Fed's 'back­door bailout' pro­vided $3.3 tril­lion in loans to banks

The Pak Banker - - Editorial5 - John Ni­chols

With the lift­ing of the "veil of se­crecy at the Fed," in re­sponse to a leg­isla­tive push led by US Sen­a­tor Bernie San­ders, I-Ver­mont, re­veals that the Fed­eral Re­serve gave banks, multi­na­tional cor­po­ra­tions and for­eign fi­nan­cial in­sti­tu­tions-many of them with limited ties to the United States-an es­ti­mated $3.3 tril­lion in emer­gency loans and other forms of as­sis­tance dur­ing the course of the cur­rent fi­nan­cial cri­sis.

"We now know that the Fed loaned tril­lions of dol­lars at zero or near-zero in­ter­est rates not only to the largest fi­nan­cial in­sti­tu­tions in this coun­try, but also to many of our largest cor­po­ra­tions- in­clud­ing GE, McDon­alds and Ver­i­zon. Most sur­pris­ing, the Fed also lent huge sums of money to for­eign pri­vate banks and cor­po­ra­tions" says San­ders, who since the 1990s has, with Texas Con­gress­man Ron Paul, Florida Con­gress­man Alan Grayson and a hand­ful of oth­ers, been an ar­dent critic of the Fed's se­crecy, un­ac­count­able fi­nan­cial ma­nip­u­la­tions and co­zi­ness with Wall Street.

The doc­u­ment dump con­firms that the $ 700 bil­lion Trea­sury Depart­ment bank bailout out signed into law un­der Pres­i­dent Ge­orge W. Bush in 2008 was a small down pay­ment on an se­cre­tive "back­door bailout" that saw the Fed pro­vide roughly $3.3 tril­lion in liq­uid­ity and more than $9 tril­lion in short-term loans and other fi­nan­cial ar­range­ments. With hun­dreds of bil­lions in US money go­ing to for­eign fi­nan­cial in­sti­tu­tions, San­ders asks: "Has the Fed­eral Re­serve of the United States be­come the cen­tral bank of the world?"

Ques­tions like that ex­plain why the Fed did not want to re­lease this in­for­ma­tion. Fed chair­man Ben Ber­nanke lob­bied against the amend­ment San­ders at­tached to the fi­nan­cial ser­vices re­form leg­is­la­tion passed this year by the Congress. San­ders and his al­lies pre­vailedalthough not too the full ex­tent that they had hoped-in forc­ing an the re­lease of se­cret Fed files and forc­ing the Govern­ment Ac­count­abil­ity Of­fice to con­duct a top-to-bot­tom au­dit of the Fed.

"Al­most two years ago I asked Chair­man Ber­nanke to tell the Amer­i­can peo­ple which fi­nan­cial in­sti­tu­tions and cor­po­ra­tions re­ceived tril­lions of dol­lars as part of the Wall Street bailout. He re­fused," says San­ders. "To­day, as a re­sult of an au­dit-the-Fed pro­vi­sion I put into the fi­nan­cial re­form bill, we fi­nally learn the truth-and it is as­tound­ing."

So as­tound­ing, in fact, that even the Wall Street Jour­nal is prais­ing San­ders. "The re­lease of this data on some 21,000 Fed trans­ac­tions over the last three years is one of the rare use­ful pro­vi­sions in ( the fi­nan­cial re­form bill)," writes the Jour­nal, adding, "ku­dos to our fa­vorite So­cial­ist for de­mand­ing it."

While the banks-and cor­po­ra­tions such as Ver­i­zon and Toy­ota-col­lected tril­lions, San­ders said, the Amer­i­can peo­ple got lit­tle in re­turn. Why? Be­cause, as the sen­a­tor notes, the doc­u­ments re­veal that "the Fed failed to re­quire loan re­cip­i­ents to in­vest in re­build­ing our econ­omy and pro­tect the needs of or­di­nary Amer­i­cans."

In­deed, San­ders sug­gests, the pa­per­work from the Fed raises the prospect that the banks and cor­po­ra­tions used the money to pad their bot­tom lines. In­deed, an anal­y­sis by San­ders' of­fice, points to the prospect that "se­cret Fed loans turned out to be di­rect cor­po­rate wel­fare to big banks."

San­ders wants an in­ves­ti­ga­tion to de­ter­mine whether banks took loans at near-zero in­ter­est and then loaned that same money back to the fed­eral govern­ment at a sig­nif­i­cantly higher in­ter­est rate.

"In­stead of us­ing this money to rein­vest in the pro­duc­tive econ­omy, I sus­pect a large por­tion of these near-zero in­ter­est loans were used to buy Trea­sury se­cu­ri­ties at a higher in­ter­est rate pro­vid­ing free money to some of the largest fi­nan­cial in­sti­tu­tions in this coun­try on the backs of Amer­i­can tax­pay­ers," says San­ders.

San­ders also wants to know: "How many big banks re­paid Trea­sury Depart­ment bailouts in or­der to avoid lim­its on ex­ec­u­tive com­pen­sa­tion re­ceived no-strings at­tached loans from the Fed­eral Re­serve?"

Those are all good ques­tions. Here's one more: Isn't it time for mem­bers of Congress to get se­ri­ous about pro­pos­als to free up money sit­ting in Fed ac­counts so that it can strengthen the US econ­omy-as op­posed to merely col­lect in­ter­est for big banks and cor­po­ra­tions?

Robert Pollin, the co-di­rec­tor of the Po­lit­i­cal Econ­omy Re­search In­sti­tute at the Uni­ver­sity of Mas­sachusettsAmherst who has writ­ten ex­ten­sively about the Fed and eco­nomic is­sues for The Nation, has been in the fore­front of this de­bate.

Here's a brief out­line from Pollin of his smart pro­posal:

"The fed­eral govern­ment must con­tinue to ag­gres­sively fight the re­ces­sion cre­ated by Wall Street hyper-spec­u­la­tion and pro­mote re­cov­ery through both spend­ing mea­sures and credit mar­ket in­ter­ven­tions.

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