Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans

[marmar]

(Bloomberg) Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

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.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.” ............(more)

The complete piece is at: http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html

[Octafish]

1. Detroit got the finger.

That's fair.

[Recursion]

24. Detroit got saved

How is that the finger?

[Octafish]

30. General Motors and Chrysler corps. got less than $20 billion in loans they are paying back.

The people of Detroit are the ones who got the finger.



You know, zilch for public housing, public works, public schools, public health, public safety, public transit, public roads, public libraries...

[truedelphi]

45. Thank you for stepping in and clarifying this, Octafish. n/t

[rhett o rick]

53. And workers wages have been slashed. New workers get barely above min wage. That's the finger. nm

[rhett o rick]

47. GM got saved, the workers got the finger. You need a picture? nm

[Recursion]

51. Those workers still have jobs (most of them at least) rather than being on unemployment

No, that's just not the finger.

[rhett o rick]

52. I wish I thought you were kidding. The workers wages were slashed. GM profits are up. THAT'S THE

FINGER. Your idea of good times is if the master only beats you 10 lashes instead of 15.

It's time to fight for freedom and liberty. Fuck this, "It's better than it mite be shit."

[DJ13]

2. “These are all whopping numbers,”

The pols in DC dont understand that when they talk about "austerity" and cutting social services the public remembers only too well how easy those same pols thought nothing about throwing hundreds of billions of dollars at the banks during the financial crisis.

[Amonester]

22. Because the banks(ters) INVESTED in the pols for decades.

So the pols 'kickbacked' the football (1.-somethin' trillion football) their way.

As long as a fair Public Campaign Funding policy prohibiting special interests 'lucrative investments' to every opportunistic pol there is, nothing will change fot the better (of the people), only for worse.

[Recursion]

23. Except this program profited the government $13 billion dollars

It didn't cost anything. It's kind of irksome how few people talking about this have bothered to learn what actually happened.

[DJ13]

25. You already said that

Got a new line?

[Recursion]

26. I keep saying it because people keep pretending it's not true

People think the Treasury handed hundreds of billions of dollars to banks and that just never happened.

[banned from Kos]

27. TARP = Treasury program of $700 billion - the Fed is the subject here

they loan anything they want (with collateral) and their balance sheet (which is published weekly) never got over $3 trillion.

and here is the good news -- ($13 billion in profit only 10% of the real number).

http://latimesblogs.latimes.com/money_co/2011/01/federal-reserve-2010-record-profit-financial-crisis-intervention.html

and of course, the taxpayer keeps that (via the Treasury)

[Recursion]

28. That's why I'm talking about "the bailout" rather than just TARP

The Fed's window creates new liquidity and so is essentially monetary policy by another name.

[girl gone mad]

43. Wait.. Wut?

"The Treasury Dept. already declared milestone reached in June, 2010 when "Repayments to Taxpayers Surpass Tarp Funds Outstanding." http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html">New York Times says fund outflow has amounted to $550 billion, funds returned is $70.1 billion, that leaves amount outstanding $480 billion."

".....while the TARP bailout of Wall Street (not including the bailout of the auto industry) amounted to $330 billion, the government also quietly spent $4.4 trillion more in efforts to stave off the collapse of the financial and mortgage lending sectors. The majority of these funds ($3.9 trillion) came from the Federal Reserve, which undertook the actions citing an obscure section of its charter."

"..$4.8 trillion went out the door to aid financial companies and repair the damage they caused to financial markets, and $1.5 trillion of that is still outstanding."

[MichiganVote]

3. K&R

[banned from Kos]

4. So much for Michael Hudson's often repeated lie that it was $13 trillion.

these loans saved their asses. Of course, that is why the Fed was set up in 1913 - as lender of last resort.

[Octafish]

8. Bernie Sanders put the number at $16 trillion - and there's nothing in the OP to contradict him.

The Fed Audit

The OP refers to "Wall Street Aristocracy." Hudson and Sanders looked at the entire bailout scam, including the billions lent to friends overseas in Switzerland, France, Germany, the UK and other places with ultrarich turds and their toadies.

[banned from Kos]

16. that $16 trillion is completely bogus as has been pointed out many times

that report took a $1 billion one-month loan that was rolled over monthly for a year as a $12 billion loan.

So $1 billion in collateral for the same size loan = $12 billion? Only in arcane accounting terms since the interest rate changed 12 times.

(Bloomberg data backs this up, by the way)

[Octafish]

29. I understand how you get your numbers. I'll go with Bernie, thanks.

The Fed Audit

EXCERPT...

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.

CONTINUED...

Millions and Billions and Trillions for the Wall Street banksters, paid by the American people.

[Hydra]

13. This is just a portion of it

But it refutes the oft repeated lie that TARP was all of it, and that it was all paid back.

It was paid back with backdoor loans that had no strings.

[Recursion]

14. The article itself says the Treasury made $13 billion

I'm tired of the bailout being a punching bag -- there wasn't a heist, the money didn't run off, the treasury made a profit, and the US financial system still exists. Job well done.

[girl gone mad]

34. Treasury has not turned a profit. Period.

We are still out a minimum $1.5 Trillion.

[girl gone mad]

33. Could you be any more dishonest?

Here's the relevant excerpt from http://michael-hudson.com/2011/06/how-a-13-trillion-cover-story-was-written">Hudson's piece:

The government took over the mortgage lending guarantors Fannie Mae and Freddie Mac (privatizing the profits, “socializing” the losses) for $5.3 trillion – almost as much as the entire national debt. The Treasury lent $700 billion under the Troubled Asset Relief Plan (TARP) to Wall Street’s largest banks and brokerage houses. The latter re-incorporated themselves as “banks” to get Federal Reserve handouts and access to the Fed’s $2 trillion in “cash for trash” swaps crediting Wall Street with Fed deposits for otherwise “illiquid” loans and securities (the euphemism for toxic, fraudulent or otherwise insolvent and unmarketable debt instruments) – at “cost” based on full mark-to-model fictitious valuations.

Altogether, the post-2008 crash saw some $13 trillion in such obligations transferred onto the government’s balance sheet from high finance, euphemized as “the private sector” as if it were the core economy itself, rather than its calcifying shell.

Obviously, the bailouts consisted of much more than just $1.2 Trillion in emergency loans.

[banned from Kos]

37. there was no $5.3 trillion dumped into FNM/FRE. Their total take has been

$160 billion to date - with a commensurate portion likely in the future.

They may have $5 trillion of debt on their b/s but they also have many trillions of assets.

[girl gone mad]

40. lol.

The banks themselves called these assets "dog shit". You can use all the mark to myth accounting you like, but you can't actually wave a magic wand and turn these illiquid, worthless securities into gold. At the end of the day, dog shit is dog shit.

The 169 billion only gets us to 2012, btw.

[banned from Kos]

41. prove it and I will shut up. Real news sources - no lies from Hudson

ZeroHedge, Naked Capitalism, or any other Conspiracy Theory site. And no Taibbi either.

And where does that $5.3 trillion show up? Its not in the Treasury or the Fed. Hudson is a liar.

[girl gone mad]

42. Loosen the tinfoil..

and get a grip.

Bloomberg http://www.bloomberg.com/news/2011-02-14/fannie-freddie-estimated-to-cost-treasury-169-billion-to-2012-in-budget.html">reports:

The Treasury took Fannie Mae and Freddie Mac, which now own or guarantee more than half of U.S. residential mortgage debt, under conservatorship in 2008, promising unlimited aid to counter the companies’ losses linked to subprime mortgages. In return, the government received nearly 80 percent of the companies’ preferred shares which accrue dividends of 10 percent a year, payable to the Treasury.

Off Budget

The federal budget doesn’t account for the companies’ debt and obligations, which total $5.3 trillion, more than the government’s $3.7 trillion budget for 2012. The government- sponsored enterprises aren’t considered federal agencies, according to the budget.

“Although federally chartered to serve public policy purposes, the GSEs are classified as non-budgetary” because they are “intended to be privately owned and controlled” and benefit the public indirectly, according to the administration’s analysis.

Meanwhile, over the same time period the government is backstopping FNM and FRE to the tune of $5.3 Trillion, our politicians have been running around screaming about potential default over less than $1 Trillion in debts. Citing the debt ceiling, Obama is pushing deficit reduction and domestic spending cuts. Despite the fact that Social Security adds nothing to the deficit, Obama empowered sworn enemies of Social Security to promote Chained CPI and other cuts, on the tenuous basis that the Trust Fund may run low in a couple of decades.

Hudson's point, which seems to have eluded you, is that the government was able to quickly come up with Trillions of dollars to prevent Wall Street from bearing any of the losses resulting from their fraudulent schemes, but that same government now refuses to cough up a dime to backstop Social Security. This is neoliberalism run amok.

[banned from Kos]

46. Hudson is still a liar. Treasury did not "come up with $5.3 trillion" for the GSE's

The Federal Government has ALWAYS been Guarantor of GSE debt. The only new expenditure has been the (now) $170 billion to pay the interest on the bonds and to keep them afloat.


To make it simple for you - If I co-signed my kid's car note for $20,000 and he defaults, I only need to make his note payments - not the whole $20,000. I am on the hook for 20k but also have a 20k asset.

[girl gone mad]

48. Before calling someone else a liar, you might want to double check your own facts.

Wall Street may have long assumed the government would backstop some or all of the GSE's mortgage securities, but this position wasn't made official until 2008. These were private corporations and their debt did not exist as on or off balance sheet liabilities for Treasury. It's interesting that you believe you are more qualified to write on financial matters than a PhD economist, yet you consistently post inaccurate information and you are unwilling to present your own qualifications while calling experts in the field "liars".

From http://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac">Wikipedia:

The on- or off-balance sheet obligations of the two GSEs, which are "independent" corporations rather than federal agencies, are just over $5 trillion, a significant amount when compared to the $9.5 trillion of officially reported United States public debt at the time of the takeover.<34> The September 6, 2008 conservatorship and the subsequent planned Treasury infusion of capital support the senior liabilities, subordinated indebtedness, and mortgage guarantees of the two firms. Some observers see this as an effective nationalization of the companies that ultimately places taxpayers at risk for all their liabilities.

http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm">News release from just after the takeover:

U.S. seizes Fannie and Freddie

NEW YORK (CNNMoney.com) -- Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.

The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices.

The sweeping plan, announced by Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.

(snip)

The government, in agreeing to backstop the firms, said it would receive $1 billion in each company's senior preferred stock. The government will also receive a quarterly dividend payment and the right to own 79.9% of each company.

Excerpt from Business Environment By A.C. Fernando:

All these proved that notwithstanding the best intentions of Sarbanes-Oxley Act and under the nose of Securities and Exchange Commission, nothing much could be done to rein in corporate greed to make fas bucks. "The ballot of Bear Stearns by the Federal Reserve, the takeover of Fannie Mae and Freddie Mac (with the US treasury extending USD $5.3 trillion government guarantee to private debt), Lehman Brothers filing a Chapter 11 petition with the US Bankruptcy Court in Manhattan," follower by the takeover by Bank of America of Merrill Lynch and emergency funding by AIG by the country's central bank point to a larger malaise: a devastating crisis of confidence.

[girl gone mad]

49. Kick.

How many false statements do you think you made in this one thread?

Why don't you apologize for calling Professor Hudson a liar?

[girl gone mad]

54. So "banned from Kos"

Looks like Hudson was right and you were... not telling the truth.

[banned from Kos]

55. Absolutely not. I stand firm.

"This is partly due to an "implicit guarantee" that the government would not allow such important institutions to fail or default on debt.<5> This perception has allowed Fannie Mae and Freddie Mac to save an estimated $2 billion per year in borrowing costs.<6> This implicit guarantee was tested by the subprime mortgage crisis, which caused the U.S. government to bail out and put into conservatorship Fannie Mae and Freddie Mac in September, 2008."

http://en.wikipedia.org/wiki/Government-sponsored_enterprise

Footnote (5) links to Congressional records.

The Government, for better or worse, has always been a guarantor of GSE bonds. To say that we "spent" $5 trillion in 2008 is dishonest and has nothing to do with Obama anyway. Yet Hudson is using his nonsense to attack Obama.

[girl gone mad]

56. There was no guarantee until the government took them over in 2008, period.

Those liabilities were private.

A GSE carries the implicit backing of the U.S. government, although they do not constitute direct government obligations. For budgeting purposes, the U.S. Congress has defined several parameters which an organization must comply with in order to be considered a GSE. It must first have a federally authorized charter. It must also be privately owned, in the sense that private individuals or entities must hold the controlling stock. A board of directors, mostly elected by private owners, must be at the head of it. Also, it must be a financial institution with the power to borrow and lend.

There are a few things that a GSE must not do, if it is to be considered just a GSE and not a government entity. It cannot exercise powers that are reserved to the government in the U.S. Constitution, such as the power to regulate interstate commerce or the power to levy taxes. Its employees are not federal employees, and their salaries are paid by the business activities of the enterprise. A GSE also does not have the power to commit government money to loans unless such a guarantee is made beforehand by the government. In practical terms, all these things also imply that a GSE benefits from an implicit guarantee from the government to facilitate borrowing, although this is not part of the stated definition.

Precisely as Hudson claimed, in 2008 the government came up with $5.3 Trillion to backstop these debts. One day this liability didn't exist for Treasury, the next day it did.

"The Government, for better or worse, has always been a guarantor of GSE bonds."

Nope. You are either spinning are you are deeply confused about what that implicit guarantee meant. Before 09/08, it certainly did not mean that the government guaranteed the GSE's $5.3 Trillion in obligations. Hudson was right, you were wrong (as usual).

[girl gone mad]

44. Where do you get the idea that they have "many trillions of assets"..

btw?

It was less than $1 Trillion in 2009 and housing has only deteriorated since then. If they had such a healthy balance sheet, as you claim, why the government takeover? Why weren't private investors willing to snap them up, with all their "many trillions of assets"?

[begin_within]

5. Is this the biggest heist in history?

[Recursion]

7. You usually actually get the money in a heist

What this means is the Treasury was willing to be exposed to up to 1.2 trillion dollars in total loss by guaranteeing some of the companies' assets.

[Autumn]

6. And we got the shaft n/t

[Recursion]

10. We made $13 billion.

That's hardly the shaft.

[Recursion]

9. Did you notice the US made $13 billion off this deal?

No loss on any of the window exposures, and $13 billion in interest. Sounds like a win-win to me, why not to you?

[marmar]

19. ........

http://www.zerohedge.com/article/buried-deep-within-files-federal-reserve-released-thier-mbs-purchase-program-we-found-tarp-2

[Recursion]

21. That link is absurdly stupid

The Treasury and Fed created new value by guaranteeing the assets, and this Middleton guy wants the banks to "pay them back"? The guarantee added new liquidity to the economy without transferring any funds -- it was a monetary instrument. The more I read of this the more appalled I am by this guy's silliness. And now he's talking about opportunity cost?

Get a less silly link next time.

[amborin]

11. $23 trillion total cost?

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8192447

and then there's this conservative estimate of only $14 trillion:

[Recursion]

12. Several billion dollars profit; no cost to taxpayers

The bailout was a good decision, it's worked, and it's made the Treasury money.

[Hydra]

15. You think they're going to pay back 13-14 Trillion dollars?

+ interest in a tanking economy?

How would one go about such a magic trick, hmm?

[Recursion]

17. They have already. It wasn't a "loan" like you're thinking, it was a guarantee on assets

There wasn't a transfer of money to banks' Fed accounts; they got access to a window that let them guarantee their own assets to investors. It wasn't needed so no money transfer took place. If there had been a secondary run subsequent to the initial crash, the Treasury would have been on the hook for 1.2 trillion on the day of its biggest exposure.

[amborin]

18. nonsense; most is not being paid back....

[Recursion]

20. It *has* been "paid back". It was never transfered, it was a guarantee the Fed was offering

There was not a transfer of $1.2 trillion to banks' accounts. Even "paid back" is a kind of silly way to look at it because it wasn't a loan, it was a guarantee on assets, which was never called in. After the guarantee, the banks paid the Treasury $13 billion in return for having guaranteed them. Taxpayers made money on this.

[amborin]

31. that's nonsense; trillions have not been paid back; taxpayers got taken to the cleaners big time:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=439&topic_id=1763399&mesg_id=1767610

[banned from Kos]

32. Hudson is a proven congenital liar

he is on the video section saying Obama was a community organizer in order to deprive black Chicagoans of their homes for Tony Rezko. He also in the same vid says Obama has a plan to cut US GDP by 10% a year.

[amborin]

36. Hudson is a very respected economist; do you have links to support your B.S. claims?

[banned from Kos]

39. I am quoting him directly from the top of DU's video section on

the home page. And I only watched the first nine minutes of his garbage.

[girl gone mad]

38. What are your qualifications, again?

Professor Hudson holds a PhD in economics, has written several books, predicted financial and economic trends well ahead of time, and ran a wildly successful investment fund.

You may disagree with his opinions on Obama's economic agenda and the direction in which Obama's policies are leading us, but that doesn't make the man a liar.

[StarsInHerHair]

35. THEY ARE NOT! They are KAKOSTOCRACY! rule of the evil, get it?

[WillyT]

50. HUGE K & R !!!

:kick: