Orchestrating a financial crisis
By Linda Bentley | October 29, 2008
Cloward-Piven drove a city into bankruptcy, now the U.S. at risk
WASHINGTON, D.C. – In 1914 Congress passed legislation to establish a separate department to serve the legislative needs of the Congress and created the Legislative Reference Service, which was signed into law by President Woodrow Wilson.
Congress renamed the agency to Congressional Research Service (CRS) in 1970.
CRS employs more than 450 policy analysts, attorneys, information professionals and experts in a variety of disciplines, boasting an “outstanding reputation for objective and nonpartisan analysis.”
The agency claims it is vigilant in evaluating issues without bias with a multi-layered review process to ensure CRS presents issues and analysis in a fair, considered and reliable manner.
In September 2007, CRS issued a 26-page report titled, “Financial Crisis? The Liquidity Crunch of August 2007.”
The Summary states, “In August 2007, liquidity abruptly dried up for many firms and securities markets … The liquidity crunch was most extreme for firms and securities with links to subprime mortgages, but it also spread rapidly into seemingly unrelated areas.”
On Aug. 31, 2007, Federal Reserve Chairman Ben Bernanke stated, “Although this episode appears to have been triggered largely by heightened concerns about subprime mortgages, global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans.”
The report discusses how the disruption spread from housing into other debt markets, creating systemic risk, noting, “Some financial institutions, primarily mortgage lenders and hedge funds, have been unable to resolve liquidity problems and have closed. In the months ahead, there may be more failures.”
Potential buyers of Mortgage Backed Securities (MBS) began demanding greater detail about the composition of their securities to determine their exposure to poorly underwritten loans.
The report said, “Some have argued that when the Fed does restore liquidity, it increases moral hazard, the economic term for the idea that people take greater risks when they are insured against adverse outcomes.”
At the time, the head of Britain’s central bank said, “The (recent) provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior. That encourages excessive risk-taking and sows the seeds of a future crisis.”
Critics of federal intervention argued more efficient investment decisions would be made in the long run if liquidity crunches were allowed to run their course and imprudent investors took losses.
Economists, in hindsight, believe cutting interest rates in 1998 was wrong, and said the economic downturn and stock market decline that began in 2001 could have been mitigated had there not been federal intervention.
In March 2008 a report titled, “Bear Stearns: Crisis and ‘Rescue’ was generated by CRS about the nation’s fifth largest investment banking firm being battered by a “sudden liquidity squeeze” caused by its large exposure to devalued MBS.
On March 14, in an unprecedented move, the Federal Reserve announced it would provide Bear Stearns with a short-term loan of up to $30 billion.
Intervention by the Feds generated widespread debate on its implications.
On March 21, 2008, CRS issued an updated report titled, “Averting Financial Crisis” that said a common view of a “financial crisis” is when there are disruptions in financial markets causing the flow of credit to households and businesses to be constrained and the real economy of goods and services becomes adversely affected. It said central bankers, including the Federal Reserve, have tried to keep the downturn in subprime housing from developing into such a crisis.
Although subprime problems were “widely anticipated,” the subsequent spread into numerous unrelated parts of the global financial system was not.
According to Treasury Secretary Hank Paulson in January 2008, large losses reported by several major institutions were a sign that the system is working. He said, “As markets reassess, we should not be surprised or disappointed to see financial institutions writing down assets and strengthening balance sheets. This is market discipline in action and should enhance market confidence over time.”
What changed since January?
Perhaps Alaska Gov. Sarah Palin shouldn’t have discounted the “community organizing” skills Sen. Barack Obama learned at the Industrial Area Foundation, founded by Marxist Saul Alinsky, author of “Rules for Radicals: A Pragmatic Primer for Realistic Radicals.”
In the opening paragraph, Alinsky wrote, “What follows is for those who want to change the world from what it is to what they believe it should be. ‘The Prince’ was written by Machiavelli for the Haves on how to hold on to power. ‘Rules for Radicals’ was written for the Have-Nots on how to take it away.”
Alinsky sought to completely discredit the capitalist system by proving the government couldn’t live up to its own rules, thus enabling replacement with a socialist rule book.
Columbia University sociologists Richard Andrew Cloward and Frances Fox Piven, who asserted the ruling classes weakened the poor with welfare, took Alinsky’s rules one step further.
In September 1970, Cloward told the New York Times the poor could only advance when “the rest of society is afraid of them.”
Cloward and Piven set out to sabotage and collapse the welfare system, in order to create a political and financial crisis so great the poor would rise up and force society to heed their demands.
They proposed a massive drive to enroll as many of New York City’s poor on welfare as possible.
By the early 1970s for every two people working in the private sector there was one on welfare, forcing New York City into bankruptcy in 1975.
Considering some in Congress knew about the recent “financial crisis” for quite some time, was it then planned, cleverly calculated and politically timed to create a climate of fear?
Is Obama’s promise of “change,” now accompanied by Congress’ socialist solution to the appalling lending practices it instituted, a means of discrediting the American capitalist system while replacing it with a Marxist one?