the 11th round has a wider impact as well.

Have you noticed how everyone in our society works harder than ever, but no one can seem to get ahead but the bankers, brokers and hedge fund managers? There was a time in America when a single breadwinner could easily support an entire family. Now, even with both husband and wife working, families still require copious amounts of debt just to get by. And since 1913, the year the Federal Reserve system was created, the dollar has lost 95% of its value! This is because the Federal Reserve has created a money and banking system that pits participants in the economy against one another in fierce competition, while consistently skimming off the 11th round for itself and its members. This is why common people cannot get ahead. They consistently lose the fruits of their labor to the bankers!

During the recent housing bubble, the US banking system – under the guidance of the Federal Reserve – played the role of the banker in the story above. The banking system creates only principal, but demands repayment of both principal and interest. In spite of the fact that the interest is never created, and therefore does not exist, banks booked both principal and future interest as an asset.

Example

Say you went to the bank in 2005 and got a $500,000 mortgage at a low teaser rate. The bank created $500,000 from thin air. However, it fully expects you to bring back over $1,000,000 over the next thirty years or so when interest is included. If you don’t bring that amount back, you’ll lose your house! But, the bank did not create the interest! It never does. Instead, like in the story above, it sends you out into the world to battle against everyone else to bring back the second $500,000. And just as you thought you had things under control, they raised the interest rate! The bankers want blood from turnips!

Since every bank in the system does exactly the same thing, the system requires that some participants – and at this late stage many participants – to go bankrupt in order that lenders receive their interest. This is why there have been so many foreclosures and so many bankruptcies – especially in the financial sector. Their phony assets are disappearing.

The money that the bankers say has been lost was never there in the first place! It was all an illusion to begin with! The banking system created the the illusion of massive assets. Now they say those assets have been lost, and that the government, i.e. the taxpayers, i.e. YOU have to bail them out! They’re saying, “You have to make us whole, or the entire system will collapse!”

Reality

In reality, the entire system is corrupt, as you can see. It enriches the bankers, and the politically well connected at the expense of the common man who runs like crazy on the economic treadmill in order to simply stand still. It is the bankers who keep increasing the speed of the treadmill!

In reality, the system is unsustainable and will collapse eventually – bailout or no. The piper waits patiently, saying ‘pay me now, or pay me later.’

It is true that we do not live in a world of zero population growth, output or money supply as in the story. In the real world, there is usually growth in all of these variables, which makes it all the more difficult to understand what is actually going on. As long as things are growing, everything appears to be fine. The system appears stable. The banking system can continue to create more debt, and the companies can take on more leverage. But there is a limit to how much debt can be created by the banking system. The US economy has apparently reached that limit! The private sector cannot take on any more debt. This is why the bankers are attempting to push all of the bad, toxic, worthless debt onto the government!

Thankfully, Congress today did not pass the fat-cat bailout bill. This is a good thing, not a bad thing! The original draft of the bill contained the following statement: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Those 33 words would put the Treasury Secretary above the law, in what was the most blatant attempted power grab in American economic history!

Continue to Stand Up Against this Bill!

The bill was defeated today as the result of unprecedented grassroots pressure on their Congressional representatives. The Bush Administration, the Fed, and all the bankers and brokers on Wall Street are pissed! They’re not used to consumers - er, I mean Citizens – paying attention and getting involved in their dealings. Later this week, they’ll no doubt try to pass it again. Don’t take the bait.

Stay on their case! Keep calling your representatives, letting them know that you are against the bailout. All 435 Congressional Representatives are up for re-election in about a month! Let them know that if they vote for this bill, that you will be voting against them, and mustering support to throw them out of office!

Under our current flawed monetary system – that Congress has built and supports – the common man is penalized with bankruptcy and foreclosure, while the bankers and brokers are not only bailed out, but rewarded by our corrupt, reckless, irresponsible and lazy Congress.

It is easy for us to blame Congress, but ultimately it is We the People who are to blame. We’ve been asleep at the wheel for too long, letting Congress play its corrupt game with the Federal Reserve and the banking system. Today is a day for celebration. Today is the day that many more Americans finally woke up and realized the power we have.

Election Day is November 4th. My Representative – Ed Markey – has been in Congress for over 30 years. I hold him personally responsible for the mess we’re in. Today Markey voted for the fat-cat bailout bill. On November 4th, I will be voting for his challenger, John Cunningham. I urge all Americans to find out how your representatives voted on today’s historic bill. If your representative voted for the fat-cat bailout, I urge you to vote against him or her on November 4th.

IF IN DOUBT, VOTE THEM OUT! NO INCUMBENTS 2008!

http://www.voterbomb.com/2008/node/32