REVEALED:

WHY EVERYONE’S BEEN SUFFERING ZERO INTEREST RATES.

WHY US TREASURY SECRETARY FEARS NEW CONSUMER WATCHDOG.

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Life imitates conspiracy theory as plot surfaces to disguise bank indebtedness

After rumours about Tim Geithner’s virulent opposition to Elizabeth Warren began to circulate last week, Slog investigations were, frankly, going nowhere. But today Huffington Post contributor John R. Talbott has uncovered much of the specific dirty dynamite.

The Slog ran a gossip-cum-leak piece last last week about how Treasury Secretary Tim Geithner was opposing the appointment of Elizabeth Warren as candidate to head the new American financial consumer protection agency. It was no more than a tidbit addendum to the rather more disturbing Adam Storch story.

While it is most certainly true that Warren delivers devastating crits of Warren’s Treasury Department to President Obama in a digest summary each month (there have been several confirmations – following initial denials – of the attempted Geithner block) an amazing story is now emerging of a far more specific fear Mr Geithner harbours: that Elizabeth Warren will blow the gaffe on a hand-in-glove scam Tim and his banking chums have been running since he took office.

The Slog has had its doubts about Tim Geithner ever since the Bear Stearns Congressional lying story broke recently, although prior to that time US contacts had already insisted that (a direct quote) “Trust me, Wall Street has nothing to fear from Tim Geithner”. But it’s beginning to look – having said weeks back that Geithner ‘is no Eliot Ness’ – like he might have more in common with Frank Nitti.

To give a quick-read summary: the banks lent money for dumb reasons, gained huge toxic debts – and tried to offload them onto the Fannie & Freddies. When that still didn’t get rid of the radioactive material, they abandoned all lending completely…thus sending the US into recession….and invested instead in Federal securities. The Fed then cut market interest rates to zero…ensuring that the banks could sit doing diddly-squat – but make a massive margin.

Remember The Slog’s mother-site nby asking over and over, “Why on earth are we cutting rates to zero”? Well, here’s the answer….

By reducing interest rates to zero – in both the US and the UK – our governments effectively rewarded banks for lending nothing…..and investing everything with them. Neat.

Remember The Slog pointing out that with so much UK banking money invested in UK Government debt, the whole thing felt dodgey? At the time I just thought it was more Darling stupidity. Now we find it comes down to the same answer as above: mutual interdependence. Talbott rightly comments:

‘While good for the banks, one can see how damaging this lack of credit extension can be to an economy trying to recover from an economic crisis’

We most certainly can. But importantly, there is no faster way to repair banking balance sheets. There’s a fairer way of course – keep interest rates healthy for senior citizens, lend money to deserving entrepreneurs, and assist in the economic recovery. However, none of those aims and actions could ever possibly be vital enough to get in the way of the survival of the political and financial Establishment.

But there’s yet more. Remember nby asking where all that $700 billion Hank Paulson bailout went after he conned it out of the Congress? Read this and weep:

‘Immediately after receiving authorization of the funding for TARP from Congress, Paulson reversed direction and decided to make direct equity investments in the banks rather than using the TARP funds to acquire their bad loans’.

So the bad debts are still there: Tim Geithner hopes to keep the zero rates/Treasury investment deal going….because this way, a deficit-laden America can sell debt knowing full well that the buyers daren’t foreclose….instead, they’ll foreclose on the ordinary citizens who coughed up the $700 billion bailout cash in the first place.

With rates at 0%, only the discovery of another cash-flow source will stop this process taking (literally) years. Talbott again:

‘The banks have made no secret as to where they will find this increase in cash flow. They intend to soak their small retail customers, their consumer and small business borrowers, their credit card holders and their small depositors with increased costs and fees…’

Remember the same Slog piece last week about them doing precisely this?

The global reverberations that ought to come from these revelations should be right off the Richter Scale. But for Geithner, the immediate problem of Ms Warren’s appointment is that – being the most admirable battle-axe – she will within hours have blown the whistle, and blocked the banks’ new source of income with the efficacy of a Hoover Dam.

You really could not make any of this up. For myself, I apologise for the fact that the penny didn’t drop some time ago…and hail John Talbott’s investigatory piece as some kind of cross between a beacon and a bombshell.

The bottom lines are these: Obama made a catastrophic error appointing Geithner and keeping Bernanke; we’ve all had to suffer unnecessarily because of this secret scheme; and the entire planet may now be heading for a depression which, without the pernicious stupidity of bankers, need never have happened. In short, the passage from one epoch to another could have been relatively painless.

Sovereign defaults, welfare cuts, massive unemployment, hugely raised national debts and equally iniquitous tax increases. A global population of 7.02 billion turned upside down – and all for an overpaid, over-privileged community totally no more than 650,000 people.

Unbelievable.