A Brief Explanation of why the Federal Reserve is so Powerful

[Terri]

A Brief Explanation of why the Federal Reserve is so Powerful

Rachel Alexander
The Loft at GOPUSA

President Bush has nominated Ben Bernanke, his chief economist, to replace Alan Greenspan as chairman of the Federal Reserve. The chairman of the Federal Reserve is frequently referred to as “the second most powerful man in the U.S.,” after the President, and occasionally it’s mentioned that the Fed “controls interest rates.” But what exactly does this mean? A lot of Americans, particularly younger Americans, have never bought a house nor worked in the real estate/pool/construction business. A change in interest rates seems to affect them remotely. Furthermore, since the Fed does little but allow interest rates to increase or decrease, and adjust the level of money going into circulation, it is not readily apparent how these two seemingly limited functions could be considered so powerful.

More (http://www.gopusa.com/theloft/?p=136)

[CSchultz]

Fannie Mae and Freddie Mac (and the Federal Home loan banks) were created by congress to provide Federally insured, low interest home loans to the general population.

Just like Social Security, it began with the best of intentions, and was originally a pretty darn good idea.

The problem is that anytime you gather that much money and power into one place, you get corruption.

Fannie and Freddie, once the "Great Defenders" of the American economy, are now benefitting from $13.6 billion in taxpayer subsidies, and it has been estimated that over $6 billion dollars of that has gone into the executives pockets.

How many home owners are aware of the fact that they have an annual $13 billion dollar homeowners tax on their properties to provide the lavish lifestyle of the GSE's top executives?
(You wont see that in the newspapers.)

Here is the part that I find, Well, ...unethical, but quite brilliant at the same time.

Freddie, and Fannie dont really make any loans!!
Alot of people are unaware of that little tid bit.

They are not really "lenders", they are in fact Wholesalers! (I like to call them "bookies", but not in front of the boss!)

They purchase the gravy loans from the private sector lenders.

In other words, they get paid to do nothing, take no risk, but just so that they don't feel too guilty, they do place enormous regulations on private sector lending institutions.

This makes things very hard on the mortgage originators!
Sounds like they are cutting their own throats doesn't it?

NOPE! Remember, no matter how hard it is on the market, WE still pay them their $13 BILLION a year! http://www.gopusa.com/iB_html/non-cgi/emoticons/rotflo.gif

If they did what they were created to do, that $13 BILLION would be passed on to homeowners and used to reduce the interest rates so that more Americans could afford to purchase a home.

But the sad truth is, that it all goes into their pockets.

The Federal Reserve Board investigated the GSE's last year and found that in reality, they only lowered interest rates by .07 percent, and had no discernable effect on the secondary market.

And if anyone still does not feel that the private sector would do a FAR better job, if not for the restrictions placed on them by Frannie, and Freddie,...Take a look at those "GRAVY" Loans that I mentioned them selecting.

How many do you think are "minority" homeowners? http://www.gopusa.com/iB_html/non-cgi/emoticons/rock.gif

[horse2name]

Good article Terri,

I hope everyone reads the whole article and not just the snipet that you included.

I hope that Ben Bernanke is a good replacement for Greenspan. I personally feel that Greenspan helped salvage the US from disaster during Clinton's time in office, as well as, smooth the transitional bumps between presidential terms. Yes, Greenspan could have left things in better shape, but anyone who had stock knew who he was (and listened when he spoke), and Ben Bernanke would do well to get his name in the papers for something good.

I would love to know more about Ben Bernanke anyone got some good stuff on him? We may as well spend some time talking about him and scrutinizing his every move since birth like we are going to do to Alito, especially since he is so powerful.