On Sept 24, 2008. when the Federal Reserve Board under Chairman Ben Bernanke authorized the New York Federal Reserve Bank to loan AIG $85 billion dollars as a two year loan, it was the first of several more to come.
The Federal Reserve does not use taxpayer money to make these loans, they just write a check and create the money as a bookkeeping entry deposit in the hard drive of their computers. To back up their loans, all 12 Federal Reserve Bank can purchase currency from the Bureau of Mint and Engraving at the cost of printing. The currency is used to back up the Federal Reserve loans and purchases of securities and is also exchanged for deposits held by member banks.
Federal law requires that profits made by the 12 Federal Reserve Banks are turned over to the US Treasury at the end of each fiscal year. The current interest rate charged for loans from the Federal Reserve are less than 1/2 of 1% per annum. At that rate, we should be getting mortgages in the 3% range but we are not.
According to CNN bailout tracker, the Federal Reserve has already invested 1.4 trillion to help prevent big banks and corporations from going under including AIG, Citigroup, Bank of America, Bear Stearns, mortgage backed securities from Freddie and Fannie MAC, corporate securities and many more.
All this credit given to the banks and big Wall St corporations was suppose to trickle down to Main St, but here you find almost 20% of the offices and businesses closed. It is hard to see how all this credit advanced to those at the top of the money and business pyramid has benefited the people at the bottom.
The response of MasterCard and Visa credit card companies has been merciless. They have doubled the interest rates they charge and often more than doubled the minimum monthly payments. This has put an even bigger squeeze on those already hard pressed to make ends meet. The bill passed by Congress to reform the credit card system has not yet taken effect and it does not contain any limits on the rates credit card companies can charge. Those rates can go up to an outrageous 29% .
The solution: The Federal Reserve Banks would provide the long term funds for credit cards at a wholesale rate of 1% APR to local banks and credit unions. Local Credit Unions and banks would charge no more than 3% APR to the public for the use of these credit cards. The amount of credit made available would be subject to the ability of the individual to pay it back and with realistic credit limits. If inflation results from too much credit, it could easily be reversed by restricting the amount of credit made available without increasing the interest rates.
In the same way, the Federal Reserve can restrict the money supply by increasing the reserve requirements of the banks without raising interest rates.
At an interest rate of 3%, people can make purchases and still see the light at the end of their financial tunnel. Finally, Congress should also extend unemployment benefits indefinitely for any state where the unemployment rate exceeds 6%.
These proposals were written by Conrad LeBeau 2003 S. 96th St, West Allis WI 53227 414-751-4998 and are posted online at keephopealive.org/forum. Read, reprint and send them to our leaders (Pres Obama, State Senators and Reps) in Washington DC and the media.