Fed lent banks nearly $8 trillion during crisis, report shows

[Playinghardball]

Source: MSNBC

While the nation's largest banks were publicly reassuring nervous investors of their stability during the height of the financial crisis, they were also quietly approaching the Federal Reserve, hat in hand. The total price tag: $7.77 trillion, many times the amount of the better-known TARP bailout.

The magnitude of the government's assistance to struggling banks allowed them to grow even bigger and continue paying executives billions in compensation, a report in Bloomberg Markets January issue said Monday.

A win in court against a group representing the banks and a FOIA request filed by Bloomberg LP revealed the extent of the central bank's largesse — as well as the $13 billion in profits banks earned from those bailouts. The so called "big six" — JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — accounted for $4.8 billion of that total — nearly a quarter of their net income during that time.

Those borrowed trillions were a deeply-buried secret. It appears that even high-ranking Fed officials didn't know about the scale of the handouts. According to Bloomberg, then-president of the Federal Reserve Bank of Minneapolis Gary H. Stern “wasn’t aware of the magnitude,” and unnamed sources say that even top aides to Treasury Department head Henry Paulson were kept in the dark.


Read more: http://bottomline.msnbc.msn.com/_news/2011/11/28/9067808-fed-lent-banks-nearly-8-trillion-during-crisis-report-shows

[DURHAM D]

1. That's our damn money

and I want to know who decided to pass it out.

Who the hell is supposed to be watching the cookie jar?

[banned from Kos]

2. Congress 1913 Federal Reserve Act - its their job. n/t

[bossy22]

8. In reality it's not

It's money that has been created "de novo". The fed does not recieve tax money and is therefore self funding. The treasury dept does not have to be notified of the feds actions

[yurbud]

54. when you allow private banks to create money out of thin air, how can a democratic government

control them or even compete with them?

[McCamy Taylor]

3. How much went to the Carlyle Group? They were up to their eyeballs in toxic debt.

[Blue_Tires]

53. How much has been siphoned into Teabagger campaigns?

[caseymoz]

4. Actually, this was kind of known at the time, though not the amount.

The Fed did admit to reporters that it was engaged in "experimental processes" to keep the banks afloat during the crisis, and that was understood (by the commentator) to mean the Fed was doing hocus pocus paperwork tricks to slip the banks astronomical amounts of money. It's why whenever anybody tells me the banks paid back the TARP funds, I laugh. They paid back the government funds we were told about using the government funds we weren't told about, but the real punch line is: the banks aren't repaired even after that. Take away all the welfare, and they will collapse in a day.

Telling you the truth, I'm skeptical that amount this low.

Really, all they really needed to do to solve the problem was bail out the homeowners instead of the banks. Cut them checks to pay the banks with. How many houses does $14 trillion dollars buy? But they weren't going to do that, because unlike rich bankers, the poor weren't deemed worthy of it! Meanwhile, the people directly responsible for the disaster got to keep their salaries- - with bonuses, remember?

[bossy22]

11. Doing what u say would cause massive hyperinflation

Think weimer republic style. Also the fed cannot send out checks to the American public, the treasurey dept can, and the treasury dept doesn't have 14 trillion.

THE FEDERALRESERVE AND TREASURY DEPT ARE TWO SEPARATE ENTITIES

[caseymoz]

24. I know the Fed and Treasury are two separate entities.

And why did you ever think that I didn't? And thought it was so serious a blunder you had to shout all caps?

And you are ill-informed about history and economics. The Wiemar Republic suffered hyperinflation when the French Occupied the German coal belt. France decided it wanted reparations paid in coal, and without coal, Germany's industry ground to a halt; meaning, if you remember the WWI blockade, they couldn't trade for food; meaning, hyperinflation was arguably not Germany's worst problem. With no industry and no food, Germans had nothing to buy and an oversupply of marks as the government guaranteed wages because, otherwise, with industry shutdown nobody was being paid. However, they ran out of products to buy very quickly.

People see the hyperinflation reported in the history books, and like yourself, they draw mistaken conclusions about money supply. It wasn't just the money supply.

While it's true that the Fed's under-the-table actions normally it could cause hyperinflation, that's only if the money reaches the general economy. But it isn't. Remember that complaint in the news that the banks weren't lending anything? Also, if the Fed filled a hole in the banks' books, that's money already circulating. They've already lent it out.

Also, if the Fed gave out that much, and we're not seeing any inflation, that means the extra cash is the only thing maintaining this economy.

THE WIEMAR REPUBLIC WAS NOT NAZI GERMANY, THEY WERE TWO SEPARATE ENTITIES

:sarcasm:

[bossy22]

26. The Wiemar republic example was not an example of the money supply but of general hyperinflation

where money became almost worthless. Thats would happen if you increased the M2 overnight by 8x.

Also you have to understand that the fed didnt give out 8 Trillion at once- its all revolving lines of credit. Many of these loans were repaid the next day, else you would see a massive increase in M2- which there wasnt.

Paying off everyones money would increase M2 by an astronomical amount. This is what would lead to hyperinflation (indirectly). The only way such could work theoretically is that if all the mortgages in the U.S. got transferred onto the Fed's balance sheet making it a liability of the federal reserve. Then the M2 would increase gradually over time so you wouldnt see hyperinflation, but still see significant and painful inflation

[caseymoz]

43. Money supply is linked to hyperinflation.

Isn't that what you were arguing, too? So how could you say the Wiemar Republic was not an example of money supply . . . and hyperinflation. Are you just trying to confuse things by arguing something and its opposite?

I didn't say exactly what you think I declared. I wasn't talking about the Fed giving out $8 trillion (didn't the article say $7 trillion?) at once. When I meant bailing out homeowners instead of TARP. I was talking about the treasury. There was a "gap" in the money supply, let's say M2, but I prefer the general term. That gap almost caused a collapse. Deflating economies, by definition, have a lack of inflation. Money was evaporating from the economy. Supplying the $7 trillion of TARP didn't cause hyperinflation, you notice.

In 2008-2009, they, Congress, Summers and Geithner, had a choice: They could fill it at the level of the banks, or they could fill it at the level of homeowners, and I'm talking about the treasury supplying homeowners with cash instead of supplying TARP for banks. Not transferring all (and I never said all) mortgages in to the Fed's balance sheet, post-TARP.

I'll point out also: citizens don't have an overnight window. If many of the loans were repaid the next day, well, "many" of $7 trillion could still be $3.45 trillion. From what I understood in stories that I heard at the time, it was not just at the overnight window that was being talked about, which means this is only the tip of the iceberg.

Since you didn't listen the first time, I'll repeat: the hyperinflation in Germany was caused also by extreme under-supply of products and an extreme oversupply of money. The money had nowhere to circulate to, and as the government tried to compensate for the inflation by handing out more support for idled workers, the inflation accelerated. Aggravating this, Wiemar was a pariah state, so it had no access to foreign credit, meaning they couldn't borrow to import food, nor fuel to restart it's idled factories, so it could supply goods and trade for food. It was largely the same with Zimbabwe recently. There is no way those situations compare to what we have now, or had in 2008-2009.

So, no, I'm skeptical the measures I've clarified would have led to the hyperinflation.

Now, where I referred to the Fed: their funds under-the-table enabled banks to pay for TARP over the table. I take issue with the appearance of healthy banks that conveyed, and the fact that most people bought it.

[russspeakeasy]

5. "Stern wasn't aware of the magnitude".

The sentence could have ended with "Stern wasn't aware". Like so many appointees, he quit working the day he was appointed.
This just highlights one of the many reasons voters are apathetic.
Voted in, or appointed, their self interest is the only interest they have.

[harun]

6. For all those wingnuts carping about OWS, this is what it is about. No

accountability, no traceability of 7.7 TRILLION dollars.

You find out who the decision makers were on this and you have the real gov't of the United States. The real gov't that serves the 1%.

[Huey P. Long]

49. Even here, 'posters' are in a smear campaign against OWS. -eom

[harun]

51. Yes, there are. I wonder if they are infiltrators or just TV watching drones

who don't know better.

[bossy22]

7. This is misleading

99% of those loans were short term or "repo loans". These loans are made all the time and often don't last last more than 24 hours (hence the term overnight window). They allow banks that are short on their capital and reserve requirements to meet them temporarily.

Also, the fed just doesn't give money to the banks, the banks must pledge collateral for every amount they borrow.

[plumbob]

18. Collateral as in fantasy valuated real estate?

I'm so reassured.

Any evidence that a dime of this has been repaid, since it's supposedly a loan?

[No Elephants]

38. LOL!

[yurbud]

9. is this in addition to the $16 trillion Bernie Sanders audit of the Fed found?

[dipsydoodle]

10. Your government

seems to be pretty good at mugging off its population.

[bossy22]

12. The federal reserve is not tax payer funded

[harun]

13. It is government authorized. As-in it's authority comes from the Gov't.

[bossy22]

14. It's charter is government authorized

It's actions are governed by an independent board of governors. I believe congress must confirm all the governors.

The fed works much like the court system- independent of politics (in theory)

Again, fed isn't government funded, it's self funded

[robbob]

15. Self funded

Self funded as in, if they need funds, they'll make it themselves?

[bossy22]

16. Well not exactly

But one of it's core functions is money supply maintenance. The fed generally funds itself by buying and selling securities (usually short term treasury bills). The fed can't simply just create money and cut a check, it must purchase something in order for the money to enter the market. The fed regularly generates a profit and turns over that profit to the treasury department

But, in a simple answer, yes they do it by printing money.

[plumbob]

19. They can create a liability for the taxpayers. They are part of the government.

We don't need a central bank, never did. Just a slick way to give banks the power to coin money instead of the government, which is authorized by the Constitution to do so.

[bossy22]

25. they can NEVER create a liability for the american taxpayer

they are an entity of unlimited liquidity- they will never need to be "bailed out" (in fact the other way around is more likely- remember the fed has been buying lots of longterm Treasury bonds in an effort to keep interest rates low).

Your view of banking went out the window after the panic of 1907 and should be specifically seen with the european debt crisis- which is a direct result of the european nations NOT HAVING A FEDERAL RESERVE TYPE INSTITUTION from which they can borrow off of.

The Federal Reserve is the reason that the U.S. will never go bankrupt. You talk about giving banks power? Getting rid of the federal reserve will do just that- the banks will be our only line of credit. What would stop happening if their appetite for treasuries went away? What would happen then? Well if we have a federal reserve the fed would step in and buy the treasuries (creating inflation yes) but preventing a total bankruptcy of the federal government. IF we didn't have a Fed, we would be forced to accept harsh austerity package or feel the wrath of a 20% economic contraction.

BTW- the government does coin money- not the federal reserve. The fed buys the money from the treasury dept at cost. But coining money is different from creating money, physical currency is only a small part of the money supply (i believe its considered M0).

Wikipedia can be a great tool

[plumbob]

27. I have an economics degree from Texas A&M, which I earned in 1975. I have taught

economics over the last three decades.

I don't even know where to start with this response, but let me say this: we quit banking of any sort in 1978, and we have prospered from not having to pay to use our own money, simply put.

Banks exist to capture dollars between workers and their desires. A house can be built once, but owed on and paid for many times to someone who had nothing to do with its building at all. That's one simple example of the harm that banks do.

Austerity packages are another tool that the banks use with money powered by the fed to deprive millions of their living and property as well. Since the mid-70s, real income in this country has fallen steadily, and it is due to the banks and their partners, the Fed, convincing people and business that they actually need a credit-granting agent of some sort, when all true value is created by production, never by finance.

At any rate, you go ahead and cheer for them. I will continue to avoid them, teach my students how to do so, and will be better for it.

Have a good day.

[girl gone mad]

44. Please.. just stop.

You're spouting so much nonsense in this thread.

Try to use honesty in your defense.

[leveymg]

46. By exercising unlimited liquidity, the Fed DOES create a liability for the taxpayer - ultimately,

someone has to back up that creation of liquidity (of which creation of specie currency is a small part), or it's deemed worthless. That someone is the taxpayer and the instrument of backing up the Fed's ability to stimulate the markets is the unlimited power to tax and borrow given Congress to pay off public (and increasingly private) debt on terms favorable to the banks, which in turn funds the Fed.

Yes, I am fully aware that the Fed's QEs operate in other ways than inflating the money supply, such as pumping up the Repo Market. But, that creates systemic risks as well.

[MannyGoldstein]

17. Enough with this BS. The bankers earned that money - why do people resent success?

Lesser talents would have swindled less money from American taxpayers.

Let us celebrate the successes of Lloyd, Jamie, and the other smart businessmen. Not knock them.

[jtuck004]

20. And increased their compensation by 20% during the same period.

Hey, that fraud stuff is hard work.

[defendandprotect]

21. ... but we can't afford MEDICARE FOR ALL -- evidently we also spent $8 billion in Congo???

this year--?

Not sure what that was about --

but obviously those handling the nation's money have little concern for

citizen taxpayers!

[riderinthestorm]

22. $25,000 for each US citizen if we had just paid ourselves

if we had just paid out the $7.7 trillion to every person in the US... what would have been the effect of THAT instead of bailing out the banksters?

[alp227]

23. END CORPORATE WELFARE! nt

[sarcasmo]

30. +1

[hunter]

28. For that kind of money the people of the USA ought to foreclose on some banks.

Shouldn't we be able to confiscate the assets of a few Bank of America executives, clear out their offices, and drop them off at a downtown homeless shelter to clean toilets for a couple of years to life??

[sarcasmo]

29. What trillion is the deficit up to now?

Nearly 8 trillion to the banks is insane, no doubt in my mind who runs this country.

[bossy22]

31. nope

The lending to the banks had no effect on the deficit. Federal Reserve does not lend taxpayer money but money it created "de novo" (From nothing)

http://www.slate.com/blogs/moneybox/2011/11/28/how_the_fed_s_generosity_made_13_billion_for_america_s_biggest_banks.html

[sarcasmo]

32. I know the banks hand no effect on the deficit.

The federal reserve could have balanced the national debt instead of bailing out he bankers.

[bossy22]

35. not without a major easing program which would cause hyperinflation

though interesting enough, the fed through QE I and QE II has been owning a greater percentage of our national debt. More of it is owed to the federal reserve than to china. The thing is the fed can't forgive the debt since it would then have no way to control the money supply. Also its not like its costing the tax payers money- all the interest payments go right back to the treasury since the fed turns over its profits to the treasury

[girl gone mad]

45. Why would replacing interest bearing Treasury bonds in an account at the Fed..

with interest bearing excess reserves at another account at the Fed be hyperinflationary?

Why would this be any more inflationary than swapping worthless toxic dog crap securities that banks created out of nothing for real financial assets backed by the full faith and credit of the US government?

Both Fed profits and losses accrue to the national budget. Taxpayers will bear the burden of the Feds malinvestments, albeit indirectly. Savers, retirees and wage earners have already born much of the costs of the Fed's irresponsible policies.

[girl gone mad]

52. Still would like to know.

[No Elephants]

40. De novo literally means "of new" not "from nothing.." It has the connotation of beginning again or

afresh.

[L0oniX]

33. hmmm ...8 trillion divided by 330 million = X from each US person ...including babies.

[riderinthestorm]

34. Yup, $25k each. What do you think THAT would have done for the economy?? nt

[bossy22]

36. none of the money was taken from taxpayers

it was all "printed". The fed doesnt tax nor does it recieve tax money to operate- its self funding. All profits made by the fed must be turned over to the treasury department

[No Elephants]

41. The Fed distributes money. Only Treasury prints it. However, what the Fed does has adverse

consequences.

Saying it doesn't displays either the same naivete or the same disingenousnes as displayed by those who claim the bailout money has been repaid.

[plumbob]

42. Thank you! The Fed IS a tax on the rest of us. Money is a claim for

goods and services. Money created from the air gives those creators a claim in unlimited amounts on goods and services that were produced using real labor and resources.

Wonder how the 1% got to be the 1%? Getting something for nothing, literally.

[L0oniX]

47. Well then ...too bad they didn't print it up for us.

[lovuian]

37. that is not the American people's debt that is the Feds debt

the Fed has abused its power

the American people have a Congress to vote on this debt and if the Congress voted for 8 trillion dollar bailout please let me know who they were and their explanation to the American people

[DeSwiss]

39. Totally corrupt. - K&R n/t

[bvar22]

48. The biggest heist EVER.

The "Big Hit" was cleverly timed to take place during the changeover of administrations
giving Plausible Deniability to BOTH parties.

Now THIS is Bi-Partisanship!

"They" didn't "Save the Economy".
They looted the Public Treasury.
Does anybody really wonder WHY nobody was prosecuted?

[progressoid]

50. Lent?

Don't expect it to be paid back any time soon...or ever.