How the Fed Created a Financial Frankenstein’s Monster

[Inside Wall Street with Nomi Prins]( Welcome to Inside Wall Street with Nomi Prins! It’s the only daily newsletter featuring the insights of renowned author and former Wall Street insider, Nomi Prins. Every day, Nomi shines a light on a massive wealth transfer she calls The Great Distortion. That’s the true cause of the permanent disconnect she sees between the markets and the real economy. And she shares ways you can come out ahead, if you know where the money is flowing. You’ll find all Nomi’s Inside Wall Street issues [here](. If you have questions or comments, send Nomi a note anytime [here]( or at feedback@rogueeconomics.com. Nomi’s Note: I’m doing something a little different in Inside Wall Street this week. I’m giving you a behind-the-scenes look at my new book, [Permanent Distortion](. It’s hitting shelves on October 11. But as a “thank you” for being a loyal reader, I wanted you to be among the first to see it. So this week, I’m sharing some of my favorite sections from the book. In my last two excerpts, I dug deep into one of the most infamous cons in history – Charles Ponzi’s big swindle in the 1920s. And I showed you how, in 2008, the Fed took a page out of Ponzi’s book – and drove a deep wedge between the “haves” and “have nots” in America. If you missed them, catch up [here]( and [here](. Then read on for today’s sneak preview… --------------------------------------------------------------- How the Fed Created a Financial Frankenstein’s Monster The arc of high finance has many pivotal moments of speculation and crisis. The Fed might not have come into being were it not for a squeeze in the copper market in 1907 that caused a financial panic. That crisis presented a moment for J. P. Morgan to rescue the country by using the US Treasury’s money with President Theodore Roosevelt’s blessing. It thrust him into the role of absentee host for a group of bankers and politicians at Jekyll Island, Georgia in 1910 that penned the initial blueprint that became the Federal Reserve System in 1913. Even our terminology and language reveal history’s selection process. The phrase “Ponzi scheme” might not have become such a common way to refer to con mania if the 1920s hadn’t produced the perfect environment in which to fall for the premise of the unsustainable returns that Ponzi promised. What grew from zero to a $15 million empire in a few months for Charles Ponzi crumbled to zero and a jail sentence in about the same amount of time, popping as so many bubbles eventually do. Recommended Link [“I’m rooting for a recession – and you should too!”]( [image]( He called the bottom in 2020… He called the bottom in 2022… And now, he’s preparing for a “major shift” in the markets. [Get the details here – including the name of the #1 stock to protect yourself.]( -- In 2008, the Fed created a financial Frankenstein’s monster that altered the course of money and power in the 21st century. The idea was that cushioning the fall of a reckless banking system with whatever tools necessary (a phrase used repeatedly in 21st-century central bank lingo) was equivalent to securing the real economy, or Main Street. For those on Wall Street monitoring the deteriorating condition of loans and toxic assets created from them, the global financial crisis had been brewing steadily since early 2006, when subprime loan foreclosures began to spike. [Featured: “You can follow the money… all the investors are smelling it.” - Nomi Prins]( Eventually, the extent of the crisis born of the financial engineering of subprime loans would be blown into the open by the combustion of two Bear Stearns hedge funds. Those hedge funds were engaged in overborrowing to buy toxic securities laced with subprime loans and complex derivatives. This combustion precipitated the May 31, 2008, takeover of Bear Stearns by JPMorgan Chase, with the Fed’s blessing and financial support, to ensure that JPMorgan got a good price and the Fed bore the brunt of the risk. At the time, few even thought to question whether the Fed’s actions fulfilled or were even related to its dual mandate to maintain full employment and low inflation. In the upper echelons of society, the concern was that banks weren’t functioning reliably, stock and bond markets were in free fall, and scores of investment bankers could see their bonuses evaporating. On the lower rungs of the economic ladder, there was more visceral fear – of not being able to pay rent, losing jobs, being kicked out of homes, and having a less stable future. There were many facets to the panic that ensued, but one pivotal moment changed the tone of everything. This followed the collapse of one of Wall Street’s oldest, most venerable investment banks, Lehman Brothers, on September 15, 2008. [Editor’s Note: For more on this, check out Nomi’s video report from the old Lehman Brothers headquarters in the [September 15, 2022]( Wall Street]( Recommended Link [Former Goldman Sachs Exec: “5 billionaires are betting Elon Musk is dead wrong.”]( [image]( Elon Musk calls [this the key to “Tesla’s future.”]( And no, it’s not a new electric car. It’s a giant factory called a “Gigafactory.” Musk spent over ten billion dollars building multiple Gigafactories around the world. All to profit from an emerging trend Forbes reports will be worth over $130 trillion dollars. But after visiting the Gigafactory in Austin, Texas… Former Goldman Sachs executive Dr. Nomi Prins says the real story is NOT these huge factories. Because she’s discovered five billionaires are betting against Elon Musk… By backing a tiny $4 company that’s set to dominate this $130 trillion dollar trend. And she’s put together a short, 30-second demonstration to show you why. [Click here to watch the 30-second demo.]( -- The event didn’t appear to be based on a planned action on his part, but was more of a gesture: Hank Paulson – former Goldman Sachs CEO and chairman-turned-treasury secretary – dropped onto one knee before Speaker of the House Nancy Pelosi. As the story goes, Paulson pleaded with her to do whatever her considerable political clout could muster. The former Wall Street titan needed the Treasury’s $700 billion bailout package, which contained some crumbs for citizens and ample help for megabanks, to be approved by the House of Representatives. Fears that ATMs the world over might effectively stop spitting out fresh new bills to customers were prevalent – the 21st-century equivalent of banks closing their doors as they had during the 1929 stock market crash and the ensuing Great Depression. Passing the Emergency Economic Stabilization Act would save the day, said Paulson – or at least save Wall Street. Markets were diving, a sign of worse things to come. That was the day that Paulson urged a fiscal solution (meaning funds approved by Congress and ultimately paid by taxpayers) for a banking-caused catastrophe. And so it began… [Featured: Wall Street “loser” becomes the trader for the Top 1%.]( On December 16, 2008, the Fed cut interest rates to zero and provided the biggest banks access to cheap funds with no strings attached. Money that cost nothing wasn’t enough, though. Fears about credit seizing up plagued markets. Recessions engulfed the world. This led to a rate-cutting exercise, predominantly by the larger central banks. Around the world, leaders were deeply concerned that the hubris and greed underlying Wall Street would crash their own markets and subsequently their economies. The chaos that abounded led those countries not in the inner circle of power to call into question the entire US-dollar-centric global monetary system. Smaller emerging countries, larger ones such as China and Russia, and the United Nations and the Organisation for Economic Co-operation and Development (OECD) united in admonishment over the lack of oversight of US banking practice. Developing countries faced more inequality and civil strife, as foreign direct investment favored markets over long-term economic projects, too. What transpired in the years that followed was social unrest from Hong Kong to Brazil and from Spain to the United Kingdom as people felt economically violated by their governments, while financial markets rallied. Easy money had a profound impact on political decisions and economies in countries from Latin America to Asia and throughout the European Union. Despite the premise that emergency central bank action would save the Main Street economy, the unprecedented monetary support from the world’s main central banks to the banks and markets increased inequality, magnified debt, ushered in isolationism, and elevated the wealthy and powerful. Ultimately, it was a catalyst for destabilizing the international economy. Recommended Link [How to Invest $100 for a Retirement Fortune?]( [image]( If you ONLY had $100… Where could you invest it, to help grow into a retirement fortune? - Bloated Tech Stocks? Facebook, Apple, Netflix, Amazon, Google are down a collective -34% for the year. - Crypto? Bitcoin is down -57% for the year… wiping out TRILLIONS from investors’ hands. - The S&P 500? Down -18% for the year… - [The One-Stock Retirement?]( Millionaire trader Jeff Clark says his ONE stock secret can set you on the path to a retirement fortune. [Growing your money as much as 2x, 5x, even 10x in the coming year…]( He’s already recommended 12 “Double Your Money” trades in 2022… [Click Here to Discover Jeff’s Secret.]( -- As a result of the financial crisis, central bank leaders from highly developed economies could fabricate more money than inflation-constrained emerging-market central banks could. Latin American and East Asian governments were forced to make a “Sophie’s choice” calculation: to suffer hyperinflation alongside more attractive interest and exchange rates and employment levels, or to try to control inflation with higher domestic rates at the risk of harsh internal credit conditions and rising unemployment. East Asian nations were “luckier,” in a sense, as they could target money toward production and industry and sell public and private assets to balance their budgets, instead of simply privatizing their nations for the benefit of foreign-country investment and control. How did this spark the massive inequality wedge between the real economy and the financial markets? How did it further the divide between developed and developing nations? By institutionalizing a system that fabricates unlimited money without reference to the productive economy and its participants – workers, consumers, Main Street retailers, households. Central banks were both unable and unwilling to direct support int the real economy. But that didn’t stop them from providing back-door financing to Wall Street. They insisted that markets and the economy were tightly linked. But the evidence derived since the financial crisis proves they’re not. Central banks were no longer just in the business of balancing money and credit, as per their mandates. Instead they had become the force of the markets themselves. Adapted from Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever. Copyright © 2022 by Nomi Prins with permission from PublicAffairs, an imprint of Perseus Books. --------------------------------------------------------------- Nomi’s Note: Nomi here again. I hope you enjoyed this sneak peek from my upcoming book, Permanent Distortion. Unfortunately, since I first started writing the book, the distortions in the markets have gotten even more extreme. And the gap between the “haves” and the “have nots” is growing wider. In fact, as I write this, insiders are gearing up for one of the biggest wealth transfers in history. $755 billion flowed into this trend this year. And Forbes predicts that number will surge to $130 trillion. And there’s a tiny, $4 stock poised to benefit. Five billionaires have already backed this company – and yet you probably won’t hear about it on the news. That’s why I set out to find out all about it. [To get the details – including how you can get in on the action – watch this video presentation I recorded](. --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: Inside Wall Street Feedback). --------------------------------------------------------------- MAILBAG A reader responds to Nomi’s first book excerpt she shared with Inside Wall Street readers this week… [if you missed it, catch up [here]( and he shares what he thinks is the largest government Ponzi scheme of all. I believe that Mr. Ponzi would have made a great politician. “Over promise and under deliver” could have been his motto. He also would have been the second largest perpetrator of a Ponzi scheme only eclipsed by our own government. Of course I am talking about social security! Although the first recipients did not get rich (and no one else has) from social security, they did receive more in benefits than they paid. Currently if you live long enough (about 22 years) after receiving your first check, you will get back everything you and your employer have paid into the program. And yet social security is supposed to go “broke” by 2035. – Jerry K. And another recent subscriber of one of Nomi’s paid services, Distortion Report, thanks Nomi for her advice and insight. I have recently subscribed to your Distortion Report service, and I already appreciate the advice that I've been receiving from you. Your reports are so insightful and easy to understand. I am taking advantage of the current low prices in the stock market to make several investments under the five themes that you have recommended. Although at this point I cannot afford your more advanced services such as Distortion Money Matrix, I am hoping that future profits from my current investments will allow me to do so. – Katerina L. Are you, like Katerina, taking advantage of current low prices in the stock market and making investments under Nomi’s five themes? Is reader Jerry K. right that social security is the government’s largest Ponzi scheme? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: How the Fed Created a Financial Frankenstein’s Monster). IN CASE YOU MISSED IT… Market Wizard Reveals: [The One Ticker Retirement Plan]( Introducing the “One Ticker Retirement Plan”… It’s a way to trade just one ticker… And potentially make all the money you need – no matter what happens in the stock market. Sounds too good to be true? 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