Unrestricted Banking and Problem Banking

[minor-transgression]

If I agree to pay you a pound of silver, there are only two parties.
If I agree to pay you a pound of silver via a promissory note underwritten
by a third party, there are three parties to the contract. You and I rely
on the goodwill, reputation, full faith and credit etc of a third party in our
contract.

[minor-transgression]

Regarding gold and the Black death, to some extent it depends on whether
the contract was for a specific weight of gold or for, say, gold coin.
Hmmmm .... is an Act of God a "Third Party Risk"? I'd need to read the contract :-)

But the same thing could happen to Bitcoin. It's not a Third Party Risk.

BTW, I'm not a lawyer, and this is not legal advice.

[deisik]

If I agree to pay you a pound of silver, there are only two parties

So, if silver loses its value (against what you can buy with it) due to various factors, it can't be considered as a third party risk, right? But what is it then, force majeure?

Would you continue to consider it as money when, in fact, it may have stopped being it?

[deisik]

Hmmmm .... is an Act of God a "Third Party Risk"? I'd need to read the contract :-)

But the same thing could happen to Bitcoin. It's not a Third Party Risk

Okay, but then you should admit that your concept of money as something free of third party risk is lame at best, since it is not free from risk as such while the outcome is essentially the same (i.e. devaluation of money)...

Which seems to have been your point

[Hatuferu]

Unrestricted banking for me is what bitcoins offers today, bitcoin has a blockchain which is the bank, with it being centralized we can monitor our transactions transparently, with its low cost banking it can attract lots of people especially in the other country to do their remittances thru bitcoins.

[deisik]

Regarding gold and the Black death, to some extent it depends on whether the contract was for a specific weight of gold or for, say, gold coin

As an aside, gold (silver) coins in medieval times were worth the amount of gold (silver) contained, so it is irrelevant. You could take a nugget to the royal mint and stamp royal coins for a small fee. If the court debased the coin (i.e. diminished the content of precious metal), its real worth would still equal the actual amount of precious metal it contained. In other words, you wouldn't buy with such a coin more than you would buy with just a piece of gold or silver. On the other hand, the devaluation of gold itself meant the devaluation of coin as well...

And the pound sterling meant just this, i.e. one pound weight of sterling silver

[minor-transgression]

The question about third party risks got me thinking about identifying
the risks that gold and bitcon face. Why prefer one over the other given
that they share similar adavantages and yet are so different physically?

One objective method is to look at the price volatility for each. More
volatility suggests higher risks. I haven't pursued this in any detail because
any derived figures will give a false sense of accuracy. There is enough
there though, IMHO, to suggest that both gold and bitcoin face similar
levels of risk. Despite their different track records, for example 3000 years
vs seven years in circulation, it seems probable that a big chunk of the risk
to their price, if not existence, comes from one part of the economic system
itself.[1]

To understand this threat, think about the purpose of money outside its
ability to provide a store of value. Its real value is its ability to
circulate, to act as the invisible hand that guides people to act in their
own best interests. It does this by providing a medium within which markets
have a near frictionless operation. Except that both gold and bitcoin
barely circulate as money - it seems that Gresham's law in in full flood
with bad money driving good coin out of circulation.  

At this point I will say that there are other risks to bitcoin and to
gold. All of these are the subject of daily speculation and chatter.
Here, this quotation seems particularly relevant "talk is cheap,
show me the code" - earlier I pointed to some banking practices that
bring serious problems, and to recent work in Complexity to try to
better understand these risks. Here I want to take a more global
view of the economy, the role of banking within this, and to get
a glimpse of The Powers That Be. Some links, but see the video:

https://www.youtube.com/embed/NgbqXsA62Qs

http://independenttrader.org/global-structure-of-ownership-result-of-4-year-long-research.html
"Some time ago I posted an article about methods used by banks to influence and govern the world. Some of you may have put that between conspiracy theories. For proving my point I got my hands on very interesting report. 'The Network of Global Corporate Control'. Prepared by Swiss organisation lead by James Glattfelder and Stefano Battistona. Since 2007 till 2011 they investigated capital connections from 43 thousand global corporations. Below I present their results."

http://www.wired.co.uk/news/archive/2014-06/03/james-glattfelder
"This is something that shouldn't be there if you look at standard or classical economic theory."

The phrase used by Glattfield to describe the network is "The Bow Tie".
This is not a particularly good or useful description, but the method has the
benefit of at least some mathematical certainty. The Bow Tie exists, and it is
both a risk and an opportunity for bitcoin, for gold and for assets with a
similar exposure to the vagaries of financial irresponsibility.

This is already old news, and the rabbit hole is getting deeper
all the time ...

[1] Yes, gold doesn't halve, cut me some slack here ...

[panju1]

Unrestricted banking for me is what bitcoins offers today, bitcoin has a blockchain which is the bank, with it being centralized we can monitor our transactions transparently, with its low cost banking it can attract lots of people especially in the other country to do their remittances thru bitcoins.

Maintaining account balances and facilitating transfers is just one part of banking.
What about lending and getting the economy going. Bitcoin has not played a part there.

[minor-transgression]

Getting the economy going? That's partially answered by my post, above, but
I'll open a new topic. "Getting the Economy Going"

[minor-transgression]

I really ought to write something on the origins of money, but
we live in interesting times, so, it's interest that I'm
thinking about. 

More precisely, a view on some implications of a rise in the
US Federal Funds Rate, initially, an increase to one percent.

In any normal economy an increase in rates would reflect the
pressures of growth within an economy, and the risk taken by
the investor. A rate rise to one percent suggests that a sick
economy is merely being taken off the critical list and that
it will take some time before normal service can be resumed.

Now that the idea of an abnormal economy is shimmering in the
distance like a mirage, let's approach a little closer and try
to see more clearly. Take a look at the money in your wallet.
The paper money bears a promise to pay. The "money" in your bank
account, not so much. When I think about it I realize that 99%
or so of the world's reserve currency looks very similar to a
gigantic alt cryptocurrency.

Now, imagine that you are the developer of the alt currency
known as the dollar. What about that rate rise mentioned
earlier? Holders of bonds and stocks are about to lose money
running into trillions. Still feel like raising interest rates?

Maybe that interest rate can be kept near zero a little
longer. But what happens to liquidity preference - money that
is easily traded carries a lower interest rate? That's the
reason people prefer dollars to gold, given similar rates of
interest paid - dollars are easier to exchange for goods.

Hmmmm ... soooo, what about bitcoin? It may not pay interest
but it's been appreciating faster than gold vs the US dollar?
Let me put it like this, if I lived in the Middle East and had
oil to sell, bitcoin would be my first preference ;-)

There's a lot more to be said about interest, and why profits
are not flowing into the pockets of savers, but that's a topic
for another day.

[minor-transgression]

Now for something bitcoin excels at - Foreign Exchange:

http://www.zerohedge.com/news/2016-06-18/fx-next-market-normalize-after-iex-approval
"That means - for those who do not understand clearly - the Forex market itself is an interbank market where banks trade with other banks, and some non-bank participants such as Hotspot (now owned by BATS). That means, they don't have to worry about Reg NMS or other SEC rules, interpretations, comment letters, or policies. They need only worry about a big lawsuit - and when we say 'big' we mean "FX Big" - just one case so far the fines are up to over $5 Billion. One doesn't need a PhD degree from MIT in mathematics to calculate that if the banks have agreed to pay $5+ Billion in fines, the amount of money they are making in FX fleecing customers is 50x or 100x or 200x that. If you don't understand this logic, ask a class action law firm about settlement math, companies always agree to pay out settlements that are pennies on the dollar what their underlying business generates, otherwise it wouldn't make sense for them to do so."
"In the case of the United States, they practically made retail FX illegal - making it so difficult and cumbersome with so many rules and regulations that it makes any strategy barely profitable.  And since the regulators squeezed out decent FX brokers - the only ones left are semi-legit companies that even if there's no default risk, the chances of having a fair shot trading at these firms is minimal."


What would the numbers look like if bitcoin was functioning as the world's
reserve currency. It would need a market capitalisation of over US$21Tn.
That's over $1,000,000 per bitcoin.
What would that mean for transaction fees? Suppose, as an initial guess,
the fee was 0.001, or $1,000 per transaction. At the maximum theoretical
rate of 10 transactions per second, there would be over 300 million
transactions per year, that's $315Bn per year, and just under 1000
transactions per day, or about three times the current peak level.

How much electricity does $315Bn pa buy? At $0.03 per KWh, that's about
three China's. Or 1000x a rational level of electricity consumption.

Taking the above figures for FX, $5Bn x100 = $500Bn, so the transaction costs
are initially, kinda in the right ballpark. It looks like bitcoin could
bring honesty to the FX exchange market for much less than $1Bn per year
in transaction costs. Of course, that excludes the cost of compliance with
all government regulations, a not inconsiderable cost.

The other matter that becomes clear from the above is that bitcoin alone
cannot provide a complete cryptcocurrency solution to the world's needs.
For Bitcoin to succeed, newer solutions must be put in place. Further,
it seems likely that bitcoin will struggle to raise its price above
$1000 per coin. The reason for that is this: if in the example above,
bitcoin reaches $1,000,000 per coin and a market capitalisation of $21Tn,
control over that fortune would be exercised by a mere $300M of electricity
per annum. It would only take an antagonist with access to $1Bn or so to
subvert the entire process. Reduce that for lesser amounts.

It looks like that Bitcoin's role in FX will always be limited. 


 

[minor-transgression]

Maybe the time has come for ZIRP (Zero Interest Rate Policy). No, really, ZIRP!
As in nobody gets to charge interest. During the Middle Ages, that was they way
things worked. In those days, money was for trade, paying armies, and not much else.
Debasing the currency was a Capital offence, and without interest, banking and
moneylending were niche industries.

So, suppose the artificial divide between those who can and those who can't borrow
at zero interest rates disappears. Well, the first impact would be to credit card
companies and payday lenders. Their business model is trashed. Do dry your eyes
dear reader. There's more.

Banks would have a problem. Eighty percent of their business is mortgage lending,
that would be just before they package the toxic stuff with a wrapper of AA and
flog it to some "sophisticated" pension fund desperate for yield. Did I mention
Ratings Agencies might actually have to work for a living? House prices would fall,
and banks would be out of the mortgage business because they just could not afford
the risks they are currently financing. Banks would be one fifth their present
size, perhaps less, because business would have to replace large chunks of their
debts with equity. If, as a private lender, you get no return on a loan to a
business the loan will not be made, so business will be forced towards retained
earnings and equity.

All this may seem strange when compared with the world today. Companies are using
cheap debt to buy back their shares to boost P/E ratios to push up share prices
to increase the value of management's stock options irrespective of the long
term implications for shareholders. Similarly for other asset price inflation
such as real estate. That, dear reader, is the point. Central Banks are buying
up assets and putting it on your tab. If not onto your tax bill, certainly
out of your pension fund and savings account. They are moving from AAA rated
paper into toxic waste and into monkey dung. Best of all, if ZIRP wasn't just
for the rich and well-connected, there would be no need for a Central Bank.

OK, maybe just a tiny unrecognisable barbaric relic of a Central Bank. Maybe.

One final point: Interest on loans is, in most cases, a business expense. The
business does not pay tax on the interest. Unlike Dividends. So if you invest
in equity you get taxed twice, first by corporation tax, then by income tax.
And guess what, if you have an offshore account, a loan is the way to go.
 
BTW, I suspect US price inflation will be ~5% by mid 2017
I'm thinking I might go long popcorn, deckchairs, and bicycle clips.

[Xester]

Banking: The acceptance of deposits, and the provision of, and repayment of,
loans whereby the business transactions normally exceed the Bank's ability to
repay all deposits at any given time. 

Interesting how fraud is essentially baked into this definition.  This is not a slight on your work, just an observation that the modern state of banking is so warped that failure to balance assets against liabilities is simply assumed.

Banks are going to exposed their bad sides if they use bitcoins.  But banks are going to use and exploit bitcoins and we will suffer. It's best if bitcoin and banks will not merge. We want banks to leave us alone. We enjoy independence in bitcoin far away from greedy banks and unfair financial system.

[deisik]

Banking: The acceptance of deposits, and the provision of, and repayment of,
loans whereby the business transactions normally exceed the Bank's ability to
repay all deposits at any given time. 

Interesting how fraud is essentially baked into this definition.  This is not a slight on your work, just an observation that the modern state of banking is so warped that failure to balance assets against liabilities is simply assumed.

Banks are going to exposed their bad sides if they use bitcoins.  But banks are going to use and exploit bitcoins and we will suffer. It's best if bitcoin and banks will not merge. We want banks to leave us alone. We enjoy independence in bitcoin far away from greedy banks and unfair financial system.

A bank's alleged inability to pay the deposits is not fraud. First, this wouldn't be a problem if the bank could demand to immediately return all the loans it lent out previously (then the bank balance sheet would shrink to the size of its chartered capital). Second, in today's world there is no such problem even if a situation like that could potentially arise...

Since there is always a lender of last resort behind the bank's back

[minor-transgression]

Just to point the discussion on fraud in the right direction ...

http://edition.cnn.com/2004/LAW/09/17/mortgage.fraud/index.html?_s=PM:LAW
"From Terry Frieden CNN Washington Bureau Friday, September 17, 2004 Posted: 2144 GMT (0544 HKT) Assistant FBI Director Chris Swecker said the booming mortgage market, fueled by low interest rates and soaring home values, has attracted unscrupulous professionals and criminal groups whose fraudulent activities could cause multibillion-dollar losses to financial institutions. "It has the potential to be an epidemic," said Swecker, who heads the Criminal Division at FBI headquarters in Washington. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said."

https://ourfuture.org/20150911/now-the-justice-department-admits-they-got-it-wrong
"By issuing its new memorandum Thursday, the Justice Department is tacitly admitting that its experiment in refusing to prosecute the senior bankers that led the fraud epidemics that caused our economic crisis failed. The result was the death of accountability, of justice, and of deterrence. The result was a wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes."

I'm shocked, shocked, to find that gambling is going on in these places.
But you knew all this already (I hope) and could have found these references
in a few seconds with a simple search.

I'm coming to the view that the biggest deception practiced by the banks is
that we need the banks, the bankers, and the financial sector.

There's a simple equation that suggests that TPTB will never allow helicopter money.
I'll post something later, but If you have any thoughts on that feel free to post.here. 

[minor-transgression]

"The tragedy of investment is that it causes crisis because it is useful.
Doubtless many people will consider this paradoxical. But it is not the theory
which is paradoxical, but its subject - the capitalist economy." Kalecki

As an example, see US net government lending, $Bn starting in 2007:
-354.9  -781.8  -1476.7 -1509.5 -1400.1 -1214.8 -698.3  -681.4  -602.3
So, from 2008 to 2012, some $2.7Tn of excess deficit went into the US economy.

"One of the more enlightening things you learn from a sound understanding of macro is the
Kalecki profits equation which shows that corporate profits are the result of the following equation:"
Profits = Investment - Household Savings - Government Savings - Foreign Savings + Dividends

http://www.pragcap.com/why-hasnt-the-budget-deficit-decline-hurt-corporate-profits-more/

That suggests that the $5.6Tn that the US government borrowed between 2008-2012,
if all other things were unchanged, became profit somewhere in the economy.
And the Stock Market soared. Since then, from 2013-2016, the Stock market has some $2Tn
less in government funded profits, and is presumably buoyed up only because the
Federal Reserve Bank is cornering the market for Lemons.

http://www.nytimes.com/2010/11/24/business/economy/24econ.html
"American businesses earned profits at an annual rate of $1.659 trillion in the third quarter"

http://www.nytimes.com/2010/11/24/business/economy/24econ.html
"Corporate profits have been doing extremely well for a while. Since their cyclical
low in the fourth quarter of 2008, profits have grown for seven consecutive quarters,
at some of the fastest rates in history. As a share of gross domestic product, corporate
profits also have been increasing, and they now represent 11.2 percent of total output.
That is the highest share since the fourth quarter of 2006, when they accounted for
11.7 percent of output.
This breakneck pace can be partly attributed to strong productivity growth - which
means companies have been able to make more with less - as well as the fact that
some of the profits of American companies come from abroad. Economic conditions in the
United States may still be sluggish, but many emerging markets like India and China
are expanding rapidly."

"This breakneck pace can be partly attributed to people getting fired" - FIFY.

Before moving on, note the borrowing requirement in 2007, $354.9Bn, the difference
between spending and taxation, in broad terms, and contrast the values for later years.  

You may be curious as to how borrowing got reduced 2013 - 2015? Here are the tax revenues:
2660.8   2505.7   2230.1   2391.7   2516.7   2663   3141.3   3265.2   3434.9 (US$Bn)
The change is accounted for neatly by an increase in taxation in one form or another,
rather than any reduction in government spending.

This seems to be a widespread paradox - "capitalist" economies whose profits are often
entirely funded by governments. Those 2010 accounts are entirely coincidental :-)

Any thoughts on "Helicopter Money" yet? We're getting to the endgame, and the equation above
provides a hint of things that just aren't gonna happen.  

[minor-transgression]

An inhabitant of the Bank for International Settlements claims bankers are "Magic People"

Kuroda-San insists that if the Japanese people would only believe :
"I trust that many of you are familiar with the story of Peter Pan, in which it says,
'the moment you doubt whether you can fly, you cease forever to be able to do it,'"
all would be well with the Japanese economy.

What next? "attempts to kill goats by staring at them."? (and more)
"The Men Who Stare at Goats (2004) is a book by Jon Ronson concerning the U.S. Army's
exploration of New Age concepts and the potential military applications of the paranormal."
https://en.wikipedia.org/wiki/The_Men_Who_Stare_at_Goats

Maybe even "Helicopter Money"? - Seriously? - How might this work in practice?

Soooo, you have thought this through, and maybe created "Streetwalkers Inc",
(for the tax advantage.) While walking down main street, your corporation
finds a newly issued $1 bill. What do you do? You enter it into your P&L account:

Profit from walking down street : $1

Wonderful. Profits, unfortunately, do not just appear out of thin air.
How to even know that this is a profit? Let's simplify Levy's total profits equation:

TNP = TVI + t4b + t5b + t6b + cCr + aL - cCrl -cs + TpCNP + BT + BI - Tdp - ex -dep + ETC -vOt7 + vOt8

Yuck. But all we need from the equation is this :

TNP = TVI

TNP = Total Net Profits (all corporations)
TVI = change in the value of money over the time in examination.

Since the quantity of goods that can be bought is unchanged, the profit is
created by an increase - $1 - in the quantity of money. And, since the
quantity of goods is unchanged, there must be a loss somewhere. In this case,
the bank that printed and issued the money - it now has a loss to account for.

Thus, "Helicopter Money", in current parlance, will be paid out of the
pockets of the owners of the banks, most probably the owners of the
Central Bank - TPTB. About as likely as (1+1 ne 2) IMHO.[1]

So, if governments (ie, you, dear taxpayer) are not going to fund
"Helicopter Money" what is really going on? (Taxpayer funding makes as much
sense as some of the projects referred to earlier) - A non-mathematical,
non-economic, conspiracy-theory explanation should have the fewest assumptions.
"Occam's Razor : Among competing hypotheses, the one with the fewest assumptions
should be selected." The TPTB are involved, soooo, maybe this?

The World is being conditioned to drop its trousers and grab its ankles
anytime the phrase "Helicopter Money" is broadcast. Oh! One other thing:

Don't forget to say "Thank You Ben Bernanke!" [2][3]

If, by now, you are curious as the the competence and motivation of these monetary gods,
the concluding remarks of a report on the Lehman debacle may crystallize those doubts:
"Their explanations for their actions rest on flawed economic and legal reasoning and dubious factual claims."
http://www.econ2.jhu.edu/People/Ball/Lehman.pdf

[1] for example see "Exploring Complex Dynamic Systems" Cheng, Zhang
J System Simulation 2002 14(11): 1147-1149

[2] Feel free to substitute your choice of Central Banker.

[3] Your guess at what happens next?

[universe_]

Unrestricted banking for me is what bitcoins offers today, bitcoin has a blockchain which is the bank, with it being centralized we can monitor our transactions transparently, with its low cost banking it can attract lots of people especially in the other country to do their remittances thru bitcoins.

thats true, banking with bitcoins is unrestricted, every person can be their own bank and use their money whenever they want thats why i like bitcoins that much

[minor-transgression]

I'm struggling to keep up with the flow of news. This is some weeks old, it's on
the IMF and the Greek economy - some background - I don't have
transcripts for some of this, so feel free to jump in:

Around 2009-2010 everyone knew that Greece was going to default on its debts.
Then, it got a bailout. And another, and another... In the midst of all this,
Yanis Varoufakis became the Greek Finance Minister, and began to put together
an economic plan.

We were spared the details of his proposals, as he quickly found that the Troika,
- the ECB, IMF and European Commission, none of whom were elected to any position
of power, (and in effect the council of Finance Ministers) - were diametrically opposed
to his proposals. The Troika wanted austerity, while at the same time imposing
conditions that almost certainly ensured that the objective would not be met,
despite, or perhaps because of, the likely collateral damage to the Greek economy
and the need for further bailouts.

Mr Varoufakis pressed the dozen or so key EU Finance Ministers and found that, in
private, the Ministers were quite knowledgeable, and acknowledged the strength of his
arguments. Singly, in private, they assured him of their support for his case, but as
soon as these Ministers appeared in public, their understanding disappeared, and they
were back onto the Troika's message.

More curiously, Mr Varoufakis had appealed for help in tacking corruption, a
widely publicised barrier to improving the Greek economy, and pursuing tax
payments, essential for achieving the Troika's stated objectives. No help
was forthcoming, despite dubious financial transactions with other EU member
state's banks. Thus Greece could use only its own resources to fix its problems,
despite a clear implication that other nations were benefiting from misdeeds.

I'll briefly mention that my recent earlier post highlighted the relationship
between government deficit spending and the profits of private companies. That
logic would suggest that a sudden drive for government budget surplus would
result in private, and public, companies running at a loss, and possibly
into bankruptcy. The Troika's policies made the Greek situation worse.

All the above suggests that, at best, the Troika's decisions were driven by
politics rather than economics. Other interpretation placed on the Torika's
motives could be much more concerning for the future of the Eurozone.

Recently, support for Greece and for Mr Varoufakis, now the exFinance Minister,
has appeared from an unexpected source - the IMF. 

"What the IEO report makes very clear is that the IMF should never have agreed,
as part of the Troika, to assist the EU in forcing austerity upon Greece without
insisting on significant debt relief, in the shape of a haircut, or
(a) debt writedown(s)....
The IMF's long established policy is that both MUST happen together."
"And Europe's grip on the IMF is exactly what the report is about,
in that it accuses Lagarde et al of bowing to EU pressure,
to the extent that it abandons its own guiding 'laws'.
It acted like it was the European Monetary Fund, not the international one."
"That would seem to leave the IMF just one option: to apologize profoundly to Greece,
to demand from the EU that all unjust measures be reversed and annulled,
and to set up a very large fund (how about $1 trillion) specifically to support
the Greek people, including retribution of lost funds, repair of the health care system,
reinstatement of a pension system that can actually keep people alive and so on and so forth."

http://www.zerohedge.com/news/2016-08-02/end-imf-credibility-or-why-christine-lagarde-should-be-fired-wont-be
https://www.theautomaticearth.com/2016/08/why-should-the-imf-care-about-its-credibility/
http://www.ieo-imf.org/ieo/pages/CompletedEvaluation267.aspx

So, what to take away from all this? That the IMF, the ECB, and the European Commission
are subservient to an unknown unelected body seemingly unconcerned by inter-national
corruption to the extent of hundreds of billions of Euros? If it were not for
prior art in the form of Operation Gladio, such a conspiracy theory would sound
ridiculous. 

If, after researching Operation Gladio, you can afford a further three hours,
see 'After Dark British Intelligence' - though it is off topic for this thread.
http://www.youtube.com/watch?v=caUG4L-3S30
I'm mentioning this only as background material on the relationship between
an elected representative government and the notional Deep State.

[minor-transgression]

I hate lies. Lies get good people killed. That's lies, dammed lies and government statistics.
So, when some government statistics "got revised", something just didn't smell right.
I haven't, yet, worked out what is going on, but along the way I came across this:

http://www.marketskeptics.com/2011/04/government-financial-innovation-caused-2008-financial-crisis.html
"Below are two videos showing how the federal government (not wall street) caused 2008 Financial Crisis."
https://www.youtube.com/watch?v=cNXyBIPAJqQ
"1) Bundled toxic (subprime) loans into securities
2) Used financial alchemy to make risk "disappear"
3) Designed complex financial structures to hide the fraud
4) Developed insanely optimistic evaluation models to inflate ratings on toxic securities
5) Marketing these toxic securities to an unsuspecting public"
https://www.youtube.com/watch?v=i4PE1gZn7s4
"1) Created the entire infrastructure necessary for the subprime market to function
2) Decimated state authority to regulate the financial sector
3) Shielded subprime lenders from prosecution
4) Encouraged banks to buy toxic CDOs and to get rid of safer assets"

I'll compress this into a few lines. Bucket shops began in the late 1800's, expanded
in the 1920's and were outright banned in the USA in 1929.
"In other words, they were fraudsters." - jmalmberg March 5, 2009
Then, after the USA's Savings and Loans crisis (1986-1995), parts of the US government
found toxic debt on their books - similar to the subprime stuff of 2008 that had 40%
delinquency rates, and to the 30% delinquency rates of the 1930's.
When you have a load of fish sitting in the sun, and nowhere to put them, what do you do?
In the case of this debt, the government cooked the books, then twisted the arms
of the Ratings Agencies to change their models, and, as if by magic, toxic debt
took on the appearance of investment grade government paper. 
Cue scene from "The Wolf of Wall Street", and a modern day bucket shop was born.
Contrary to the current "What Everybody Knows" the Government had to twist Wall Street's
arms pretty hard to get them to do their bidding. Even the US Justice Department
began to throw up when they found out about this.
In 2000, as part of the race to the bottom, this:
"This act shall supersede and preempt the application of any state
or local law that prohibits gaming or the operation of bucket shops"

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
"Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no."
"... it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers."

The above narrative fits the description of "Control Fraud" to a "T".
That's maybe not the best move when your economy depends on a fiat based currency. 

Eliot Spitzer Governor of New York resigned on March 17 2008 amid threats of impeachment.
Just. Another. Coincidence.

And my original query? It's still in play. And a couple of other things:

After you read up on the above, you may want to compare with this:
http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
"the real causes of the economic crash"
 
Also, an earlier post mentioned that the FED was a "monopoly purchaser
of lemons". Sounds like the hole RTC found itself in all those years ago.