Modern Day Mutually Assured Destruction

Before the most recent report on Lehman Brothers’ use of Enron-like methods to hide debt from its balance sheet, Greece had recently been accused of similar shenangians.  The sovereign was under scrutiny for swaps it had set up with Goldman Sachs that allowed the nation to mask its real debt load, effectively cooking its books in order to meet the fiscal standards required for admittance into the Eurozone in 2001.  This was not the first time this type of deceptive transaction had been consummated.

The joyfully iconoclastic financial blog Zero Hedge had uncovered a little-known 2001 report by a little-known Italian Economist named Gustavo Piga which showed that Italy had used almost the exact same transactions as those used by the Greeks to mask their finances and gain entrance to the Eurozone in 1997.  For his courageous exposé, most disturbingly Piga’s life was threatened.  Why was this the case?

Piga had been the first to find “…a real-world example of how sovereign borrowers can use derivatives to window-dress public accounts as a means of achieving short-term political goals.”  As the Council on Foreign Relations which collaborated with Piga on the report noted, Italy was able to do this by “taking a cash advance in 1997 against an expected foreign exchange profit in 1998.  Under accounting rules, this is simply impermissible.  Borrowers cannot use loans to anticipate capital gains on a bond.”  The transactions allowed Italy to artifically reduce their deficit in 1997 by increasing their deficit in 1998.

And according to the CFR, what was the significance of this Enron-like Italian book-cooking?

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Tags: alexander hamilton, Andrew Jackson, bailouts, banking, debt
Posted Mar 17th 2010 at 5:31 am in Congress, Economics, News, Obama, Politics, federal spending | 9025047 Commentshttp://biggovernment.com/amellon/2010/03/17/modern-day-mutually-assured-destruction/Modern+Day+Mutually+Assured+Destruction2010-03-17+12%3A31%3A31Andrew+Mellon

Obama’s Paper Chase

The Federal Reserve’s purchase of $300 billion in Treasury debt, as well as its purchase of mortgage-backed securities, has aptly been described as “monetizing the U.S. government debt,” with appropriate concern that it will fuel inflation. 

If President Obama fancies himself a twenty-first century Abraham Lincoln, then we need Timothy Geithner to be his Salmon Chase. Lincoln’s Treasury Secretary was remarkably successful at financing the Civil War, with only limited inflation, and remarkable fidelity to the Constitution.

Chase was a radical Ohio abolitionist before the war (sometimes called the state’s “attorney general for runaway Negroes”), and a relentlessly ambitious rival of Abraham Lincoln. After Lincoln beat Chase for the 1860 Republican nomination, he made him his Secretary of the Treasury. Almost all historians regard Lincoln’s ability to keep Chase on board as one of the marks of his genius as a statesman.

Chase was also a hard-money man, and abhorred paper money—especially the paper emitted by state banks, excoriated (if somewhat exaggeratedly) as “wildcat banks”– creditors were said to have to battle wildcats to attempt to redeem the worthless notes of these reckless frontier banks. Chase believed that the United States needed a national currency, issued by a national banking system. As the Civil War’s costs grew exponentially, Congress pressed him to monetize the government’s debt by issuing Treasury notes unredeemable in gold or silver, and to declare them to be legal tender for all debts—the “greenbacks,” which color our paper money to this day. Chase stuck to his constitutional guns for as long as he could, but finally gave in. But he “hated the crime about to be committed,” as historian Bray Hammond put it. By the end of the war, Chase got his national banking system, and had eliminated unconstitutional state-bank paper currency.

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Tags: abolitionist, Abraham Lincoln, Civil War, Constitution, Federal Reserve
Posted Sep 30th 2009 at 8:15 am in Economics, History, Obama | 1043825 Commentshttp://biggovernment.com/pmoreno/2009/09/30/obamas-paper-chase/Obama%27s+Paper+Chase2009-09-30+15%3A15%3A38Dr.+Paul+Moreno

Breaking: Treasury Inspector General to ‘Review’ ACORN

Press Release

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
http://republicans.oversight.house.gov

News Release

Treasury IG Agrees to Request by Issa and Collins to Conduct a Review of ACORN

September 24, 2009

WASHINGTON D.C. –Treasury Department Inspector General, J. Russell George agreed to comply with a request submitted by House Committee on Oversight and Government Reform Ranking Member Darrell Issa (R-Calif.) and Senate Committee on Homeland Security and Government Affairs Ranking Member Susan Collins (R-Maine) to conduct a review of the Association of Community Organizations for Reform Now (ACORN) and of the IRS’s oversight of nonprofit organizations.

Read the whole release here.

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Tags: ACORN, IRS, Rep. Darrell Issa, Sen. Susan Collins, Treasury
Posted Sep 24th 2009 at 9:58 am in ACORN, Congress, News | 790263 Commentshttp://biggovernment.com/publius/2009/09/24/breaking-treasury-inspector-general-to-review-acorn/Breaking%3A+Treasury+Inspector+General+to+%27Review%27+ACORN2009-09-24+16%3A58%3A43Publius