Mon
Nov 28 2011
09:37 am

Did you know that the Fed bailed out the banks for more than what we were told? Nope? Well, no one else knew either, including Congress.

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

Do read the rest of the article, it is quite fascinating.

Andy Axel's picture

Remember kids, it's Occupy

Remember kids, it's Occupy that subsists on handouts.

CE Petro's picture

I hope that this data, which

I hope that this data, which was once hidden from us, will spur on the Occupy movement.

reform4's picture

I think it's more interesting what the banks did with the $$

They were loaned the money for free, and bought treasuries yielding 0.5%, netting billions of profits at taxpayer expense.

CE Petro's picture

Eliot Spitzer is none to

Eliot Spitzer is none to please with these non-strings loans, and has something to say about it. My favorite "demands" of his are:

Second: Require the recipient banks to use this previously undisclosed gift—the profit they made by investing this almost interest-free money—to write down the value of mortgages of those who are underwater. The loans to the banks were meant to solve a short-term liquidity problem, not be a source of profits to fund bonuses. Take back the profits and put them to a public use.

and

Finally: Demand that politicians return all contributions made by the institutions that got hidden loans. Pressure the politicians who continue to feed from the trough of Wall Street, even as they know all too well how the banks and others have gamed the system and the public.

Andy Axel's picture

Moral hazard! Moral hazard!

Of course, the lede on Bloomberg is "Secret Fed Loans Helped Banks Net $13 Billion" rather than the news of nearly $8 Trillion in zero-interest loans.

"Moral hazard" indeed.

gonzone's picture

I'll bet Rick Santelli is

I'll bet Rick Santelli is steaming mad about this!! He'll probably be calling for heads to roll because it just ain't right for us hard working Teahadists to be bailing out these lazy scum! /s

agrarianurbanite's picture

I don't remember how I knew,

I don't remember how I knew, but I quoted this amount to Chad about a month ago. Hmm. I'll have to see if I can find the article, but don't hold me to it. It was probably Mother Earth news or some other totally unbiased news source. ;)

EricLykins's picture

Bernie Sanders, summer: The

Bernie Sanders, summer:

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study. "As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

agrarianurbanite's picture

Maybe that is what I

CE Petro's picture

Some of this information has

Some of this information has been available for a while, Bloomberg news, via their FOIA, was able to put it all together in one report.

FWIW, there are some that do believe that these backdoor bailouts should be used, and their arguments do make sense in a way. These folks are equating what the Fed did with what the Euro banks should be doing in the EU right now, but aren't.

What is particularly aggravating is not only the profits these banks made, but that they were not secure institutions when they received the Congressional approved bailout monies (and lied to shareholders that they were not in trouble). In order to receive TARP monies, the banks were supposed to be financially secure.

agrarianurbanite's picture

Totally...

...mind boggling, perplexing, surreal, infuriating. No wonder people are taking to the streets.

michael kaplan's picture

Bernie Sanders claims it was $16 trillion

July 21, 2011

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study. "As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said.

The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds. One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.

To Sanders, the conclusion is simple. "No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed's board of directors or be employed by the Fed," he said.

The investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans.

The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.

A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18, but Sanders said one thing already is abundantly clear. "The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street."

bizgrrl's picture

According to the report,

According to the report, Tennessee has 27 financial institutions on the list, ranked 11th in the number of FIs per state receiving funds. First Horizon (First Tennessee) received the largest amount of money, 866+ million, which has all been paid back. Pinnacle Financial, Green Bankshares, and First South Bancorp were also leaders in funds received (95 million, 72+ million, and 50 million respectively). 22.83% of the funds disbursed to TN FIs have not been paid back. The Tennessee Housing Development Agency received 12+ million.

EricLykins's picture

Bank Transfer Day Promotions

Bank Transfer Day Promotions at Credit Unions

campaign urging people to close their accounts at the megabanks and move their money to credit unions by November 5th. Many credit unions have jumped on the Bank-Transfer-Day bandwagon, and some are offering checking account bonuses.

First Tennessee Bank is the oddball on this list. It's not megabank, but with over $24 billion in assets, it's not really a community bank. Nevertheless, it's offering the largest bonus. You can earn up to $300 for opening a checking account and a savings account on November 5th. If you can't make it to a branch on November 5th, you can still get $200. As I described in my First Tennessee Bank promo review these are not free accounts. The bank had added a debit card fee, but it canceled the fee this week.

R. Neal's picture

Devil's advocate

The article points out a number of problems with the Fed and U.S. monetary policy, and I agree with most of the criticisms (failure of the "too big to fail" doctrine, Glass-Steagall, fractional reserve banking, lending and interest rate policies, collateral quality, etc. etc.).

What I can't tell, though, is whether the $7.7 trillion figure is a sensational number meant to alarm v. a normal function of intra-day Fed activities that were spinning out of control during the meltdown.

I don't understand much about all this stuff, but I thought one purpose of a central bank like the Fed is to ensure liquidity, especially in turbulent times.

If a bank needs some short term money to cover settlements, withdrawals, etc. they can go to the Fed discount window. So if a bank borrows $1 billion today and pays it back tomorrow, and repeats this for 10 days is that "$10 billion in loans" to that bank? Wouldn't that sort of inflate the real net effect of the Fed's operations? Is that what's being reported?

And if the Fed hadn't done that would the system have locked up even worse than it did?

Further, the Fed's reluctance to disclose details about the transactions seems justifiable. What if every bank disclosed details about their customers' transactions, loans, etc.?

All that said, big banks and Wall Street grifters are running some of the biggest scams in history and getting away with it at taxpayer, shareholder and pensioner expense. The Fed is just an instrument. Auditing them on a regular basis seems like a good idea to reveal systemic problems. Tougher regulation and maybe even some occasional enforcement might be an even better idea.

Andy Axel's picture

And the band played on... The

And the band played on...

The Federal Reserve moved Wednesday with other major central banks to buttress financial markets by increasing the availability of dollars outside the United States, reflecting growing concern about the fallout of the European debt crisis.

The central banks announced that they would slash by roughly half the cost of an existing program under which banks in foreign countries can borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans will be available until February 2013, extending a previous endpoint of August 2012.

... The participants in addition to the Fed are the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

michael kaplan's picture

so, does this mean that,

so, does this mean that, while we don't have enough money to run our cities, we're propping up other nations' economies in order to save the 'global financial system'?

CE Petro's picture

Randy, a lot of what the FED

Randy, a lot of what the FED does day to day is keeping the banks liquid. However, the problem with the $7.7 Trillion loans was that the banks (BoA, JPMorgan Chase, etc.) were telling shareholders and Congress that they were fine (adding) at the time of these emergency loans. ie, they lied, because they were not fine/liquid. From what I gathered from the Bloomberg expose (and there are a couple more articles after this first one) is that using the no-strings no-interest loans from the FED to turn a profit is NOT what they are for. (I'm probably over-simplifying my answer)

Note that these loans were before and are separate from the TARP loans.

That said, the second article was about how Henry Paulson TOLD his bankster cronies that he wanted to put Fannie & Freddie into conservatorship. Interestingly, it was 7 weeks after this particular meeting when Fannie & Freddie did go into conservatorship, and JP Morgan Chase, and others had been betting against Fannie & Freddie, possibly based on the information Paulson gave them.
Any other time, this would be a massive insider trading case, but apparently when the FED and Banksters are in cahoots, it's okay. (/sarcasm)

R. Neal's picture

And furthermore, Paulson

And furthermore, Paulson forced banks to take TARP money, "or else."

Judicial Watch:

"CEO Talking Points" used by former Treasury Secretary Hank Paulson confirming that the nine bank CEOs present at the October 13 [2008] meeting had no choice but to accede to the government's demands for equity stakes and the resulting government control. The talking points emphasize that "if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance." Suggested edits of the "talking points" by Tim Geithner, then-New York Fed President, were withheld by the Obama Treasury Department.

I believe I recall from "Too Big to Fail" by Andrew Ross Sorkin that the theory was if any banks didn't participate it would make the others appear weak and cause further panic.

agrarianurbanite's picture

What Kucinich Says...

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