bank rates

Where’s the Bailout Money Gone?!

I’ve been doing some digging on the Internet b/c I’ve been wondering where all this bailout money has gone. This is a little tricky because the Federal Reserve is a PRIVATE CORPORATION and therefore is NOT required by law to disclose their accounting.

Fortunately, this astute analysis by James Conrad sheds some light on what the Fed is up to:

In this case, the Fed gave banks cash for toxic defaulting mortgage bonds. Then, it took the same cash back by selling the banks new treasury bills just received from the U.S. Treasury. The Fed, in turn, bought these T-bills with the newly printed dollars. The banks, having gotten rid of toxic assets, were allowed to transfer private risk to the taxpayers. This process bolsters bank balance sheets by privatizing bank profits, and socializing bank losses.

Basically, the Fed is trading Treasury Bills for toxic derivatives and forcing banks to hoard cash and re-deposit their bailout money at the Fed. This serves to prop up T-Bill prices and prevent a crash of the US dollar, allowing the US Treasury raise money (by selling Treasury Bills) while paying very low interest rates.

Thankfully, the banks (so far) are NOT lending out the bailout money they’ve received. If they did, we would have hyperinflation since banks can lend out 10 times the cash they have on deposit at the Federal Reserve. This would drive up the overall money supply exponentially and send the US dollar crashing to ALL TIME LOWS.

The Takeaway Message
Foreign cash-rich superpowers like China (which is rumored to be diversifying into gold reserves) are getting sick and tired of financing further increases in America’s debt, so now the USA has to step in and borrow money from the Federal Reserve to finance their own debt. This is a VERY dangerous game (see monetizing the debt).

Treasury bills are being artificially propped up by Paulson and Bernanke’s cartel of bankers, and anyone buying them now is getting ripped off.

The question is, what is the end game plan? I don’t want to go into detail about this (b/c nobody is certain anyway), but my guess is that we will continue to experience deflation in the next few months as bank deleverage and credit dries up. However, the Fed will try to “fix” this deflation by opening the flood gates and allowing banks to start lending freely, sending the money supply skyrocketing and the US dollar to all time lows.

If you’ve read up on Bernanke’s academic history, you will know that he is a big fan of using inflation to fight off recessions / depressions. I forgot where I read this, but Bernanke once quipped that it is much easier to print money these days b/c the printing press has been replaced by the computer.

Profiting From Disaster
The one good thing I can see from this whole mess is that the US dollar will be artificially propped up in the short term due to: credit default swap settlements, investment redemptions, flight to safety, Federal Reserve policies, etc. This is a good opportunity to buy inflationary hedges like precious metals, or go on a shopping spree in Euro denominated countries like France. For example, the Japanese Yen is EXTREMELY strong against the US Dollar right now, and not surprisingly, I spotted dozens of fashionable Japanese tourists shopping on Rodeo Drive in Beverly Hills today.

Act fast, however, because chances are, this rally is only temporary and will likely head lower in the next few months.

Why does the US Treasury need to borrow money from the Federal Reserve? Why doesn’t the US Treasury issue currency themselves?

For instance, look at China. The Chinese government issues their own currency and their national banks are controlled by the government. Their banks act in the interest of the PEOPLE rather than for private profits. China and oil-rich nations in the UAE are now in the position to gobble up American corporations and properties for fire-sale prices.

The root of today’s credit crisis isn’t sub-prime mortgages (which the media has brainwashed the American Sheeple into thinking). It is the fact that America’s credit and currency are issued by a cartel of private, for-profit corporations operating under the guise of the Federal Reserve.

I think it is time for us to END THE FED.

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Comments (42)
1 Star2 Stars3 Stars4 Stars5 Stars (35 votes, average: 3.66 out of 5)
42 Existing Comments
  1. Amar said:
    on December 10th at 02:37 pm

    The Fed is a mix of a private and government identity. It is not a private corporation! It is a quasi-public (government entity with private components) banking system. Read this article.

    The Congress which created the Federal Reserve through the Federal Reserve Act during FDR’s administration during the Great Depression can take and give power to the Fed as it needs be. The Congress can always ask the Fed to release account books, etc…, cause if not, they have the power to abolish the Federal Reserve.

  2. ING Bank $25 Bonus said:
    on December 10th at 08:31 pm

    ING $25 Bonus – make sure you follow the rules. $25 show up immediately after you complete your application. One time use only.

    If it has already expired, request another link for the bonus to

  3. E*TRADE $25 bonus said:
    on December 11th at 01:18 am

    E*TRADE has brought back their $25 bonus on their online 3.30% APY savings account.

  4. HSBC running special @ bankaholic said:
    on December 11th at 01:34 am

    HSBC is running a deal on their Plus Checking Account. Sign up and get $75. To qualify for the deal you must open an account with $4000 in new money (non HSBC funds).

  5. Andrew from Tx said:
    on December 11th at 05:24 am

    What’s with all you guys spamming? Don’t you know he advertizes your rates on his site anyway?

  6. @Andrew fr TX said:
    on December 11th at 05:35 am

    The deals were advertise before but had expired. Now they are just saying that the deals
    are back. I think it is good to be always updated.

  7. Kevin said:
    on December 11th at 07:37 am

    Sorry if this is a dumb question, but what happens to all of my money that is in an ING savings account during this upcoming super inflation period? Does it simply mean I can buy much less with my money down the road, or would interest rates in these types of accounts grow relatively?

  8. Kevin said:
    on December 12th at 02:15 am

    ING $25 Bonus – make sure you follow the rules. $25 show up immediately after you complete your application. One time use only.

    If it has already expired, request another link for the bonus to

  9. Johns Wu said:
    on December 12th at 04:11 am

    “The Federal Reserve is as federal as Federal Express”

    Looks like you are one of the brainwashed American Sheeple.

  10. Gabe said:
    on December 12th at 09:22 am

    I don’t know, if we do move to gold standard do you think that it will get the US economy out of the recession? Either way it doesn’t seem to hurt if I went out and bought some gold myself. Just in case.

  11. Johns Wu said:
    on December 12th at 09:33 am

    Unfortunately, the neither the bankers nor ANY country’s governments would want a gold standard, b/c one’s power would be limited by how much gold they have.

  12. said:
    on December 12th at 02:23 pm

    Great Article.

    Bankmode Team.

  13. BloggingBanks said:
    on December 12th at 10:18 pm

    Wow, i realize now how tough blogging really is, when I see the responses to John Wu’s posts. First, everyone was complaining the posts on bank deals were short. Now users are complaining that the posts are not covering bank deals..

    So how would the current situation affect CD rates?

  14. Dan said:
    on December 13th at 12:49 am

    Looks like bankrate has a new competitor with a slightly better business model…Muwahahahaha!

    check it out:

  15. FT said:
    on December 13th at 04:21 am

    Come down as hard as you wish on the Fed but is not the Treasury who should have been keeping a watchful eye on those investment banks in the first instance?

  16. sean said:
    on December 13th at 06:19 am’s biggest competitor in this article:

  17. @EDog said:
    on December 13th at 07:17 am

    Online bank to bank transfer is free for most banks (Wells Fargo, Wachovia, and ETrade: free for sure). When you open an account online, they give you the option to fund your new account thru electronic bank transfer by adding an external bank (your case either Wells Fargo/Wachovia). Somewhere in the online application, you enter your bank’s routing and account number (where your initial deposit is coming from) then they put two small deposits to that bank account. To see that you are really the owner of the bank account you register with them, you will need to verify what the two amounts they deposited in your source bank account (Wells Fargo/Wachovia). You do this by going to ETrade’s website, setup online account access then log on to your account. Look for menu/link that has ‘Transfer’ and you should see the source bank account you registered. There should be a ‘Verify’ link right next to it. Click it and enter the two amounts they deposited in source bank account. Again online bank-to-bank transfer (electronic fund transfer) like what i described above is free while ‘wire transfer’ is not. I hope this helps.

  18. bankmode said:
    on December 13th at 01:31 pm

    The Fed is a mix of a private and government identity. It is not a private corporation! It is a quasi-public (government entity with private components) banking system. Read this article.

    The Congress which created the Federal Reserve through the Federal Reserve Act during FDR’s administration during the Great Depression can take and give power to the Fed as it needs be. The Congress can always ask the Fed to release account books, etc…, cause if not, they have the power to abolish the Federal Reserve.

  19. bankmode said:
    on December 13th at 01:36 pm

    The Trilateral Commission runs the Federal Reserve from an undisclosed location that only Dick Cheney knows, somewhere between Area 51, the Bermuda Triangle, and the place I left my tinfoil hat

  20. johns wu said:
    on December 13th at 01:40 pm

    Dude, your tinfoil hat is in my freezer. I wrapped my leftover Thanksgiving tofu in it.

  21. flav a flav said:
    on December 13th at 01:43 pm

    Hey bankmode. Did you get a check for your comments? I’ve posted here for a year and used to get paid regularly. Since Wu got the big bucks, all of a sudden he’s gotten tight with paying his network of “helpers.” IM me.

  22. @edog said:
    on December 13th at 01:47 pm

    If you deposit money in an FDIC insured account, it is insured up to $250,000. by a Certificate of Deposit here because it is a turstworthy sight.

  23. Gabe said:
    on December 13th at 06:56 pm

    Wow, John you sure do get a lot of fan comments. I posted an article about your blog. Kudos for the post.

    I’ve checked out Moneyaisle but I still like Bankrate’s website they got a lot of helpful articles, calculator, and more on menu selections.

  24. Gabe said:
    on December 13th at 10:18 pm

    Goodness, John you sure do get a lot of fan comments. I’m sure all of them are real. I posted an article about your article. Yes! So good! So good!
    I’ve looked at other sites, but yours is the best, except of course for, where they have fair, objective and free information.

  25. bankmode said:
    on December 14th at 03:01 am

    Amen to that, flav a flav. Used to be that on the 15th of every month Wu’s girl Melissa would cut us checks. I think he fired her, or she quit or something. At any rate, the “helper” network hasn’t been paid in 2 months.

  26. Skanks said:
    on December 14th at 04:37 am

    Funny how congress only took 2 weeks to agree to give the banks 700 billion but are making a big deal over 15 billion for the auto makers. I do not want the automakers to get a dime just as I did not want the bank to, but find this situation a bit odd.

    I guess the banks greased the corrupt congress squeaky wheel real good.

  27. Tom said:
    on December 14th at 04:43 am

    I love all the bashing on Johns.. I smell so much jealousy, it’s sick. Instead of bashing about his buyout, why not build a site and get bought out yourself? Hard work can get you a nice paycheck.

    BTW, MoneyAisle sucks. Do a search and you get maybe the 10th best rate on the market, if that. BankRate is a powerhouse when it comes to anything rates and always will be for a while.

  28. Bankrupt Santa said:
    on December 14th at 05:15 am

    Ho Ho Ho, Tom is realy Mr. Wu, Ho Ho Ho.

  29. Bankrupt Santa said:
    on December 14th at 05:41 am

    Big relief today. The stock market is up 270. My 401(k) is now only practically worthless. Folks, this is great, because yesterday the Dow fell almost 700 … dows. Money points? Stockos? 700 stockos. Now personally, I blame the geniuses at the National Bureau of Economic Research, who thought it would be a good idea to announce yesterday that we are now in a recession. Terrible move. Everyone knows you keep bad news to yourself, holding it deep inside, until eventually it kills you.

    There is more good news, folks. Today the Dow made a comeback, gaining 936 points! Henry Paulson’s plan to change his plan to whatever the Europeans are planning is working. That is such a big one-day jump. I wouldn’t be surprised if John McCain resumed his campaign.

    I think this unprecedented financial crisis is great news for George Bush. Now this will be the president’s lasting legacy! It will cover up all the things that were going to be his legacy! I mean, just think of Iraq, torture, wiretapping, Katrina as little paint drips on the floor of his presidency. This financial disaster is like painting the whole floor! Now I don’t see any mistakes. It really freshens the place up. Now, sure people in New Orleans’ ninth word still don’t have houses. But soon neither will anyone.
    We are in an economic tail spin. It’s a nightmare on Wall Street, and a once in a century financial crisis. Of course, the New York Times called the crisis ‘a wolf howling at the door.’ Wrong! No one’s got money for doors anymore! It’s a wolf howling at our cardboard flaps.

  30. Bankrupt Santa said:
    on December 14th at 05:44 am

    Barack Obama announced Wednesday that New Mexico Governor Bill Richardson is his choice for secretary of commerce, which should be an easy job, now that there isn’t any.

    The head of Regal Entertainment says as the recession gets worse, more people are coming to the movies. Because nothing helps you forget your troubles like a $5 Sprite.
    As stocks dropped sharply on Monday, President Bush urged patience with the government’s new $700 billion plan, saying, ‘It’s going to take a while.’ Of the course the good news is, he’s never been right.

    Good news, everybody. That house you couldn’t pay for? You’re paying for it. The House on Friday passed the $700 billion Wall Street bailout package. President Bush then signed the bill into law after consulting with his economic advisers, M.C. Hammer, Ed McMahon and Willie Nelson.

    Treasury Secretary Henry Paulson said that the proposed bailout plan will cost taxpayers $700 billion. To give you an idea how much money that is, I can’t give you an idea of how much money that is.

    Bill Gates, Warren Buffett and Lawrence Ellison topped the Forbes list of the top ten richest people in the U.S., having a combined wealth, as of Friday, of nearly $8,000.

    Ho Ho Ho

  31. Craig said:
    on December 15th at 08:48 pm

    How far they have fallen. I disagree totally with your article, and the crap you allow to be posted on the msg boards? I didn’t start reading the side to pick up the latest conspiracy theory, it was for the credit card and bank offers.

  32. eric said:
    on December 15th at 09:47 pm

    Chase is offering a free $50.00 gift card through the 13th of next month. Why not report on that.


  33. Jeff said:
    on December 17th at 04:53 pm

    John, could you explain why you say the crisis was caused not by subprime problem but by the fact that the Fed is a private company? What specific decisions did the Fed make just because it’s a private company? And which of those decisions could cause such a huge crisis?


  34. Nelson said:
    on December 19th at 04:42 pm

    Read this:

    Inflation is simply taxes in disguise.

  35. said:
    on December 22nd at 06:37 pm

    Bernie Madoff’s heist; TARP fiasco; and other stories at

  36. Helpme said:
    on December 23rd at 08:02 pm

    they need to give money to the people that makes this country drive, i am talking about the american people and not ceo that lives in greenwich,ct, we will spend the money alot better than they would anyways bush throw me $150 dollars so i can get a few video games for christmas from

  37. Proudmale said:
    on December 29th at 10:51 pm

    When will the people start to realize that Government cannot bail them out!! Take the above comment about a small incremental spending spree sent to everybody. All that really represents is the taxpayers collectively taking on a lot more debt. Let’s illustrate this by going to the extreme.

    The government could end most people’s mortgage problems by giving each of us a $100,000 payment to cover our mortgages with the remainder automatically going into some sort of long term CD (houses are hard to sell need to make this money equally hard to get to).

    Okay, now most of us do not have any mortgage payments and those of us who have spent our fruitfull years actually paying for our houses, or having made the choice to rent etc. will now have some savings. This mean’s that we all will have a lot of money to spend right? I mean it used to be spent on paying for our houses and we have nothing to pay for anymore, since government came in and payed to whole darned thing right?

    Could not be wronger pal. Let’s assume that we sent out this $100,000 government payout to 100 million households. We have just added $10 trillion to the national debt. Get this — government cannot bail us out, it has no money. We have the money and need to work our way out.

    The mortgage mess is not hitting most Americans. We view our houses as a place to live, raise our families, and then, as an investment after we have accomplished the first two objectives. It is only those who wanted to go directly to using fixed assets (houses) as an regular investment income (not taliing about well capitalized professionals who can weather a storm) that are hurting. My kids bought houses they could afford. See the above example. Why should they, or I pay for people who speculated on their place to live by buying more than they could afford? I did not see them sending any of the profits into my account when the times were good.



  38. Sara said:
    on January 6th at 11:23 pm

    Does anybody knows where can you buy the bailout bonds which are insured by US federal and have APY more than 5%?


  39. Rick said:
    on January 15th at 03:09 pm

    Pilot Bank has great CD and Money Market rates. Check them out!


  40. Fred said:
    on January 21st at 01:57 am

    Interesting article. Note, executive order 01111, signed by President Kennedy empowered the Treasury to issue money against all silver held by the Federal government, in effect, put the Fed out of business. He was assassinated within a short few months after he signed this order. Immediately after his demise, all silver backed dollars were taken out of circulation by the Treasury. When President Wilson signed the act to create the Fed, it is reported he asked forgiveness from God prior to signing it. It is reported that he was obliged to do so, since the bankers had bankrolled his campaign for the Presidency.

  41. Fred said:
    on January 21st at 01:58 am

    Forgot to point out that EO 01111 is still on the books, it has never been repealed by subsequent Presidents. But it has never been acted upon by the Treasury.

  42. Steve said:
    on September 3rd at 11:09 pm

    Why do you allow all of these crap sites link from your article? Not professional at all!