I know that there have been 2,357,689 diaries on the history, etiology, background, and technical details of this "credit crisis."
Please humor me with one more - Maybe with this one, and the upteen others, we now have a complete set.
Here goes:
It's a loan... A 700 Billion-Dollar Loan..... A $700B revolving line of credit, no less.
I know this sounds like a giant "no-$hit" to many of you out there but humor me - I have slowly come to the party. Maybe there are others who have not realized all this yet and my diary will help.
The Federal Government gets money from a variety of sources but it has no real capability of printing it's own money. That (per the 1913 Federal Reserve Act) is the purvue of the Federal Reserve Bank...which is a private company with a monopoly on printing US Currency.
The "Fed" as it's called, is intertwined via ownership with many other International Banks (including the same Bank of England that we fought to rid ourselves of in 1776), and is essentially a "meta-bank."
Many (but not all) of the worlds' governments have Banks in place which are similar to the Fed. Even China has one.
Between all the "Bank of YOUR COUNTRY NAME HERE" and various other private investors in the world, is managed a "GIANT POOL OF MONEY" that is estimated to be $70 Trillion (warning - PDF) in size.
So if the US needs to raise money to go to war, or pay for infrastructure improvements, or fund disaster relief, or cover the gambling debts of it's Financial Institutions, it turns to this Giant Pool of Money and borrows it.
So this begs the question -
Why doesn't this Giant Pool of money, presumably coordinated by the Federal Reserve Bank and its' partners, just cover the losses themselves? At the end of the day - after all is said and done - it's this Giant Pool of money managed by International Financiers, that stands to lose in this so-called "credit crisis," or "mortgage meltdown." Their money is literally what's at stake here. The US Government has borrowed a LOT in the past 8 years but when it comes to THIS CRISIS, the US Government has not borrowed a dime.
So why doesn't THE GIANT POOL OF MONEY just eat their own losses?
....Because they don't want to....
.....Because it's bad business policy...
....and because they are beholden to their boards' of directors, their investors, and their auditors to not purposely invest in something that is almost certain to produce short-term losses.....
...and ultimately because they have a place they can turn to get their money back.... The US Taxpayer.
Make no mistake - listen to the program "The Giant Pool of Money" by NPR's "This American Life."
It explains, among other things, the way a surplus of International cash looking for investments along with no regulatory climate here in the US acted as catalysts for this crisis.
That GIANT POOL OF MONEY? They took a bath in this crisis. They were JUST as asleep at the switch as were US regulators and Bankers. They are JUST as culpable here.
But it's this GIANT POOL OF MONEY that wants to be paid back - or at least recoup some of their investments.
And they don't want to use their own money to do that - they want the US Taxpayer to cover their losses.
So what is the threat here? That GIANT POOL OF MONEY is threatening to stop the supply of cash to the US economy until the American Taxpayer agrees to cover these losses. Remember - the US Government does not print it's own money - it borrows it from places like the Federal Reserve Bank AT INTEREST. So we have nowhere else to turn.
It is the largest blackmail scheme in history..."Cover our losses or we cut you off"
Do we have choices? Probably not many - the threat is real - and the Giant Pool could easily cut our Credit off tomorrow and our economy would stop functioning. That's essentially what happened following the crash of 1929 - it was not the crash - it was the lack of liquidity that stopped the economy. Part of what was behind "new deal" projects and programs was putting together packages that were attractive to international investors (NRA, REA, etc...) But make no mistake - there was a TON of pain that went around before the economy recovered.
Shhhhhh........The conspiracy theory angle is this:
The international finance community, who have had such a bonanza with all the debt that Bush and Co. have incurred, can see the gravy-train coming to an end. So this is the one last GIANT line of credit they can put the American Taxpayer on the hook for before 11-November. I am pretty sure they don't want to depend on McCain/Palin as the occupants of the White House in January, so they have to act now. So they stopped extending credit to troubled investment firms and forced the meltdown to happen now, vs. later. Maybe the prevailing wisdom was that an economic crisis favored a Republican Candidate - I don't really know, but that's what happened.
Someone else diaried that there is a plan afoot to force a further meltdown in 2009 and that's possible. As long as these large banking institutions operate as they do, and as long as the US economy (and other international economies) can be held hostage, it will continue to happen in a cyclic fashion.
The scariest part - if you look at history - is that with every crisis like this, further consolidation of banks has happened. Fewer and fewer banking and financial institutions means less competition and more opportunity for this kind of extortion to take place. We can not let that happen this time. No more mega-banks!
So Obama Adminstration - job one for your first term - sort out and possibly ammend the Federal Reserve Act....so that we no longer have to be dealing with the Economic Equivalent of OPEC when it comes to international finance.
Oh - and to answer the question on the subject line.....
a 700B line of credit buys us nothing short-term. Long term, who knows.
Remember the Grover Norquist's motto - Saddle the Government with enough debt to effectively Choke it to death....
Endgame achieved?