Saturday, January 1, 2011

Sleight of Hand, Part 1

In this series, we examine the Bush-Obama Bank Bailout Scheme and related topics.

First, we consider an excerpt from Are U.S. Treasury Bond Sales a Ponzi Scheme?, September 19, 2009:

I have heard at least 5 different theories by very smart people about how U.S. treasury bond sales are being faked.

I do not have either the background or the inside knowledge to be able to comment on whether any of them are true.

(1) PhD professor of economics Michel Chossudovsky - who is a very savvy observer of international dynamics - claims in an interesting 8-minute video:


We are dealing with a pernicious circular relationship. When the banks pressured the Treasury to assist them in the form of a major bank rescue operation, it was understood from the outset that the banks would in turn assist the Treasury in financing the handouts of which they are the recipients.

To finance the bank bailout, the Treasury needs to run a massive budget deficit, which in turn requires a staggering increase of the US public debt.

Public opinion has been misled. The US government is in a sense financing its own indebtedness: the money granted to the banks is in part financed by borrowing from the banks.

The banks lend money to the government and with the money they lend to the government, the Treasury finances the bailout. In turn, the banks impose conditionalities on the management of the US public debt. They dictate how the money should be spent. They impose "fiscal responsibility"; they dictate massive cuts in social expenditures which result in the collapse and/or privatization of public services. They impose the privatization of urban infrastructure, roads, sewer and water systems, public recreational areas, everything is up for privatization.

In other words, the government had to borrow from the bankers the money needed to bail the bankers out, placing the American people further in debt and, if this analysis is correct, American public property may need to be sold to service the debt.

Think about that...

Can these banks that we bailed out, with money we borrowed from them (money that they created out of thin air, with nothing more than an entry on a (probably electronic) ledger), now require us to give them public property - a federal park, for example - to pay off the debt?

Let me quote from Union Dry Goods Co. v. Georgia Public Service Corporation - in the excerpt, I have added links to more detailed information on the cases cited.

15 That private contract rights must yield to the public welfare, where the latter is appropriately declared and defined and the two conflict, has been often decided by this court. Thus in Manugault v. Springs, 199 U. S. 473, 480, 26 Sup. Ct. 127, 130 (50 L. Ed. 274), it was declared that:

16 'It is the settled law of this court that the interdiction of statutes impairing the obligation of contracts does not prevent the state from properly exercising its police powers 'for the general good of the public, though contracts previously entered into between individuals may thereby be affected.'

17 This on authority of many cases which are cited.

18 In Hudson Water Co. v. McCarter, 209 U. S. 349, 357, 28 Sup. Ct. 529, 531 (52 L. Ed. 828, 14 Ann. Cas. 560), it is said that:

19 'One whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the state by making a contract about them. The contract will carry with in the infirmity of the subject-matter.' In L. & N. R. R. Co. v. Mottley, 219 U. S. 467, 482, 31 Sup. Ct. 265, 270 (55 L. Ed. 297, 34 L. R. A. [N. S.] 671), this is quoted with approval from Knox v. Lee, 12 Wall. 457, 550, 551, 20 L. Ed. 287, viz.:

20 'Contracts must be understood as made in reference to the possible exercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of legitimate government authority.'

21 In the same report, in Chicago, B. & Q. R. R. Co. v. McGuire, 219 U. S. 567, 31 Sup. Ct. 259, 262 (55 L. Ed. 328), it is said:

22 'There is no absolute freedom to do as one wills or to contract as one chooses. The guaranty of liberty does not withdraw from legislative supervision that wide department of activity which consists of the making of contracts, or deny to government the power to provide restrictive safeguards. Liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community.'

23 In Atlantic Coast Line R. R. Co. v. Goldsboro, 232 U. S. 548, 558, 34 Sup. Ct. 364, 368 (58 L. Ed. 721), the court said:

24 'It is settled that neither the 'contract' clause nor the 'due process' clause has the effect of overriding the power of the state to establish all regulations that are reasonably necessary to secure the health, safety, good order, comfort, or general welfare of the community; that this power can neither be abdicated nor bargained away, and is inalienable even by express grant; and that all contract and property rights are held subject to its fair exercise.'

25 And in Rail & River Coal Co. v. Ohio Industrial Commission, 236 U. S. 338, 349, 35 Sup. Ct. 359, 362 (59 L. Ed. 607), the state of the law upon the subject is thus aptly described:

26 'This court has so often affirmed the right of the state in the exercise of its police power to place reasonable restraints, like that here involved, upon the freedom of contract, that we need only to refer to some of the cases in passing.' These decisions, a few from many to like effect, should suffice to satisfy the most skeptical or belated investigator that the right of private contract must yield to the exigencies of the public welfare when determined in an appropriate manner by the authority of the state, and the judgment of the Supreme Court of Georgia must be

27 Affirmed.

In other words, the Supreme Court has consistently upheld that contracts (such as any scheme to borrow money from bankers in order to give the money to those same bankers to "bail out" their banks?) must yield to legitimate government authority, and that government power "to secure the ... general welfare ... can neither be abdicated nor bargained away, and is inalienable even by express grant".

That would tell me that the Bush-Obama Bank Bailout Scheme is (as it should be) completely unlawful.

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