Paulson & Bernanke: The New American Fascists   (September 23, 2008)

It's fashionable to toss the word "fascist" at one's political opponents, but I am deadly serious in accusing Paulson and Bernanke of attempting a fascist coup d'etat in which the central authority of the U.S. Treasury rules uncontested, with no judicial or legislative counter-balance or authority--not even for oversight.

In a constitutional system which carefully counterbalances Federal powers between judicial, legislative and executive, how can the Treasury department claim extra-legal powers and banish oversight by both the courts and Congress, and not be blatantly unconstitutional?

Yet here is the bill's key point:

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.

Lest you think I indulge in hyperbole, let's go through the definition of fascism and Paulson's power-grab step by step.

Definitions of fascism:

Most scholars agree that a "fascist regime" is foremost an authoritarian form of government.

Note that Paulson's Power-Grab Bill claims total authority for the Treasury, and specifically excludes Congressional or court oversight. What else is that but authoritarian? Sure, it "reports" to Congress, but that is meaningless since Congress has no authority to question or over-rule Treasury's disbursements of taxpayer funds.

Several scholars have inspected the apocalyptic, millennial and millenarian aspects of fascism.

And here we have Paulson and Bernanke squealing that Congress has to grant them virtually unlimited powers to borrow and spend taxpayer funds immediately or a financial Apocalypse is at hand. Nice, but where have they been for the last year? Bleating at every opportunity how "sound" the U.S. banking system is.

They had the responsibility and the opportunity for over one year to address the fundamental rot at the heart of the U.S. financial system, and they did nothing but cover the tracks of their banker pals and loan out hundreds of billions to failed banks. They should both be fired immediately for gross incompetence and Treason. Our dithering President is also grossly incompetent and fortunately he will be replaced in January. But the damage he wrought in appointing and pandering to these two incompetents has already been done.

Here is President Franklin Roosevelt defining fascism in 1942 as the U.S. was in a literal fight to the death with three fascist regimes in World war II:

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power.
Note that the Federal Reserve is a private bank, and that the "group" F.D.R. warned us against resides in the office of Treasury Secretary Paulson, who will have sole power to disburse trillions of dollars to whomever he pleases, without recourse, oversight or control by the courts or Congress. That is fascism, pure and simple.

Here is the best single analysis of the Power-Grab Bailout Bill: The Mother Of All Frauds (Karl Denninger)

You probably read Mish and Denninger already, so you know what needs to be done: email, call and write your elected representatives in Congress and demand they vote against any and all iterations of this caving in to Fascism Bill.

Regarding the power of language:

Let me make an additional suggestion: that just as President Reagan correctly identified the U.S.S.R. as an "Evil Empire," then clearly identify the Paulson Bill as fascist, and identify Paulson and Bernanke as fascists bent on grabbing extra-legal unconstitutional powers and authority under the phony guise of an "emergency."

Hitler used this same tactic again and again, loudly declaring an "emergency" and grabbing what he wanted as the bleating, frightened sheep ran about in disarray. Paulson and Bernanke have torn a page from the Hitler playbook and are working the fear and hysteria to perfection, demanding an "immediate approval" of their power-grab.

It's not considered "polite" to label someone a fascist, but the time for politeness is long past. The toothless mainstream media stood idly by for the past year like a drooling village idiot mesmerized by the brightly colored tinfoil Paulson and Bernanke waved in their faces. Now they cravenly report the "emergency" without a shred of skepticism; Goebbels would have been delighted by their complete spinelessness in the face of a truly Evil danger to the Republic.

How about we go one step further and call this plan and its perpetrators Evil with a capital E. Anyone who purposefully tries to ban legislative and judicial oversight via a phony "emergency" is essentially a traitor, for they are attempting to destroy the very essence of our republic and our constitution.

So let's stop pandering to a propaganda machine all too willing to wag its finger in disapproval at anyone stating the truth: Paulson and his Bill are fascist. Just look up the word, read the bill, and then tell me it isn't a match.

In Christianity, that's called "speaking truth to power." The first step to rooting out Evil is to correctly identify it with the proper words.

If it isn't fascist to strip the courts and elected officials of any and all powers over a small unelected groups' secret actions in the Treasury, then what the heck is it? It certainly isn't American democracy.

So let's call this Power Grab and Paulson and Bernanke by their proper identities: fascists, all.

I know, the bill "expires" in two years--but since they can spend $700 billion, offload whatever toxic assets they bought, draw down another $700 billion, then rinse and repeat, they could easily saddle our children and grandchildren with $3-4 Trillion in debt and in the meantime enrich their buddies and pals in the process.

If you're still unconvinced, then just start reading. Here are three articles sent in by correspondent Craig M., and one submitted by frequent contributor U. Doran:

"Friends of Hank get more special favors from the Fed:"
Fed Allows Goldman, Morgan Stanley to Become Banks

Dollar May Get `Crushed' as Traders Weigh Up Bailout

U.S. Treasury Widens Scope of Plan to Buy Bad Debt

"How, given these changes, can the administration and Federal Reserve believe they are being forthright in their unrevised expectation of future losses?"

Lies From Paulson Keep Stacking Up: What You Can Do About It (Mish Shedlock)

Bottom line: contact your congresspeople and demand they vote against this bill or any permutation of it. Otherwise, Welcome to the Fascist States of America, where a small group in Treasury will be acting in secret, giving away your tax money and your children and grandchildren's money, with essentially unlimited authority to blow trillions of our future tax payments bailing out their buddies and pals.

You want to get tough, Hank? Then ask Congress for the authority to sue all CEOS of failed banks for civil damages (for fraud, collusion, etc.) equal to their salaries and bonuses from 2001-2008. Oh, and don't forget to authorize suing yourself, too; how much did you rake off as head of Goldman? $400 million? Or was it $1.2 billion, if you count stock options and all the other goodies?

Remind me again why Paulson is qualified to be Treasury Secretary. Because nobody understands a con like a con-man?

Footnote: Just as a reminder of how much Federal (taxpayer) money has already been thrown down the rathole: Paulson Bailout (thanks to Craig M. for the link)

By my count, the Federal Reserve has already extended something on the order of $455 billion in loans collateralized by some of these same troubled assets, namely $125 billion in repos, $150 billion in the term auction facility, $50 billion in "other loans", $30 billion from the Bear Stearns deal, and $100 billion in "other Federal Reserve assets". That $455 billion total does not include this week's $85 billion loan to AIG, nor the $180 billion in reciprocal currency swap lines.
That's $720 billion, plus Fannie and Freddie and shadow loans to Merrill, Lehman, etc. Shall we round it up to $1 Trillion and counting?

New essay by Chris Sullins: The McRib Is Back!

Reader Commentaries:

Harun I.

I would like to congratulate you on another excellent post.

Einstein said, "No problem can be solved from the same level of consciousness that created it."

As Paulson fans the flames of urgency I wonder if the members of Congress and the general populace find in him, or Bernanke for that matter, any measure of credibility or competence? If so, I would certainly like to hear the reasoning behind any such confidence. If we are to believe that they never saw this coming then obviously they are incompetent and therefore not qualified for their posts and should be summarily dismissed. If they knew what was happening all along then they have manipulated us with deceit into an almost inflexible and potentially ruinous position and cannot be trusted, and should be summarily dismissed and criminally indicted.

Instead we are entertaining solutions with the same level of consciousness that created the problem. Our Congress who is handsomely compensated and highly privileged failed miserably in its duties to prevent this catastrophe. With the exception of a few the whole of Congress should be removed from office but for the moment I will focus on Paulson and Bernanke.

Bernanke with his Ph. D and vast knowledge of the Great Depression has seen his hypothesis empirically debunked. Paulson who has been around Wall St. all of his life and was CEO of was one of the most respected investment banks has proven inadequate to the task of Treasury Secretary.

These men (Paulson and Bernanke), who have failed in every sense of the matter are now urging us to embark posthaste down a course of action with a proven track record of failure. Bernanke has essentially thrown away all of his theories and decided to fall back on Depression era policies that failed. Should Congress be listening to anything these men have to say?

Let me be clear: Every American should be writing and calling their representatives in Congress to slow down this process before we do more harm than good. If your representative are unresponsive then they should not get your vote in the next election.

I am fond of saying that we get what we deserve. But that is future tense. We have what we deserve. Results equal intentions. We must examine the result to understand the thinking that produce it and do our best to focus on the desired outcome and act accordingly. Liar Nation was a post that should be studied by all for some time to come as it details the thinking (intention) that has produce the present ruinous and calamitous result.

Before our representatives in Congress act on our behave in a way that may cause even greater problems we must examine our intent and what actions are likely to give us the desired result. It was also Einstein who said, "Insanity: doing the same thing over and over again and expecting different results."

Before we give carte blanche powers to the Treasury remember that we have a Constitution. Had it been followed we would not find ourselves in our current circumstances. It is mistake to stay on the path to its irrelevance. Once again I defer to the wise Einstein who said that "Intellectuals solve problems, geniuses prevent them." The architects of the Constitution of the United States were such geniuses. Our intellect has failed to prevent or solve problems that reoccur with the cyclical precision of an atomic clock. It should be clear now what they gave us was to prevent the problems we are experiencing today.

Bernanke and Paulson have been either lying or wrong about everything. We must ask ourselves, before we give them powers that place them above the law of the land, what if they are wrong or lying now?

Michael Surkin

The more I hear about the US government plans to accumulate bad loans and "toxic" assets from financial institutions the more it sounds like an astronomical phenomena: a black hole.

Pomp & Surkanstance 1

The US government’s decision to step in and acquire hundreds of billions of dollars worth of bad loans at above market prices pretty much guarantees that what was already looking like a dismal economic future will be an out and out disaster. I do not use the word lightly, when I describe the virtually certain outcome as a depression.

As much as policy makers have attempted to avoid repeating the mistakes of the past (e.g. Messr Bernanke is an expert on the ‘30s depression) they have wound up following the script of past catastrophes to a T. Just as Hoover and FDR fell over themselves to attempt to bail-out the economy as dark clouds mounted, the global governments are doing the same thing today. In the feverish effort to stop the immediate pain, we are actually making it increasingly harder to come out the other side. Pomp & Surkanstance 2

Michael Goodfellow

Mish and CR both have text of this bailout bill. I have to say I'm disgusted by the thing. It's basically "give Paulson a blank check to buy all the 'mortgage-related assets' in the U.S." It's a completely thoughtless abdication of any responsibility by Congress, and shows absolutely no respect for or understanding of the economy. It's an "oh, just fix this and don't bother us with the details" piece of legislation.

If they had said they were going to wait for banks to go under, then seize their assets and debts, to avoid counterparty risks and spreading defaults, I could see the logic of it. Weak banks and funds would fail as normal, stockholders and CEOs would take their medicine, and the Feds would just keep it from turning into a series of dominoes. That would be similar to the old RTC. What they are proposing now just makes no sense. I really think it will fail within months and then they will be left with no plan, no money and no credibility.

I really don't think a selective bailout of U.S. banks is going to fly with the public or with overseas investors. We are in effect saying "yes, you lost your shirts on American real estate investments, but just give us another $700 billion in Treasury purchases. That will work out fine..." The pundits today are saying things like "stopping the decline of housing prices will solve this economic problem." From the perspective of California, where there are huge amounts of foreclosures and unsold inventory, stopping the decline is a complete fantasy. And it should be a fantasy, since we are still above historical multiples of income and rent. Housing prices need to come down.

After 9/11, the U.S. responded in a thoughtless fashion -- start wars, throttle the borders, turn the airports into armed checkpoints, monitor all phone calls/email, and torture a few suspected terrorists. It was mindless "get tough" actions without any respect for American tradition or any coherent view of what we were trying to accomplish. And they spent money like it was going out of style.

This strikes me as more of the same. I hope we come through this with some kind of intact financial system, but I don't see how. We all piss and moan about how corrupt the system is, and how idiotic the government is, but I tend to take that with a grain of salt. We've all been pessimistic for years, and nothing terrible has happened. Seeing something like this bailout seriously considered, and probably passed into law in a week, just makes you realize how far the rot has gone. If Congress balks at this, it will be because there's no "stop the foreclosures" measure in there.

I know you think that after this system collapses, something good will come in its place. Can you really write a convincing scenario of that happening? Are you basing that on your "faith in the American people", or what?

My response: If all the banks which took on too much risk for quick profits folded and all the owners of the toxic debt and derivatives simply took their losses, there would be survivors: Wells Fargo, for instance, which more or less avoided all the toxic crud sinking their competitiors. Plus there are people like Warren Buffett who could launch a new bank tomorrow with a billion of his own money and I am confident his new bank would quickly attract tens of billions in cash seeking a safe, well-managed institution. We really need to let capitalism's "creative destruction" work its magic and not be so fearful of the consequence. Stupid players get eliminated, that's Natural Selection.

Ryan Leatherbury

I noticed that you wrote a letter to your representative on the bailout, so that prodded me to do the same. So I thought I'd share.

The direct act is surely an exercise in futility to be sure...but indirectly, after violating my personal policy on mass emails, it seems more family and friends have taken notice of the actual situation and perhaps are more skeptical of the soundbytes from talking hairdoos.

Take care and please keep up the good work - what you do is very important.

Ryan's blog

***Letter to Senator/Representative***

I implore you to not support any bailouts of financial institutions, at the expense of the American tax payer. This is the most flagrant example of socializing costs and privatizing wealth in human history, one which primarily benefits the rich and well-connected.

This is the most socialist government intervention since the formation of the Soviet Union and Communist China. Years of completely reckless monetary policy under the guise of "free market" by the Federal Reserve, deficit spending establishment, fractional reserve banking system, and deregulated financial environments have come to roost and we need to deal with this crisis responsibly and not cure the problem with solutions that will only make matters worse.

I am appalled that we are enabling the same people, who stoked the flames and threw the American public on the pyre of the greatest ever asset and credit bubble, to construct ad hoc crises interventions that push the envelope to and beyond the bounds of the extremely ambiguous Federal Reserve Act. The sad Greenspan-Bernanke-Paulson legacy is the latest and most unfortunate chapter in the economic history of our proud country and these men should be left to their shame and not allowed to do more damage to the well-being of our nation.

It is unacceptable that investors, many of whom are foreign, can earn better returns on government sponsored (read: sponsored not backed) agency debt than US treasuries without facing actual credit risks, even after default, because the American public is being forced to provide a financial backstop, which we cannot by any means afford.

Likewise, it is unacceptable that debt holders in failed agencies and financial institutions were made whole and in fact profited on the nickel of the hard-working American taxpayer due to these interventions.

Further, it is unacceptable to provide a government-backed auction mechanism that purchases assets above their market value, which in many cases is zero.

Yes, purging the economic system of its greater ills will be extremely painful to everyone but history tells us that you cannot renew credit and economic growth through these types of interventions which only postpone even greater problems.

Is it not enough that we have saddled our future with a legacy of debt and national insolvency at every level, which can only be reckoned with through a combination of 3 unfortunate realities: Debt defaults, taxation beyond what we could ever hope to produce and continued currency devaluation to try and stem off the great gorge of deflation?

This is the time to reject our failed ways of debt creation to beget more debt, and embrace a more responsible economic policy that favors thrift and hard work and not financial shenanigans and shell games.

I will not support your bid for re-election if you take Congressional measures to support and condone these un-American bailouts.



Riley Thorpe

Great article tonight. Especially the explanation of the use of shorting to protect your long position.

I believe the same good idea comes to all smart people. This seems as if they did the worst possible thing they could do. No one likes turmoil, what the heck is going to happen in the next week or two with this financial services bail out. Odds seem good that the stock price of these companies will not benefit from what will come, with the inability to protect long positions with shorts or puts, I think that the holders of financial services stock have no alternative but to sell.

Greed is a wonderful motivator but fear works much faster. (Emphasis added, CHS)

I think every one will be watch the markets starting in Asia but the real deal starts in the morning.

interesting times....


My letter to my congressional representatives:

This national banking crisis was self-generated, motivated and created by fundamental greed guised and heralded as "creative financing" (while money was being reaped). This was a new way for banks to make money by changing and lowering their time-tested responsible guidelines for lending money. In essence they irresponsibly introduced huge risks to the system, and then passed these high risk loans down the financial investment chain like a hot potato, happy to make money with their slice of fees and hoping no one would ask for a "refund" down the line. Well, the potato has rotted and been dropped into the lap of the government by the pleading financial system calling for help.

As a taxpayer, I want you to represent me by saying NO -- not bailing out the banks who knowingly created this crisis from their greed. The banks and the investment system of selling/buying mortagages made unprecedented sums of money with their "creative financing" scam and now they want to keep the money they pocketed and shovel the cost of their failed risk onto the taxpayer to make it all allright again for themselves. I do not want to pay for this, and ask you not to support this bailout. Is there no consequence and justice to blatant irresponsibility and deceit? A bailout rewarding rather than punishing the banks for something they created is outrageous.

To make matters worse, the proposed bailout has no oversight. Is congress actually considering handing more money to the banking system expecting them to now "do the right thing"?

Where was the oversight of Congress -- you, the President, Vice-President, Federal Reserve Chairman and Secretary of the Treasury? No one publically recognized and warned the public about the subprime loans being a great risk to the entire banking system. All the "checks" in the system look the other way because huge sums of money was being made.

The banks caused this financial crisis and they are responsible for the "effects" -- not the taxpayers. I will not support you in the next election if you support the bankers.

Zeus Y.

A 70 Trillion Dollar Counterfeiting Ring

According to several sources the market for so-called “credit default swaps” last year alone was nearly equal to the total global GDP, around 70 trillion dollars by some estimates. Yet these derivatives have no discernible “origin” or value. People aren’t sure whether they are capital vehicles, insurance vehicles, investment vehicles, all three, or none of the above. However, what is becoming very clear to me is that they, along with many of the other “creative” financial vehicles are nothing more than a bold mass counterfeiting scheme based on a very simple premise and set of conditions that are not at all “complex.” The problem is not that their values are “unknowable,” but that we know what their value is—worthless. Our problem is that we’re not willing to contemplate socially or personally the ramifications of what we know. This is why big lies work-- the bald truth is harder for most to bear.

What if you used cash to pay your groceries, and you found out the money was phony? You provided of labor, goods, etc. and you got worthless paper in return. You offered something that had real value in return for something you thought had value but did not. Either you swallow the rip-off and lose real value or someone covers for you—the government, insurance etc. What happens if this worthless scrip you receive takes the form of digital funny money, concocted out of thin air, without any real assets or capital to back it up? What happens if the global market for this worthless scrip exceeds the world’s GDP? Oops, there is no one who could possibly cover that. No bailout can buy up tens of trillions of dollars of counterfeit currency or phantom assets.

If I promise to ensure you against loss, and I have no actual resources to back it up other than a contract that says I will, I have produced a counterfeit document. My promise has to be backed by an ability to pay, and I don’t have it. What I have is phony assets, “marked to model,” acquired by selling my guarantee off to someone else, who in turn does the same. I take your money and leverage it into risky investments including more exotic vehicles that have no value, but that I think/pretend have value. This is not gambling. This is simple theft. In gambling, money comes and goes, but is essentially conserved somewhere. In this system of massive counterfeiting, I do the equivalent of flooding the monetary system with fraudulent promissory notes, passed off as assets, while skimming off huge fees with each transaction.

Yes, debt has now magically become an asset because it can ostensibly generate interest payment income and fees. So we lower the monthly minimum on credit cards and jack up the interest rate to keep up the charade of huge returns. We allow negative amortization. We promote “balloon payments.” There is no real value there BY DESIGN. There can’t be. No one can possibly pay off a mortgage that is ten times their income with a principal that actually increases over time.

But if you can pass off the personal or institutional liability (there is no risk here; risk assumes some possibility of solvency) you may be able to “escape” accountability and profit from this scam. As a system, however, this will inevitably fail, and as we are seeing with both ecological and financial environments that we are all part of a system where even externalized liabilities will return to bite us.

What happens when a country floods its own monetary system with currency or makes money far too cheap through low interest rates. At first rampant inflation in things like stocks or house prices, as demand for goods is driven up. Anyone can buy anything with his or her own credit leverage and a lack of fear of consequences. Then devaluation and deflation emerge as fundamentals catch up, followed by a liquidity crisis due to exposed (fraudulent) leverages— leverages which have an essentially infinite multiplication of pseudo value in exotic financial vehicles. What happens when you flood the global market with toxic debt that far exceeds the ability of any country, and even consortiums of companies or countries to address the issue?

You have a global meltdown, or you try to stave off the inevitable reckoning with 700 billion dollar band-aids that have within their conduct of use no provisions for transparency, because that transparency would expose the far deeper and more widespread fraud under the symptoms. (This is all, of course, to help with an orderly “unwinding” of fraudulent assets.) In the end what you will see, no matter the route, is worthless garbage.

We’ve been here before. We’ve been told that terrorists flying planes into buildings was “unthinkable,” requiring complex planning and massive funding. It was not unthinkable or complex. It was simple, needing only a coordinated plan to destroy, exploited vulnerabilities, flight training, boxcutters, and navigation skills. Regarding Iraq, we were warned of a “mushroom cloud,” bio-weapons and all those other complex threats that would get us if the president was not extended unlimited military powers. It wasn’t true or complex.

In fact, we have solid testimony from sources to Pulitzer Prize-winning reporter Ron Suskind, that the government actually forged documents to make that case for war. People lied to gain power, plain and simple, making us all pay again. Now we have counterfeiting to the tune of trillions of dollars, and we’re being asked to give 700 billion dollars to be used without any transparency, oversight, or accountability by Paulson and Bernanke. Well we know one thing it will be used to do-- shroud the underlying core financial and moral crises until past the election and the January 2009 changing of the presidential guard. This is again a very simple move to pay off the world’s financial elite, and help them retain power while avoiding accountability.

If you know someone is going to break up with you, do you want them to let you down easy, sweet talk you, “still be your friend,” screw around on you behind your back while keeping the relationship going, or simply make a clean honest break. I prefer the clean honest break. I like my pain straight up, so I can deal with the reality, assess the damage, and make a new start as more informed person. Apparently too many like to be led along.=

Shah of Plano

Dear Securities & Exchange Commission,

I am requesting that you Investigate for Market Manipulation the following individuals: Hank Paulson, Chris Cox and Ben Bernanke.

This is not a joke.

It is obvious that these three so-called Government Officials are targeting the Values of particular companies in the stock and bond markets using their government authority to prop up their values.

As these Privileged Companies such as Goldman Sachs lose value in the market place these so-called Government Officials get to work on their behalf with Liquidity Grants, Rule Changes and intimidation of their critics.

I will be contacting my elected officials in Texas and pursuing this matter in every way I can.

Lastly, I am also requesting that the S.E.C. review the planed One Trillion Dollar Bailout that Hank Paulson has announced by investigating all e-mails, phone logs and other meetings to ascertain if the Treasury is working at the behest of Wall Street Firms or the American Tax Payer.

Please update me with your inquiry.

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--An anonymous comment about CHS posted on another blog.

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