Glocal Econ 8 – Bear Raids and Hedge Fund Hogs

Q’s for Chapter 17 – Wright Patman Exposes the Money Machine

  1. Wright Patman saw big business, chain stores, and tax-exempt foundations as complicit with the Fed in opposing farmers and small businesses. Are these considered Main Street? Is there a third option rather than Wall St. vs. Main St?
  2. What percentage of money created has a physical form in coins and bills? How is the rest created? Describe the process by which the Treasury bonds not bought by the public are “monetized” by the Fed. How can the Fed expand or contract the money supply? What limits the amount of money the Fed can create?
  3. If the Fed was forced by Wright Patman to give back most of the interest paid by the US Government, what is the real advantage in making the money that’s loaned out?
  4. What are transaction deposits or demand deposits vs. time deposits? Why do credit unions now offer higher interest on their demand savings deposits (.25%) than on CDs?
  5. When a CDO (collateralized debt obligation) for a $500,000 house is sold to a hedge fund, how much does that allow the bank to loan out? If that loan is paid off early, does the bank buy the loan back from the hedge fund? What does that do to its reserves?
  6. How long does it take $100 million in Treasury bills “bought” by the Fed to double? What percent of its profits are returned to the Treasury? Does this include the interest from loans made from these reserves?
  7. What is off-limits to the annual audit by the GAO arm of Congress? How did Wright Patman and Jerry Voorhis of California propose to nationalize the Fed? What happened to them and who did Voorhis lose to?

Q’s for Ch. 18 – A Look Inside the Fed’s Playbook

  1. How is a loan really a deposit for a bank? How does a bank loan money without affecting its reserves? Explain double-entry bookkeeping.
  2. What is the “banker’s bank”? Where is it located?
  3. How much of a bank’s alloted “reserve balance” is invested rather than loaned? What was the Glass-Steagal Act and how did it affect bank investments? What are “Chinese walls”?
  4. Define proprietary trading. Explain the example of how Goldman Sachs made a killing playing both sides. How do the investment banks compare to hedge funds?
  5. Define private equity and the equity market. How much are some proprietary traders paid in a year? How much did Henry Paulson make?
  6. These equity arms are some of the largest buy-out firms in the world. Give an example of why they would be called “vulture capital.”
  7. Research question: In the first Great Depression, what did the banks do with the “strings of houses” they had from defaulted mortgages? Did they sell them for whatever current US citizens could afford? Did they sell them to foreigners? Did the wealthy buy them up or did the bankers themselves come to own them? Did they board them up and have the police prevent the newly homeless from entering?
  8. Research question: What did the recent audit of the Fed find? (Hint: see John David’s research paper, “Austerity for Most or Prosperity for All?”)

Q’s for Ch 19 – Bear Raids and Short Sales: Devouring Capital Markets

  1. What were the years of the stock market’s decline precipitating the Great Depression? At the end what percent was it of its original value? To what does Roosevelt attribute this decline?
  2. Define a bear raid and a short sale. Give an example of how they work to devalue a company’s share price.
  3. What are stop-loss orders and margin calls? How are margin calls related to the fractional reserve system? Describe how these can be used in a hostile takeover. Why is a short sale a form of counterfeiting?
  4. What is the difference between a mutual fund and a hedge fund? Which one is more likely to profit and which one to take the loss?
  5. Explain how hedge funds can vote their short sales at shareholder meetings. Why would they do this? What happens when too many real owners vote their proxies?
  6. Explain the up-tick rule of the 1933 Securities Act. Before it was repealed in 2007 how did hedge funds get around it?
  7. What is a naked short sale and how does it differ from a short sale? What is a market maker and how much of the naked short sales do they do, along with broker-dealers? How did Richard Simpson demonstrate the amount of phantom shares that are in circulation through naked short sales?
  8. Describe the difference between a primary market and a secondary market. Which one is the stock market? Does any of the money paid for a stock go into expanding the company? What is the stock market REALLY?
  9. The Depository Trust Company was exposed in an article called Stockgate. What did it allege? How much money has been stripped from American investors? How many small-to-medium size companies were shorted out of existence over six years? When the DTC “dematerializes” a stock and “re-hypothecates” it, what does it do? How is the DTC incentivized by its Stock Borrow Program?
  10. How did short sales affect the crashes of 1929-1933? According to “The Faulking Truth” has the SEC changed these destructive practices?
  11. Compare short sales in the stock market to the counterfeiting of the Continental in the currency market. What is a derivative and what does Warren Buffet call them? Describe what this does to Third World countries.
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