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Grayson begins: "I think it's fair to say that Congressman Ron Paul and I are the parents of the GAO's audit of the Federal Reserve. And I say that knowing full well that Dr. Paul has somewhat complicated views regarding gay marriage. Anyway, one of our love children is a massive 251-page GAO report technocratically entitled 'Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance.' It is almost as weighty as that 13-lb. baby born in Germany last week, named Jihad. It also is the first independent audit of the Federal Reserve in the Fed's 99-year history."

Former Rep. Alan Grayson, 05/09/11. (photo: AP)
Former Rep. Alan Grayson, 05/09/11. (photo: AP)



The Fed Bailouts: Money for Nothing

By Alan Grayson, Open Mike Blog

06 December 11

 

think it's fair to say that Congressman Ron Paul and I are the parents of the GAO's audit of the Federal Reserve. And I say that knowing full well that Dr. Paul has somewhat complicated views regarding gay marriage.

Anyway, one of our love children is a massive 251-page GAO report technocratically entitled "Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance." It is almost as weighty as that 13-lb. baby born in Germany last week, named Jihad. It also is the first independent audit of the Federal Reserve in the Fed's 99-year history.

Feel free to take a look at it yourself, it's right here. It documents Wall Street bailouts by the Fed that dwarf the $700 billion TARP, and everything else you've heard about.

I wouldn't want anyone to think that I'm dramatizing or amplifying what this GAO report says, so I'm just going to list some of my favorite parts, by page number.

Page 131 - The total lending for the Fed's "broad- based emergency programs" was $16,115,000,000,000. That's right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.

Pages 133 & 137 - Some of these "broad-based emergency program" loans were long-term, and some were short-term. But the "term-adjusted borrowing" was equivalent to a total of $1,139,000,000,000 more than one year. That's more than $1 trillion out the door. Lending for these programs in fact peaked at more than $1 trillion.

Pages 135 & 196 - Sixty percent of the $738 billion "Commercial Paper Funding Facility" went to the subsidiaries of foreign banks. 36% of the $71 billion Term Asset-Backed Securities Loan Facility also went to subsidiaries of foreign banks.

Page 205 - Separate and apart from these "broad- based emergency program" loans were another $10,057,000,000,000 in "currency swaps." In the "currency swaps," the Fed handed dollars to foreign central banks, no strings attached, to fund bailouts in other countries. The Fed's only "collateral" was a corresponding amount of foreign currency, which never left the Fed's books (even to be deposited to earn interest), plus a promise to repay. But the Fed agreed to give back the foreign currency at the original exchange rate, even if the foreign currency appreciated in value during the period of the swap. These currency swaps and the "broad-based emergency program" loans, together, totaled more than $26 trillion. That's almost $100,000 for every man, woman, and child in America. That's an amount equal to more than seven years of federal spending - on the military, Social Security, Medicare, Medicaid, interest on the debt, and everything else. And around twice American's total GNP.

Page 201 - Here again, these "swaps" were of varying length, but on Dec. 4, 2008, there were $588,000,000,000 outstanding. That's almost $2,000 for every American. All sent to foreign countries. That's more than twenty times as much as our foreign aid budget.

Page 129 - In October 2008, the Fed gave $60,000,000,000 to the Swiss National Bank with the specific understanding that the money would be used to bail out UBS, a Swiss bank. Not an American bank. A Swiss bank.

Pages 3 & 4 - In addition to the "broad-based programs," and in addition to the "currency swaps," there have been hundreds of billions of dollars in Fed loans called "assistance to individual institutions." This has included Bear Stearns, AIG, Citigroup, Bank of America, and "some primary dealers." The Fed decided unilaterally who received this "assistance," and who didn't.

Pages 101 & 173 - You may have heard somewhere that these were riskless transactions, where the Fed always had enough collateral to avoid losses. Not true. The "Maiden Lane I" bailout fund was in the hole for almost two years.

Page 4 - You also may have heard somewhere that all this money was paid back. Not true. The GAO lists five Fed bailout programs that still have amounts outstanding, including $909,000,000,000 (just under a trillion dollars) for the Fed's Agency Mortgage-Backed Securities Purchase Program alone. That's almost $3,000 for every American.

Page 126 - In contemporaneous documents, the Fed apparently did not even take a stab at explaining why it helped some banks (like Goldman Sachs and Morgan Stanley) and not others. After the fact, the Fed referred vaguely to "strains in the financial markets," "transitional credit," and the Fed's all-time favorite rationale for everything it does, "increasing liquidity."

81 different places in the GAO report - The Fed applied nothing even resembling a consistent policy toward valuing the assets that it acquired. Sometimes it asked its counterparty to take a "haircut" (discount), sometimes it didn't. Having read the whole report, I see no rhyme or reason to those decisions, with billions upon billions of dollars at stake.

Page 2 - As massive as these enumerated Fed bailouts were, there were yet more. The GAO did not even endeavor to analyze the Fed's discount window lending, or its single-tranche term repurchase agreements.

Pages 13 & 14 - And the Fed wasn't the only one bailing out Wall Street, of course. On top of what the Fed did, there was the $700,000,000,000 TARP program authorized by Congress (which I voted against). The Federal Deposit Insurance Corp. (FDIC) also provided a federal guarantee for $600,000,000,000 in bonds issued by Wall Street.

There is one thing that I'd like to add to this, which isn't in the GAO's report. All this is something new, very new. For the first 96 years of the Fed's existence, the Fed's primary market activities were to buy or sell U.S. Treasury bonds (to change the money supply), and to lend at the "discount window." Neither of these activities permitted the Fed to play favorites. But the programs that the GAO audited are fundamentally different. They allowed the Fed to choose winners and losers.

So what does all this mean? Here are some short observations:

(1) In the case of TARP, at least The People's representatives got a vote. In the case of the Fed's bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street. That's not how a democracy should function, or even can function.

(2) The notion that this was all without risk, just because the Fed can keep printing money, is both laughable and cryable (if that were a word). Leaving aside the example of Germany's hyperinflation in 1923, we have the more recent examples of Iceland (75% of GNP gone when the central bank took over three failed banks) and Ireland (100% of GNP gone when the central bank tried to rescue property firms).

(3) In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine. But there is no reason why our money should be involved in that.

(4) For the Fed to pick and choose among aid recipients, and then pick and choose who takes a "haircut" and who doesn't, is both corporate welfare and socialism. The Fed is a central bank, not a barber shop.

(5) The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success. (If you don't believe me, ask Jamie Dimon at JP Morgan.) The Fed helped the losers to squander and destroy even more capital.

(6) During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn't borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can't find a full-time job?

And here's what bothers me most about all this: it can happen again. I've called the GAO report a bailout autopsy. But it's an autopsy of the undead.

Courage,

Alan Grayson

 

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+53 # pernsey 2011-12-06 20:06
(6) During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn't borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can't find a full-time job?

I wonder why the right wingers dont site this when they talk about giving money for doing nothing?
 
 
+27 # jon 2011-12-06 23:26
Because some of that money is "trickling down" into their pockets.

Such a business....

(you got it, you sell it, you still got it... such a business!)
 
 
+15 # jwb110 2011-12-07 01:36
Quoting jon:
Because some of that money is "trickling down" into their pockets.

Such a business....

(you got it, you sell it, you still got it... such a business!)

Your quote is the definition of prostitution. Says a lot about Bernanke and Geithner and that clan... I am not sure if they are pimps or just common whores.
 
 
+4 # Doubter 2011-12-07 15:14
High class whores, judging from the amounts involved.
 
 
+21 # MidwestTom 2011-12-06 23:19
No one will be prosecuted, Obama has already raised more money from Wall Street than any other President ever did. Remember Corsine the former Goldman Sacks man who stole about $1.2 Billion of clients money at MF Global, he also hosted a $35,000 per plate dinner for Obama, so he is untouchable. This country is presently being run by very wealthy crooks who also own and run the privately owned Federal Reserve.
 
 
+29 # Walhalla 2011-12-07 04:11
Alan for Congress...agai n. We need people like him.
 
 
+15 # RMDC 2011-12-07 05:31
This is very important. Thanks for the detailed analysis. We are living through the greatest economic looting of all human history.

Don't forget that in January 2011, the world's ruling elite at the World Economic Forum resolved that the people of the world would have to give over $100 trillion to "re-capitalize their banks." $10 trillion a year. That is what is happening here and in Europe. The "austerity" measures imposed on Greece, Italy, Spain, US, and all over extract money from people and hand it over to banks.

Why do banks need to be re-capitalized? They seem to be awash in money. And they are. But they have some $600-800 trillion in bad investments on their books. They do not want to write these off as losses because these bankers don't take losses. Rather, they are transferring the bad debts to central banks like the FED.

We are often told by Obama, Sarkozy, Merkel that nations need banks that are financially healthy. But that is a fraudulent of the term "bank." JP Morgan, Goldman Sachs, UBS, and the rest are not really banks. They are gambling syndicates. And most importantly they are quasi-political institutions very much like the World Bank or IMF. They control and run the treasuries of whole nations. These banks "own and control" the FED and the US Treasury department. Same in Europe.

Nations don't need these banks. They are criminal organizations and should be shut down. The officers should be in prison.
 
 
+3 # RLF 2011-12-07 05:35
Obama allowed this. Obama put Bernanke back into the fed. Obama put in Geithner and summers and holder. What a scumbag! These f#*kers should all be in jail, including the gov. guys.
 
 
+22 # mwd870 2011-12-07 07:25
Great job in accomplishing the first independent audit of the Federal Reserve in the Fed's 99-year history. Thank you for taking action.

Your list of observations summarizes the reasons so many American people now support the Occupy Movement. The question is whether the bad policies of the past will ever be redressed and what can be done to stop it from continuing?

We have the power to nominate and elect better candidates, but is this enough? As some commentators said regarding President Obama's speech yesterday, his rhetoric was great, there were no actionable proposals.

The auditing of the Fed can be seen as a good first step.
 
 
+18 # 666 2011-12-07 07:31
We spent far more than the total US debt to bail out foreign and domestic banks; I say NATIONALIZE THEM ALL! we bought 'em
 
 
+12 # ericlipps 2011-12-07 11:10
I've got just one question: Since when did the Federal Reserve have the authority, let alone the responsibility, to bail out FOREIGN banks?

It sounds to me as though the Fed should be independently audited routinely, every year (I'm tempted to say month-by-month).

And, oh, yes: alkl these folks who keep whining that America's too "bankrupt" to pay for Social Security should have a look at these figures. If the Fed can toss around trillions like pocket change, we can afford to keep the SocialSecurity trust fund solvent without cutting benefits to retirees, and we can keep Medicare working too.
 
 
+8 # Buddha 2011-12-07 11:21
"Banks got bailed out, we got sold out".
 
 
+12 # Linda 2011-12-07 11:31
Alan Grayson should be elected again .We need watchdogs like him and even Ron Paul whom I would never vote for President can be right when it comes to the Federal Reserve and ending wars but he is wrong headed on ending Social Security ,Medicare ,Medicaid and social programs that millions of people depend on to survive. So I hope people don't read this article and think Ron Paul is good for our country because he surely is not for millions of elderly ,disabled and poor people .
 
 
+7 # fractivist 2011-12-07 13:04
This article is urgently important. We need to CONTROL THE BANKS rather than allowing them to control us. Until we do that, our planet will continue to evolve toward our extinction. We have about 5 years.... Any ideas?
(Hints: State Bank of ND, projected online state bank of OR, Web of Debt, by Ellen Brown, Kristin Christian)
 
 
+7 # barbie 2011-12-07 13:40
I am 70 years old and have been feeling really disgusted and sick at what has been going on. But just yesterday things began to change for some of the fights I have been fighting to show the fraud that has been brought on to our situation. The truth is beginning to come out, and opened up and now I really think there is going to be change. It is beginning to happen. I got the feeling yesterday before I even knew what was happening in my case, and I truly believe that it is just the beginning of the end of their New World Order and the beginning of the people's
 
 
+4 # bugbuster 2011-12-07 19:05
We're only 11 years into the century, so let's hope this stands as the swindle of the century.
 
 
+3 # MainStreetMentor 2011-12-07 22:43
President Jackson did what needed to be done during his tenure to stop the financial manipulation by the banking industry. Banking was de-centralized. There was no "central bank" such as the Federal Reserve. In an over simplification: Each State of the Union had it's own banking system. When Washington government needed cash - they split up the necessary sum and received a portion of it from each states' bank, making it exponentially more difficult for finances to be manipulated by a single source.
 
 
+2 # KDI 2011-12-08 11:03
In the 1917 crash, banks took the opportunity to buy other banks at pennies on the dollar. I the 30's crash, banks took the opportunity to buy whole companies at pennies on the dollar. I this crash, banks are scooping up whole countries at pennies on the dollar. See that both Greece and Italy have had their elected governments taken over by un-elected former GS officers! Except for the distraction of a figurehead POTUS, it's happening here too. Spain's next, then France, then Germany. Russia and China aren't immune. What a world.
 
 
0 # Grinder Monkey 2011-12-09 17:44
It does seem like a war of currencies doesn't it?
 
 
0 # usssaratoga2 2011-12-26 17:23
Why are their not any ongoing investigations to whit ? are there not grounds here for the culpable that endanger the "general welfare" of the country ? contact your congressmen; take heart; mine are actually sending me "hand written" letters on various such timely matters to help save the country !
 

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