Fed secretly loaned $1.2 trillion in public money to Wall St. firms: report

[babsbunny]

http://www.rawstory.com/rs/2011/08/22/fed-secretly-loaned-1-2-trillion-in-public-money-to-wall-st-firms-report/

By Stephen C. Webster
Monday, August 22nd, 2011 -- 10:23 am

http://www.rawstory.com/rs/2011/08/22/fed-secretly-loaned-1-2-trillion-in-public-money-to-wall-st-firms-report/

An analysis of tens of thousands of documents obtained by Bloomberg through a Freedom of Information Act (FOIA) request shows that the U.S. Federal Reserve made approximately $1.2 trillion in loans from public money to support Wall Street firms in the midst of one of the worst financial crises ever.

Differing from the $16 trillion in loans made through asset swaps and preferred stock agreements, which were first revealed by a recent Government Accountability Office (GAO) audit mandated by Congress, these loans came from public money, representing the greatest largess of the financial sector during a crisis that threatened to pull the whole globalized system of finance to its knees.

Made from August 2007 through April 2010, the largest borrowers included familiar names like Morgan Stanley, which took $107.3 billion; Citigroup at $99.5 billion; and Bank of America with $91.4 billion.

[mdmc]

1. they rule the world - they can do what they want..

[Autumn]

2. How about that transparency.

:wtf:

[xchrom]

4. +1

[Botany]

3. But they want to cut social security, medicare, and

other entitlements? :grr:


BTW was hasn't anybody gone to jail for all this crap? "They" sink the economy and then they get bailed out
and still out source our jobs and buy congress ...... fuck em all.

[OHdem10]

5. Thanks to Bloomberg for pursuing this and bring it to light.

Now they (Banksters) are giving themselves big bonuses.

What might have happened if we could have had just
part of this as real stimulus to the economy.

Stimulus works. The Banksters have proven it. They
got themselves out of the ditch with Taxpayers help,
stabalized and are now handing out overly generous
bonuses.

[Ikonoklast]

6. It's their job, it is what the Fed is supposed to do in a liquidity crisis.

They are the lender of last resort when it comes time to stave of a crash of the financial system.

Many of those loans were of extremely short duration, literally, made overnight and repaid immediately.

This is nothing really new, it's just the scope is so large compared to other liquidity crises previous to this one.

[girl gone mad]

7. Actually, there is much about it which is new.

Check out the list of corporations which received loans, along with the amounts.

The Bloomberg piece delves into some of the serious issues which are raised by these loans and cannot simply be swept under the rug with blanket statements such as "they are the lender of last resort".

I would encourage people to read the article and the report and consider for themselves whether or not this was the right policy response, and also whether the country really benefits long term under this system.

[Ikonoklast]

8. Some of that money lent was red herrings.

The Fed didn't want to divulge this information as it could be seen as useful to one competitor trying to discern the financial health of another.

I've read that the Fed politely asked some of these institutions to take the loan whether they really needed the money or not.

Only time will tell if the policy was the correct one, I think at the time the Fed was looking at doing anything and everything they could to keep the economy from going over a cliff.

Do I agree with it?

Conditionally.

I would have liked to see some haircuts given out if the Fed was the one calling the shots, but incestuous relationships prevented that from happening.

[girl gone mad]

16. Again, this is an incorrect statement.

The banks lobbied to keep the information secret because they did not want their own investors to know just how weak they were.

[banned from Kos]

21. Its a standing rule to keep emergency loans secret. Why?

1- cost of bond insurance increases
2- shorts drive common equity down
3- interest spreads decrease
4- depositors leave
5- a bank run ensues

[girl gone mad]

23. The courts, including the Supreme Court, ruled..

that disclosure is in the public's interest and the potential for a bank run does not override the public's right to know. Even the Obama administration agreed with the courts on this one.

[banned from Kos]

25. OK - but there is a lag time on disclosure by the Fed.

I don't remember what it is (maybe 18-24 months) then the details must be divulged. That gives the bank time to correct its wayward course.

There is no responsible way to tell the vulture capitalists that a bank is in trouble within a year.

[banned from Kos]

11. Some corporate lending replaced the massive $2 trillion Commercial Paper

market - which had completely evaporated.

McDonalds needed a CP loan to make payroll for ChristSakes. The Fed did a good thing and earned interest.

[girl gone mad]

18. Some lending, some bailout funds.

Of course, it's clear from the report where most of the money went - to the insolvent banks. And they did not shore up their balance sheets long term. They expect to be bailed out again.

[banned from Kos]

19. You are wrong YET AGAIN. Fed window borrowers must put up collateral

usually Treasuries (although in the crisis other bonds were taken).

Insolvent banks had no collateral (WaMu, Wachovia) thus were seized by the FDIC. The banks you HATE had plenty of collateral and thus the loans.

WaMu had their bonds negated. Wachovia was seized but auctioned off successfully before the next banking day.

[girl gone mad]

24. Nope.

From the report:

As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.

Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25% of the collateral was foreign-denominated.

Cash for trash.

[banned from Kos]

26. No "nope"! That IS collateral. I said "other" bonds were taken earlier

since I had read the same Bloomberg report. I would rather have high-yield stocks over junk bonds, fwiw.

[brentspeak]

30. Only "collateral" because the Fed redefined what it usually means by "collateral"

Monopoly money could also be considered "collateral" for these loans, if the Fed so ruled it. And for all practical purposes, they did rule it: precisely what "high-yield stocks" did BOA and Citi have to offer in the way of collateral?

[bhikkhu]

31. 3/19/2009 - "US economy gets $1.2 trillion boost"

http://english.aljazeera.net/business/2009/03/20093191300597758.html

Al Jazeera scooped the heck out of the US news, it seems. It describes the program in detail, pretty much exactly like the current report does. I've read it elsewhere in between then and now as well - it was here 6 months ago and argued into the ground, just as misleading...

[girl gone mad]

32. I don't see anything in your link which indicates..

the shocking amount of support provided to Morgan Stanley, for instance. I've followed the entire crisis and tracked the bailouts very closely and it was a surprise to me to see just how desperate Morgan Stanley was over this time period.

There is absolutely new information in this report, though I understand why many would prefer to pretend that this is "old news".

It isn't old news, it isn't going away and it hasn't gotten better.

[bhikkhu]

35. The amounts are only shocking because the loans were for very short terms

...such as if you had a few million and loans it out for a few hours at a time, repeatedly - pretty soon you could say that you had lent out billions. Its just a sum of many loans, most of them not concurrent, and all of them paid back, in any case.

If one takes the time to learn about the whole episode, rather than just read the journalistic equivalent of 20-second sound bytes, it was hardly sinister at all, nor was it secret. It was largely a successful effort to rescue jobs in the midst of collapse.

The hedge funds, on the other hand, were much more culpable and probably criminal in the whole mess. The article has nothing to do with them.

[girl gone mad]

37. No, that is not why the amounts are shocking.

This is why it's shocking:

"That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.

Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to “fundamentally re- evaluate” the way it manages its cash. "

Yet they have not fundamentally changed anything.

[banned from Kos]

10. finally, a voice of reason amid the din of ignorance

"Ikonoklast" is a fit moniker.

[Stinky The Clown]

27. Completely off topic, but . . . .

. . . why were you banned from Kos?

[midnight]

9. As Dennis Kucinich would say.... There is nothing Federal about the

Federal Reserve... So I have to ask... When does Wall Street have to pay back the public's secretly loaned money?

[Ikonoklast]

12. For the most part, already done.

That money didn't just disappear, it is, or has been repaid.

See "Discount Window": http://en.wikipedia.org/wiki/Discount_window

[banned from Kos]

13. Kucinich should stick to the UFO sightings

he makes as much sense there.

[midnight]

20. I actually think his understanding of the Constitution is his strength....

[Bluenorthwest]

22. whereas Obama only says that Jesus and the angels tell him to

oppose marriage equality. 'my invisible friend does not like them. So look. Ummmm, ahhhhh, we have to make a compromise uhhhhh and let those people have a certain set of rights...ahhhh. Look. I'm a Christian, and God is in the mix.'
Now that's an example of shining reason. And of course, it is extended into the world of civil rights, this superstitious belief, actually paraded in public.

[lovuian]

14. Oh thanks to Bloomberg for us getting to know

this is where our tax dollars is going bailing out Morgan Stanly

[ChandlerJr]

15. So is Rawstory calling the fed treasonous

and maybe calling for an audit?

[The Backlash Cometh]

17. Oh. So that's how Wall Street comes up with the money to pay $350,000 salaries

to people who don't have any business background.

[DeltaLitProf]

28. "Public money?"

Is rawstory or Bloomberg trying to put out the idea that what the Federal Reserve bank lends out is taxpayer funds?

It isn't. It's Federal Reserve Bank money. The Federal Reserve Bank is not part of the federal government. It answers to Congress, but it is not using taxpayer money.

[girl gone mad]

33. our taxes are what give value to the money the Fed prints.

If they print too many US dollars, taxes must be raised or the currency is devalued.

Also, the Fed is part of the government, though they generally serve the interests of private banks. After taking out operational expenses, all of the Fed's profits are returned to the Treasury. Likewise, any losses they sustain are our losses.

The source of funding was money creation, not tax revenue, but it is accurate to say that this was public money.

[Rex]

29. What money?

[woo me with science]

34. Our corrupt banking establishment is at the root of this crisis. nt

[Horse with no Name]

36. But But But they paid us back!!!!!

:puke: Lies and the lying liars.