Fed Owes U.S. Stakeholders Accounting on Loans as People’s Bank

[bemildred]

Imagine that a friend with infinite resources gives you unlimited access to his bank account in exchange for a symbolic amount of interest, say 0.01 percent. Then imagine that you can do as you please with the money, including lend it back to your deep-pocketed friend at a much higher rate of interest and keep the difference as profit.

It sounds too good to be true, yet it happens to be a pretty good analogy for the method the U.S. Federal Reserve used to rescue the financial system from collapse in 2008. The biggest U.S. banks -- and some foreign ones -- were given access to Fed lending programs at negligible rates and then used the money to, among other things, buy 10-year Treasury securities with yields from 2.05 percent to 4.27 percent. Altogether, the central bank committed $3.5 trillion to bailing out banks and restoring the flow of credit to a paralyzed financial system.

Astoundingly, in combination with the $700 billion Troubled Asset Relief Program and various other bailouts by the Treasury Department and the Federal Deposit Insurance Corp., this approach mostly worked: Credit markets gradually thawed, the biggest U.S. banks were pulled back from the brink and the economy has posted seven quarters of consecutive -- albeit modest -- growth since June 2009.

So why does the Fed continue to keep Congress, and the rest of us, in the dark about the way taxpayer money was used? Last week, Bloomberg News’s Bob Ivry reported that in 2008 Credit Suisse Group AG (CS), Goldman Sachs Group Inc. (GS) and Royal Bank of Scotland Group Plc (RBS) each borrowed at least $30 billion from a Fed emergency-lending program whose details haven’t been disclosed to shareholders, members of Congress or the public.

http://www.bloomberg.com/news/2011-06-01/people-s-bank-still-owes-an-accounting-to-shareholders-on-loans-editorial.html

[truedelphi]

1. Well, with the banks owning the government, it is their party

And they can make us cry if they want to.

And if we ask for accountability, we are told we are victims of a massive conspiracy theory.

We can trust them - they' re bankers!

[girl gone mad]

2. k & r

[Taitertots]

3. What is the point in lending to troubled banks when you are going to destroy them by announcing it?

And they do announce it, you just have to wait untill it wouldn't defeat the purpose of lending in the first place.

[fasttense]

4. Isn't this basically what Herbert Hoover did?

Only difference was he didn't lend to foreign banks and he did publish the banks' names.