Recent data about both open and secret bailouts

Principal author:
John L. Clark


In response to the recent financial crisis, the Federal Reserve independently gave out loans that dwarfed those of the Congressional authorization in TARP. Recently, some very interesting and troubling details have emerged about those loans.

There is some understandable confusion about details of the government's response to the financial crisis that started in 2007 (colloquially known as the bailout). First, an astonishing amount of money is involved. Congress authorized $700 billion in October 2008 for TARP, although that was reduced to $475 billion in July of last year. If you think that's a lot, however, you should check out what the Federal Reserve was doing at the same time. We didn't hear a lot about that, though, because while the Federal Reserve System was created by Congress, “it is not actually part of the federal government”, so it acts with a great degree of autonomy … and secrecy. I've recently been running across interesting information about all of this, and I wanted to bring it together in one place as a launchpad for us to explore what's going on.

Senator Bernie Sanders published A Real Jaw Dropper at the Federal Reserve late last year, and it is that, indeed. In it, he points out that

the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.

Say what? Where do these numbers even come from? ProPublica has been doing deeply commendable work in keeping track of these developments. They have published an online tool for browsing the data about those Federal Reserve loans. They have also made the documents that provided this information, as well as others, available for review in their document browser. Sanders is explicitly talking about the Federal Reserve loan mechanism, not TARP. So, for example, from ProPublica's loan browser we can see that Goldman Sachs received a total of $782.33 billion in loans. $589.31 billion of that came from the PDCF, which is probably the number that Sanders was using in his article; the rest comes from the TSLF. And Goldman Sachs is only seventh in terms of total amount received. Three corporations each received over $2 trillion. The total amount received by the top 10 members on the list is $11.12 trillion. ProPublica's browser includes the caveat that “[b]anks often rolled loans over from one into another, so the amount outstanding [at] any given time would be far lower”. No, I don't know what all of that means. But I do recognize that that is a lot of money.

Sanders has apparently been continuing to dig into this data. Also, Matt Taibbi has been in attack mode over at Rolling Stone about this; they both discuss additional insights into this data, including discoveries about loans to foreign banks. “That's right: Muammar Qaddafi received more than 70 loans from the Federal Reserve, along with the Real Housewives of Wall Street.” These enormous loans should raise some enormous questions, and these two ask a bunch of them. Taibbi emphasizes that there is still a great deal of critical information that the Fed is keeping secret, and Sanders provides video of Federal Reserve Chairman Ben Bernanke stonewalling (way back in 2009) about the recipients of its loans.

What's the status on those loans? The only real measurement that capitalism allows is whether or not they have been profitable, so you will see a lot of discussion of the government's return from its "investments". According to ProPublica's The State of the Bailout report, as of writing this, TARP has dispersed $410 billion (and the government has given another $154 billion to Fannie Mae and Freddie Mac as part of the related Housing and Economic Recovery Act of 2008) and received $315 billion from both programs. The secret nature of the Federal Reserve makes it very difficult to get similar information on its loans.

And how did the Fed get into this in the first place? Earlier this year, in another of Taibbi's brilliant broadsides, he emphasized what it was that led to these incomprehensibly exorbitant loans:

Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. … Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

I draw great amusement from Taibbi's bold directness; in the title of this article he asks the obvious question Why Isn't Wall Street in Jail? God bless that man. Please do read on (in his article) to see some very gory details, served in hilarious fashion with a generous helping of scathing cynicism. Here's the $11.12 trillion take-away: “the system is skewed by the irrepressible pull of riches and power.”

This page was first published on 2011-04-14 12:39:00-04:00.

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