An Analysis of the Fed’s Plan to "Curb Shady Mortgage Practices"


In a July 14, 2008 AP article titled: Fed adopts plan to curb shady mortgage practices , Fed chairman Ben Bernanke is quoted as saying:

“Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower.”

Keep that in mind as you read these two sections taken directly from Title 12 (quoted as 12USC) of the United States Code:

Sec. 354. Transactions involving gold coin, bullion, and certificates

Every Federal reserve bank shall have power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal reserve banks are authorized to hold.

Sec. 411. Issuance to reserve banks; nature of obligation; redemption

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

Read the sentences I placed in bold print. Does anything jump out at you? When I first read these two sections in the ‘90’s I immediately called the San Francisco federal reserve bank.

I wanted to redeem my FRN’s (Federal Reserve Notes) for gold. I was told all I could get for my FRN’s was like denominated FRN’s. In other words, if I came into the bank with a FRN that was denominated with a 5, I would receive another 5 FRN in its place.

It was explained to me that these sections didn’t mean what they say. What they really mean is a person can show up at any Federal Reserve Bank and get only a like denominated Federal Reserve Note. They wouldn’t receive any gold or silver despite the plain language of the code sections.

Accepting that on face value, let’s read Bernanke’s remarks again but with a question in mind. That question being, how does a liar and deceiver expect anyone to believe any of his remarks.

The quoted sentence was from an article about the fed stepping in with new and better regulations covering mortgage lenders if you hadn’t figured that out. The first clause of his remarks is actually the smoking gun (according to me).

The many causes are actually only one – the federal reserve. This is an organization that has plundered the value completely out of our currency and is now bombarding us with smoke and clouds on how it intends to fix the problem.

Hogwash. The problem is fixable immediately and it is fixable through the above two cited sections from 12USC. Again, that is according to me.

So you don’t think I’ve fallen and knocked all the sense out of my head I call your attention to 12 USC 95(a) (Regulation of transactions in foreign exchange of gold and silver; property transfers; vested interests, enforcement and penalties). Pay particular attention to this section. It has never been repealed.

This section was used by Roosevelt in his power grab. To understand how Roosevelt used it to take over the banking system and how that takeover is still in force today, read Working Paper 9405 by Walker F. Todd, assistant general counsel and research officer, Cleveland FRB (retired).

While this one paper alone won’t provide all the answers, it will act as a blueprint for today’s banking/mortgage crisis. What is happening today has already happened during the Hoover and Roosevelt administration.

There is nothing new under the sun. Next week, I will present another solution to our current mess. That solution will be supported by U.S. Supreme Court cases which, by the way, tell us what we actually already know.

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  1. Interesting article, Tom, thanks. Along the same lines of shady mortgage practices, an important element to curbing shady practices too is consumer knowledge. If someone is going to take a loan, they need to educate themselves about the risks and shop around. There are so many resources online, including the Better Business Bureau, that can help people make a choice about which lender they choose to go with.

    Its one’s responsibility as a possible borrower to make sure everything is in order. Often, people get taken advantage of because they don’t use common sense, they don’t get a second or third opinion or they don’t educate themselves.

    Shady business dealings in every industry share a similar element: they’re still in business because consumers don’t educate themselves adequately. Granted, there are scams that are so advanced that no matter how much you know you could still get taken, but there’s many more that you could save yourself from with a little research.

  2. Insurance companies making loans, nah, not them. Actually, insurance companies finance some of the biggest commercial projects in the U.S. But, since the commercial market isn’t going to hell in a hand basket, there doesn’t seem to be much to talk about, right?

    And, I agree with consumers educating themselves. While a person shouldn’t have to be an expert in everything, it doesn’t hurt to do some basic research before diving in.

    This thing called the Internet for example is a godsend to guys like me who can’t even spell shrubbery let alone be able to prune it so it grows into a nice shape while staying alive.

  3. Here is some info completely unrelated to my post. If you have been in an auto accident, you may wish to read the material at:

    James Mathis lives in Reno and I have spoken with him. Had my son known of his existence at the beginning of the year before the statute of limitations ran out, my son could have engaged a big name insurance firm in a lawsuit of giant proportions.

    This is FYI only so do with it what you will. I felt it important to let you know you don’t have to take the word of the insurance company if you are in an accident.

    Actually this goes along the lines of Dj’s post in that the consumer now has a chance to be better informed should an accident visit him.

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