Smart. Sharp. Funny. Fearless.
Saturday, October 22, 2016

New Reports Show That The Fed Lent Wall Street $1.2 Trillion

New revelations about the extent of the Federal Reserve’s bailout of Wall Street have caused many to question the role of government lending programs as many fear another recession. The Fed’s $1.2 trillion loans of public money to Wall Street and foreign banks dwarf the Treasury Department’s heavily criticized $700 billion Troubled Asset Relief Program, nearly all of which has been paid back to the government. According to Bloomberg:

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

Even more shocking, almost half of the Fed’s top 30 borrowers were European firms, such as the Royal Bank of Scotland Group Plc. ($84.5 billion), the Swiss bank UBS AG ($77.2 billion), and Germany’s Hypo Real Estate Holding AG ($28.7 billion).

Even so, the Fed insists that it has not had any credit losses on any of the emergency programs, even claiming it netted $13 billion in interest and fee income from the programs between August 2007 and December 2009.

The Fed had been fighting to keep the extent and recipients of this borrowing program secret for years, until Congress and the courts required more disclosure in March 2011. Part of the justification for the lack of transparency was that the information would stigmatize the banks involved and damage stock prices.

Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world’s largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.

The Fed usually demanded collateral for its loans, such as treasuries, corporate bonds, and mortgage bonds, but the deepening financial crisis led it to relax its standards for acceptable assets, thereby increasing the associated risks. At times during the crisis, the Fed’s lending programs were even charging below-average interest rates, which encouraged more borrowing.

As University of Pennsylvania finance Professor Richard Herring told Bloomberg, some banks might have tried to maximize their profits through the program by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.”

But now that the information is public, the public is left to wonder why the Federal Reserve lent such a staggering amount of money to these banks, placing public money at risk without the knowledge or consent of more than a handful of people.

Click here for reuse options!
Copyright 2011 The National Memo
  • mikefriday

    Who are the ‘citizen’s to believe’ ! When the government can hide and tell the public ‘what it wants them to know’! When people running for elected offices ‘show-boat’ while avoiding true issues and ‘play on issues that don’t really matter’! People and citizens of the Earth do not ‘like’ the idea of starving babies or seeing sons and daughters dying as the result of Wars!!! But we must understand that ‘those who HAVE : WANT MORE’ and those who HAVE LESS are targeted to get what you got!

  • IshB

    I am concerned that the Federal Government has not been adequately visionary to provide adequate funds for local small business loans and figure out a strategy how to bypass the traditional red tape that is required by going through traditional banks application process and the SBA preliminary requirements. The Federal Government is providing minimal amount of loan guarantee that has to go through regular banks application process and has certain minimum credit rating requirements that many small business owners do not qualify for. Federal guaranteed small business loans should not have any credit rating requirements especially when the loan is fully collateralized by the prospective borrower. These minimum credit rating requirements have shut out a lot of small business owners who need financial loan assistance for their business, and whose credit ratings have been damaged by the recession caused by banks. If the banks who have caused the credit problems were helped with minimal credit score requirements by the Fed., after they were helped with tax payers money, why should prospective small business borrowers now be required to have a minimal credit score of 650 or 700 in order to qualify for a small business loan? So even if additional monies are made available by the Federal Government for small business loans, the minimum credit score requirement would still be a problem and should be removed especially if the loan is fully collateralized. Full collateral should be adequate consideration for Federally guaranteed loans without any income requirement or credit history or credit score requirement. These measures if implemented would greately stimulate the economy. If the Fed., can take such a risk with foreign banks without proper collateralization, then they can take a risk with local tax payers who can fully collateralized their loans without any further credit history requirements. It seems like a crime to me and double jeopardy to ask someone to collateralize a loan and be asked for anything else as a preliminary requirement in order to qualify for that loan especially if it’s a Federally guaranteed loan. The banks have been stabilized with tax payers money, and now they are only lending to borrowers with clean credit. That is wrong. Thank you very much.

  • EMRoss

    By what authority does Bernanke have to loan that kind of money to banks much less foreign banks without congressional approval or the presidents. If he did have that permission then shame on them for giving it and keeping the American tax payer in the dark. It’s our money YOU IDIOTS. Why don’t you have the gonads to pay back the money you ripped off from the Social Security fund; that’s our money also. The foreign banks probably won’t even say thank you much less pay it back. Our treasury will just print more of the NOW worthless green stuff. WAKE UP AMERICANS !

  • kurt.lorentzen

    the Wall Street loans have been knkown about for a while, and this is not the first time this has been done. The dollar amounts are staggering and they’re still adding them up. To see what and how this happened I recommend “breaking the Bank” and “Inside Job”, two different documentaties that detail exactly how this all went down. They will open your eyes and show you exactly how too much power can override the checks and balances of our Constitution. The founding fathers, in their separation of powers draft, would have done well to include a clause that forbids any central bank and any collusion between government and markets. You can see both of these on Netflix instant play.

  • Freedomaphile

    Lest there be any doubt click the link for “the top 30 borrowers” and see that the loans were made during the last year of the Bush jr administration.