40% OF EVERY DOLLAR WE SPEND ON GOODS AND SERVICES IS SYPHONED OFF THE TOP AS BANK INTEREST IN ONE FORM OR ANOTHER: THE CASE FOR DOING AWAY WITH THE FED, LET THE U.S. TREASURY PRINT MONEY AS NEEDED, AND FORM PRIVATE BANKS IN EVERY STATE THAT ARE PUBLICALLY ACCOUNTABLE FOR REGULATING THE MONEY SUPPLY

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April 29, 2012 at 12:58:11

Promoted to Headline (H3) on 4/29/12:     Permalink

A Cure-all for the Financial Ills of our time?

By Josh Mitteldorf (about the author)

          "Actually," says the Earthling, "there are building materials stockpiled just out of town."

" So, there are no workers to do the job?"

          "Actually, there are hordes of unemployed workers who would love to have the work."

" So -- what's the problem?"

          " Well, the way things work here, we need these pieces of green paper before we can get started..." 

" Beam me up! There's no intelligent life on this planet!"

Philadelphia -- There were two visions expressed at this weekend's first (annual?) convention of the Public Banking Institute. The first is the very practical idea that states and cities around America could be rescued from insolvency if they had their own banks, instead of relying on commercial banks to borrow money through bonds. Tax-exempt bond issues supply money to states and municipal governments typically at 5 or 6% interest, while banks these days are able to borrow from the Fed at 1/4% per year.

The second vision is hinted in the joke (above) that Board President Ellen Brown told as she opened her address to the group. It is the radically-subversive idea that the system we have for introducing money into the economy is a boon for the banks, but perhaps a major drag on our economy. Perhaps a simple, direct system of money creation by the Treasury Dept instead of the Fed would put an end to cycles of recession, and create a foundation for long-term prosperity.

Banking is a huge leech on our economy. 40% of every dollar we spend on goods and services -- 40% of all that we create and all we consume -- is siphoned off the top as bank interest in one form or another. (Calculations of Margrit Kennedy) The US Government is in the absurd position of paying interest to a private bank for every dollar that is put into circulation. The Federal Reserve system has privatized the power to create money, which, according to the Constitution, ought to belong to Congress alone. Presently, interest on the national debt costs the Federal government $500 billion in 2011, and (because of structural deficit spending) it is the fastest-growing portion of the Federal budget.

The problem is that an expanding economy needs an expanding money supply. But since 1913, the Federal Reserve (a private consortium of banks) creates the money, backed by new Treasury Notes (bonds) which the Federal Government issues. In essence, every dollar in the money supply represents a dollar of Federal debt. Interest on this debt grows exponentially -- which means it's not much of a problem until suddenly it is. It's a ticking time bomb.

We need another system.

It has not always been thus. Colonial America had paper money created separately by each colony -- a system promoted by young Benjamin Franklin in the 1730s. British King George put an end to the colonies' power, one of the inflammatory actions leading up to the Revolutionary War.

Fourscore and seven years later, President Lincoln financed the Civil War by printing "greenbacks" -- direct money creation by the Federal Government, a sound and simple and publicly-accountable system for regulating the money supply. The greenback system died with Lincoln.

Some say it's not an accident that the present monetary system is so dysfunctional that it is stifling economic activity, and so complicated that "only economists can understand it". The system has many victims, but there are a few who benefit. Carroll Quigley was a professor of history and Washington insider who wrote, in 1966:

[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.  The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations . (from Tragedy and Hope: A History of the World in Our Time (cited by Brown) 

A venerable voice at the conference was Bill Still, who has been educating the public on this issue for over 20 years. His video from the 1980s is available now on Youtube .

 

12-year-old Victoria Grant attended the conference with her Dad, and talked about the Canadian national bank that worked in the public interest for 30 years after its creation in 1939. Since 1974, however, Canada, like the US, has depended on private banks for its own currency, and the result has been an exponential spiral of debt. You can hear Victoria telling the emperor that he has no clothes on here.  

How to restore sanity to our monetary system? A direct assault on the Fed and the Wall St banks that own it pits us against a wall of opposition from some of the richest and most powerful organizations in the world. Let's start at a smaller scale, in the states and cities where American democracy still has some life and some room to move. States (with the exception of North Dakota) are all in trouble, slashing services and increasing taxes in response to the financial crisis of 2008, as the recession cuts into tax revenues just as more people are in need of public services.

There are bills introduced in legislatures of 17 states to create state-owned banks. Many of these are modeled on the example of North Dakota, the only state at present that has a state bank. North Dakota was insulated from the bank crisis of 2008, and the state is prospering recently, with the lowest unemployment rate, the lowest default rate on credit card debt, and lowest foreclosure rate in the 50 states. Economic historian Rozanne Ederson told us that North Dakotans love their bank now, but in 1919, its original implementation required a farm foreclosure crisis and a hotly-charged legislative battle.

The farmers who pushed through North Dakota's bank in 1919 were the radicals of their day. In Philadelphia this weekend are the people who aspire to carry their torch in a new century. They're up against The Bankers -- a rich and powerful force in opposition to change. But states are so desperate for cash these days, and the State Banks could potentially relieve so many ills that who knows -- it just might work!

The Goldman Sachs headquarters on March 14, 2012 in New York. Photographer: Mario Tama/Getty Images

Original here

Bloomberg News

Goldman Loses $2.2B for Shareholders on Op-Ed

By Christine Harper on March 15, 2012

Goldman Sachs Group Inc. (GS) saw $2.15 billion of its market value wiped out after an employee assailed Chief Executive Officer Lloyd C. Blankfein’s management and the firm’s treatment of clients, sparking debate across Wall Street.

The shares dropped 3.4 percent in New York trading yesterday, the third-biggest decline in the 81-company Standard & Poor’s 500 Financials Index, after London-based Greg Smith made the accusations in a New York Times op-ed piece.

Smith, who also wrote that he was quitting after 12 years at the company, blamed Blankfein, 57, and President Gary D. Cohn, 51, for a “decline in the firm’s moral fiber.” They responded in a memo to current and former employees, saying that Smith’s assertions don’t reflect the firm’s values, culture or “how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”

Former Federal Reserve Chairman Paul Volcker, 84, whose “Volcker rule” would limit banks like New York-based Goldman Sachs from making bets with their own money, called Smith’s article “a radical, strong” piece. “I’m afraid it’s a business that leads to a lot of conflicts of interest,” Volcker said at a conference in Washington sponsored by the Atlantic magazine.

Goldman Sachs slid $4.17 to $120.37 yesterday, leaving the shares still up 33 percent this year. The stock advanced 0.5 percent to $120.98 at 9:33 a.m. in New York today.

Goldman Sachs Disagrees

David Wells, a spokesman for Goldman Sachs in New York, declined to comment beyond the contents of the memo and an earlier e-mailed statement in which the firm said it disagrees with the views expressed in the op-ed.

Executives at Goldman Sachs haven’t changed their behavior even after the firm paid $550 million to settle a fraud lawsuit with the Securities and Exchange Commission and was accused by the U.S. Senate’s Permanent Subcommittee on Investigations of misleading clients, Smith wrote. The company published a report in January 2011 with 39 recommendations on how to improve its business practices and client focus.

“Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail,” Smith wrote. “It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you.”

Darth Vader

The article was e-mailed across Wall Street. One employee at Bank of America Corp.’s Merrill Lynch division, a competitor to Goldman Sachs, said his team was told not to send copies to clients. Parodies such as “Why I am leaving the Empire, by Darth Vader” on thedailymash.co.uk and the borowitzreport.com’s “A Response from Goldman Sachs” also circulated.

“It does hurt them,” said Stephane Rambosson, managing partner at executive search firm Veni Partners in London and a former Citigroup Inc. banker. “The perception of the firm has gone down, and a lot of the winners of tomorrow are sitting back and thinking, ‘Do I want to be with Goldman?’”

There’s little evidence that the firm’s popularity with clients has been hurt by the SEC lawsuit, the Senate’s criticism or a recent ruling by Delaware Chancery Court Judge Leo Strine, who faulted Goldman Sachs’s handling of a conflict of interest. The bank won more business than any other in advising companies on takeovers and equity offerings last year, according to data compiled by Bloomberg.

Some clients of Goldman Sachs’s sales and trading department, the business in which Smith worked, said they are always cautious in dealings with Wall Street banks, understanding that their interests can diverge.

‘Prostitution in Vegas’

“The argument that Goldman has become increasingly profit- driven, sometimes at the expense of clients’ best interests, and that some employees use vulgar and disrespectful language, is hardly news,” Whitney Tilson, founder of hedge fund T2 Partners LLC, wrote in an e-mailed commentary. “What’s the next ‘shocking’ headline: ‘Prostitution in Vegas!?’”

Smith was an executive director in London, a title equal to vice president in New York. The firm employs almost 12,000 vice presidents, and most said in a recent internal survey that “the firm provides exceptional service” to clients, Blankfein and Cohn said in the memo. Smith, who sold U.S. equity derivatives to clients in Europe, the Middle East and Africa, didn’t respond to calls seeking comment.

Junior Employee

Seven former Goldman Sachs partners and managing directors, positions that are more senior than vice president, said in interviews that Smith shouldn’t be taken seriously because he was a junior employee and may have been disgruntled about his pay or career. All asked not to be identified because they didn’t want to risk ruining their relationship with the firm.

Still, six of the seven said they agreed with Smith’s criticism of how the firm has treated clients under Blankfein and Cohn’s management and that current members of the management committee would, too. Even so, they said they don’t expect the board of directors to take action or that anything will change because the firm has made money and outperformed most rivals.

“He may have aired a few comments that are true, but he’s placed himself on a pedestal,” said Jason Kennedy, CEO of the Kennedy Group, a London-based recruitment firm. “The reason he’s been at Goldman Sachs for 12 years is that he liked the name and probably liked the money.”

A Rarity

It’s rare for people on Wall Street, especially at Goldman Sachs, to speak out publicly against their employers or former employees, said Roy Smith, a former Goldman Sachs partner who’s now a finance professor at New York University’s Stern School of Business.

“Who’s going to hire someone who would do that?” he said. “The industry will close ranks on such things as whistle- blowing in this context.”

NYU’s Smith, who’s not related to the author of the op-ed, said Wall Street’s culture has changed because trading has become a more important source of revenue than the fees banks get from advising companies on takeovers or financing. Goldman Sachs generated 60 percent of its 2011 revenue from sales and trading.

The relationship with clients in the trading department differs from the investment bank, Smith said. Firms often are on the opposite side of a client’s trade, and can profit at the client’s expense. Still, it’s not as simple as the article describes, he said.

Smart People

“It just doesn’t happen that it’s easy to make money by ripping off your clients or counterparties because they’re pretty smart people for the most part,” he said.

Maurice “Hank” Greenberg, the former chairman of bailed- out insurer American International Group Inc., said Goldman Sachs’s “change in culture” made the bank less responsive to clients.

“A trader has a short-term memory, and a short-term look at things, and that change really has changed the culture of Goldman Sachs,” Greenberg told Bloomberg Television’s Betty Liu today in an interview on the “In the Loop” program. “It is not the Goldman Sachs that represented companies as an investment banker.”

Greenberg’s former firm had a “contentious relationship” with Goldman Sachs, then-Federal Crisis Inquiry Commission Chairman Phil Angelides said in 2010. AIG sought to limit collateral demands in 2007 from Goldman Sachs, saying the bank was too aggressive marking down the value of the mortgage- related securities backed by the insurer through credit-default swaps.

Back-Door Bailout

Using rescue funds to cover AIG’s obligations on the contracts amounted to a “back-door bailout” of Goldman Sachs, Greenberg said.

Though some competitors relished Smith’s criticism of Goldman Sachs, which was the most profitable securities firm in Wall Street history before it converted to a bank in 2008, they may not be so different.

Smith’s opinion piece “seems to be symptomatic of many, if not most, of the banks around the world,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “It might be that Goldman, as one of the most successful ones, is also one of the most extreme.”

Blogger's Note: In the first half of this video Greenberg essentially agrees with Smith's condemnation of Goldman Sachs ever since it became a bank. But in the second half he is touting the right-wing view that "the private sector makes jobs, not governments" and he supports Romney ...even though for the past four years the private sector has offshored myriad jobs while creating virtually none in the U.S.  Whereas in the 1930's FDR showed that the fastest way out of a depression is via government-initiated and funded jobs.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

Why the AGs Must Not Settle: Robo-signing Is Just the Tip of the Iceberg

Posted on February 4, 2012 by Ellen Brown 

Original here

A foreclosure settlement between five major banks guilty of “robo-signing” and the attorneys general of the 50 states is pending for Monday, February 6^th; but it is still not clear if all the AGs will sign.  California was to get over half of the $25 billion in settlement money, and California AG Kamala Harris has withstood pressure to settle.

That is good.  She and the other AGs should not sign until a thorough investigation has been conducted.  The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008.  It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.

The details of the robo-signing scam were spelled out in my last article, here.  The robo-signing fraud and its implications are expanded on below.

Why All the Robo-signing?

Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services.  MERS is a smokescreen behind which these mortgages were sold to trusts that sold them to investors.  The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market.  That meant the investors could sell them in the money market at any time on a day’s notice.  Yale economist Gary Gorton gives this example:

Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities [with] a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.

That is where the robo-signing came in.  Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing — involving falsified signatures assigning mortgages back to the trusts allegedly owning them — occurred not just occasionally or randomly but in virtually every case.  Why?  Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors.  The investors are not interested in making 30 year loans.  They want something short-term with immediate rights of withdrawal like a deposit account.

  

The Hazards of Borrowing Short to Lend Long 

The problem is that when panicked investors all exercise that right at once, there is no cheap funding available to back the 30 year mortgage loans, rendering the banks insolvent.  And that is what happened on September 15, 2008, when Lehman Brothers, a major investment bank like Bear Stearns, went bankrupt. 

According to Representative Paul Kanjorski, speaking on C-SPAN in January 2009, the collapse of Lehman Brothers precipitated a $550 billion run on the money market funds.  A report by the Joint Economic Committee pointed to the fact that the $62 billion Reserve Primary Fund had “broken the buck” (fallen below a stable $1 per share) due to its Lehman investments.  The massive bank run that followed was the dire news that Treasury Secretary Henry Paulson presented to Congress behind closed doors, prompting Congressional approval of Paulson’s $700 billion bank bailout despite deep misgivings.

The sleight of hand that brought the banking system down was that the mortgages backing the money market were supposedly held by trusts that had lent money to homeowners for 15 years or 30 years.  It was the classic “borrowing short to lend long,” a shell game in which banks have engaged for hundreds of years, routinely precipitating bank panics and bank runs when the depositors or the investors all pull their short-term money out at the same time.

The Shadow Banking System Is Still Unregulated 

Periodic bank panics were averted in the conventional banking system only when the government agreed to insure the deposits of individual depositors in 1933.  But FDIC insurance covered only $100,000 (now $250,000), and large institutional investors had far more than that to invest.  The shadow banking system, in which deposits were “insured” with mortgage-backed securities, developed in response.  But the shadow banking system is unregulated and is just as prone to another collapse today as it was in 2008.  The Dodd-Frank banking “reforms” barely touched it.  As noted in an article titled “Risky Debt Use on Repo Market Hits 2008 Levels” in today’s Financial Times:

In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors.  The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding.

When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted.

However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels.

Using the repackaged loans can increase risk in the repo market, the rating agency says. This is because the securities may be prone to sudden pullbacks such as the one experienced in 2008.

We could be looking at another banking collapse at any time; and to fix the problem, we first need to know what is going on.  The AGs should not agree to drop the curtain on the robo-signing scandal until all the evidence is on the table.  It is not just a matter of punishing the guilty; it is a matter of a banking scheme based on fraud, one that ultimately does not work and has jeopardized the homes, savings and investments of the public not just recently but for hundreds of years.
  

The Way Out 

There is another way to design a banking system.  The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all).  The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work.  Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself. 

Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do.  But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money.  Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.

___________________

Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org.  In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.  Her websites are http://WebofDebt.com and http://EllenBrown.com.

THE FORECLOSURE-TO-RENT SCREWJOB

Weekend Edition January 13-15, 2012

Bernanke's Double-Whammy

The Foreclosure-to-Rental Screwjob

by MIKE WHITNEY

Federal Reserve chairman Ben Bernanke wants US taxpayers to purchase more of the garbage loans and mortgage-backed securities (MBS) that the big banks still have on their books. (Cash for trash) That’s the impetus behind the Fed’s 26-page white paper that was delivered to Congress last Wednesday. The document outlines the Fed’s plan for ‘stabilizing the housing market’, which is a phrase that Bernanke employs when he wants to provide more buy-backs, giveaways, subsidies and other corporate welfare to big finance.

“Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery,” Bernanke opined in a letter to the Senate Banking and House Financial Services committees.

Indeed. The housing depression continues into its 5th year with no end in sight, mainly because the people who created the crisis are still in positions of power. And, they’re still offering the same remedies, too, like handing the banks another blank check to save them from losses on their bad bets. That’s what this new “housing stabilization” boondoggle is really all about, bailing out the bankers. Here’s a summary from Bloomberg:

“Bernanke’s Fed study said “more might be done,” including eliminating entirely the reduced fees for risky loans, “more comprehensively” cutting lenders’ put-back risks; and further streamlining refinancing for other Fannie Mae and Freddie Mac borrowers. The U.S. also should consider having Fannie Mae and Freddie Mac refinance loans not already backed by the government, which would add credit risk for the companies, according to the report….” (Bloomberg)

First of all, Fannie and Freddie only return loans (“put-backs”) that don’t meet their standards and which the banks foisted on them so they wouldn’t have to face the losses. The idea that the publicly-funded GSE’s should just “eat the losses” is ridiculous.

And, why–in heaven’s name–would congress want to take on more risk when they can keep millions of people in their homes by simply reducing the principle on their mortgages to the present value of the house? (aka–”Cramdowns”) Naturally, the losses would have to be absorbed by the banks who – by everyone’s admission – were responsible for the present crisis due to their lax lending standards and, oftentimes, fraudulent behavior. This would lead to a restructuring of the country’s biggest banks through a Resolution Trust Corporation (RTC) so their toxic assets and backlog of foreclosed properties can be auctioned off as soon as possible.

This is a straightforward way to fix the housing market and it should have been done long ago. Bernanke’s solution is not only unreasonable, it’s also deceitful. Here’s more from the Fed’s paper: “Continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery”..(without action)…“the adjustment process will take longer and incur more deadweight losses, pushing house prices lower and thereby prolonging the downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.”

Did it really take Bernanke 5 years to figure out that housing is a “drag on the economy”?

No, of course not. So, what’s going on now that has suddenly spurred him to act?

Well, for one thing, the banks are losing a great deal of money on the mortgage-backed securities (MBS) that they bought in the last few years. Here’s the story in the Wall Street Journal:

“After flickering to life early in 2011, the market for subprime- and other risky residential-mortgage bonds has returned to its comatose state. And many investors believe a revival could be years away.

Prices on some bonds, which are backed by mortgages that don’t meet the standards needed to get backing from government-controlled companies like Fannie Mae and Freddie Mac, plummeted as much as 30% last year. The ABX, an index that tracks the value of subprime bonds, ended the year at 43.44 cents on the dollar, down from 59.90 cents at year-end 2010 and a peak of 62.68 cents in February 2011

While that decline pushed yields up to as much as 17% — bond yields rise as prices fall — many fund managers have pulled out of the market due to worries about further price declines. Moreover, repeated downgrades have left too few investment-grade securities for them to own. Wall Street banks, which traditionally have played a key role in the market matching buyers and sellers, are backing away ahead of new regulations that will make it more expensive to hold riskier assets.” (Investors Sour on Subprime Bonds, WSJ)

So, Wall Street’s financial geniuses got back into the MBS-biz (for a second time) and got whacked again? That’s right; and now they want John Q. Public to pay for it with another bailout.

And, there’s more to this story, too. European banks own roughly $100 billion of these mortgage-backed turkeys which they’re presently shedding like crazy in order to meet new capital requirements. That means US bank balance sheets are dripping red as the value of their financial asset-stockpile continues to plunge. That’s why Sugar Daddy Bernanke has stepped in, because it’s time for another multi-billion dollar bank rescue.

Look, the Fed has already purchased over $1.25 trillion of these toxic MBS which represents humongous long-term losses for the taxpayer. Do we really need more of this sludge?

Bernanke promised that the first round of quantitative easing (QE1) would boost employment (It hasn’t) and improve housing sales (it never happened) The only uptick in sales occurred because the colluding banks deliberately reduced the supply of foreclosed homes they put on the market. The reduction has led to a massive 1.7 million backlog of housing units (shadow inventory) that will eventually be dumped onto the market triggering another sharp decline in housing prices. Bernanke wants to do something about the bulging inventory as well as prop up the value of sagging MBS. So, the Fed’s plan actually has two main objectives; in other words, it’s the double whammy. Here’s more from Bloomberg:

“Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen 4.1 percent, and is down 32 percent from its 2006 peak, according to an S&P/Case-Shiller index. The central bank is poised to buy about $200 billion this year, or more than 20 percent of new loans, as it reinvests debt that’s being paid off. Some Fed officials have said they may support additional purchases that Barclays Capital estimates could total as much as $750 billion.”

Did you catch that? Taxpayers are going to get slammed for another $750 billion. That’s nearly as much as Obama’s American Recovery and Reinvestment Act (ARRA), the fiscal stimulus that added 2 percent to GDP and kept unemployment from rocketing to 13 percent. Bernanke wants to throw that same amount down a Wall Street sinkhole.

So maybe you think this won’t happen, after all, could Congress really be so gullible as to fall for Bernanke’s fearmongering flim-flam again?

Maybe and maybe not. But there are some pretty wealthy and well-connected people who are betting that the Fed will do as it’s told and pave the way for another hefty bailout. In fact, the world’s largest bond fund (Pimco) has stumped up a mountain of cash betting that good buddy Bernanke will get the printing presses whirring sometime in mid-January. Here’s the story from Zero Hedge:

”….in December the fund (Total Return Fund or TRF) doubled down on its QE3 all in bet, by “borrowing” even more cash, or a record $78 billion, using the proceeds to buy even more MBS, as well as Treasurys, which hit a combined 31% of the TRF’s holdings. In other words, between MBS and USTs, Pimco holds a whopping 79% of total, mostly in very long duration exposure. In fact, this combination of long duration and pre-QE exposure has not been seen at PIMCO since late 2008, early 2009, meaning that as many banks have been suggesting, (Bill) Gross is convinced that the Fed will announce if not outright QE3 this January, then at least intimate it is coming.”(“Pimco Doubles Down On All In Bet Fed Will Monetize MBS”, Zero Hedge)

So what does Pimco know that we don’t know? More importantly, from whom are they getting their information?

And, there’s another thing, too. This whole deal about converting foreclosed homes into rental properties is another scam. Here’s the scoop from another article in the Wall Street Journal:

“The paper also signaled that the Fed…. will try to involve banks more directly in housing-revival approaches… One area involves efforts to turn foreclosed homes into rental properties….

Banking regulations typically direct banks to sell foreclosed homes quickly, although the rules do recognize this isn’t always practical and so these properties can be held up to five years. The Fed said it is now “contemplating issuing guidance” to banks and regulators that would possibly allow banks to turn some of these foreclosed homes into rental properties…..The hope is this may help stanch the flow of foreclosed properties into markets…” (“Fed Up With the Depressed State of Housing”, Wall Street Journal)

Bingo. The banks are not only sitting on 1.7 million shadow inventory of homes they’ve stockpiled to keep prices artificially high. They also have millions more in the pipeline when a settlement is finally reached on the robo-signing scandal. So, what are they going to do with all that backlog?

That’s easy. They’ll schluff it off on the taxpayer by creating a foreclosure-to-rental swindle where the government provides lavish incentives for banks and private equity scavengers to buy the homes (in bulk) for pennies on the dollar with loans provided by–you guessed it–Uncle Sam. Here’s a summary of what’s going on behind the scenes:

“As the Obama administration and federal regulators work on a program to sell government-owned foreclosures in bulk to investors, those investors aren’t wasting any time stockpiling cash and buying foreclosed properties at auction and from the major banks.

Oakland, California-based Waypoint Real Estate Group, a major acquirer of so-called “REO to Rental” (Real Estate Owned) just announced a partnership with a private equity firm, Menlo Park, California-based GI Partners, to buy foreclosed properties….

“Our approach to buying distressed single-family houses, renovating them, and leasing to residents who are committed to a path to future home ownership is a viable solution to our nation’s housing crisis,” said Colin Wiel, managing director and co-founder of Waypoint in a press release. “Our partnership with GI Partners ensures we can take the next step in our company’s evolution.”

GI is taking an increasingly popular bet on distressed real estate, closing on a $400 million fund with Waypoint, which has plans to purchase $1 billion in distressed real estate assets over the next two years, according to its release. (“Private Equity Readying a Run on Foreclosures”, Diana Olick, CNBC)

So, what do these guys know that we don’t know? And why are they plunking down big money when the details have not even been released yet?

None of this really passes the smell test, does it? The only thing we know for sure is that the “fix is in” and that Bernanke will do what he always does when the banks are in a pinch. Throw them a lifeline.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. He can be reached at fergiewhitney@msn.com