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View Diary: Fed Audit: $16T in secret loans (228 comments)

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  •  Those are overnight and other short-term... (22+ / 0-)

    ...liquidity loans, which the Fed makes in the multi-trillion range on a yearly basis even when the financial system is running smoothly.

    I'll Rochambeau you for it.

    by Rich in PA on Thu Jul 21, 2011 at 02:40:33 PM PDT

    •  Are you saying this is no big deal? (3+ / 0-)
      Recommended by:
      diffrntdrummr, pot, Betty Pinson

      No wrongful acts?

      Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

      by JTinDC on Thu Jul 21, 2011 at 02:45:51 PM PDT

      [ Parent ]

        •  There are 3 diaries on the subject, all sourcing (2+ / 0-)
          Recommended by:
          Betty Pinson, Creosote

          this to Bernie Sanders. Are we mistaken in thinking Sanders thinks there was wrong doing or does Sanders mistakenly think there was wrong doing?

          Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

          by JTinDC on Thu Jul 21, 2011 at 02:58:17 PM PDT

          [ Parent ]

          •  Does Sanders say there was wrongdoing? (6+ / 0-)

            I don't see it: I think he's saying that if there's a Fed Reserve ability to maintain our banking system, there should be an institution able to maintain something else.

            I don't see him saying, "get rid of the fed".  At least, I hope not.

            Avg. Medicaid cost to New Jersey: $1936 per child per year. Avg cost of helicopter commute for Governor: $2300 per hour. Guess which one Christie wants to cut back on?

            by Inland on Thu Jul 21, 2011 at 03:12:54 PM PDT

            [ Parent ]

            •  I think he's calling for oversight, at least. (0+ / 0-)

              Some serious cronyism in the no-bid AIG bailout contract, not to mention the CEO of JP Morgan Chase's conflict-of-interest.

              Happy little moron, Lucky little man.
              I wish I was a moron, MY GOD, Perhaps I am!
              -Spike Milligan

              by polecat on Fri Jul 22, 2011 at 07:12:05 AM PDT

              [ Parent ]

          •  Bernie is outraged but I didn't see any claim (2+ / 0-)
            Recommended by:
            Onomastic, Roadbed Guy

            of illegal activity, as of yet.  Makes for a great headline and news clip that politicians love.  

            Preemptive war is like committing suicide for fear of death

            by thestructureguy on Thu Jul 21, 2011 at 03:17:03 PM PDT

            [ Parent ]

          •  Bernie Sanders is a politician. (1+ / 0-)
            Recommended by:
            outragedinSF

            Like any politician, he makes statements sometimes designed to inflame his base and make them feel favorable toward him. This is very ordinary politics. We see this all the time. Sanders in not immune, in fact he does this fairly frequently.

            There is no wrong doing in loaning $16T, nor does Sanders say that there is. He is simply making a statement illustrating the size of the economy. Since the diarist's link to Sanders' statement is dead, we have no way of finding out what this diary is actually based on.

            I have not read the 266 pages of the audit, nor has anyone else on here. Therefore none of these commenters know whereof they speak.

            This diary does not say over what period of time this $16T was loaned. Since the creation of the Fed? Last week? This hour?

            The Fed loans money to banks to increase the money supply, making it possible for them to loan even more money. This is a good thing, and is necessary when the country is running a deficit.

            Sanders does seem to think there is some conflict of interest involved. I think it reasonable to wait for an investigation before setting our hair on fire.

            Corruption is what keeps us safe and warm. Corruption is why we win. -Syriana

            by CarbonFiberBoy on Thu Jul 21, 2011 at 09:54:12 PM PDT

            [ Parent ]

            •  re: Conflict of interest. Sanders points out (1+ / 0-)
              Recommended by:
              JTinDC

              that October 18th is the date for the conflict-of-interest portion of the audit.

              Mentioned and quoted in the diary.  Ahem.

              Happy little moron, Lucky little man.
              I wish I was a moron, MY GOD, Perhaps I am!
              -Spike Milligan

              by polecat on Fri Jul 22, 2011 at 07:13:25 AM PDT

              [ Parent ]

        •  Page 143 of GAO report has 7 recommendations (15+ / 0-)

          for Executive Action (page 156 as far as Adobe Reader is concerned): fair competition for 'access', employee conflict of interest, risk management of 'vendors', need to create policies, guidance & procedures for staff handling higher risk borrowers, need to create plan for handling potential estimation & losses in adverse economic condition sufficient to inform policies and decisions on lending, and document guidance for Federal Reserve Board to member Reserve banks.  This is not the stuff of everyday transactions.

          There are significant 'holes' in the system lacking audit controls, little or nothing in place for the management of vendor compliance with contracts, little in place guiding personnel with conflicts of interest and investments in affected institutions or those of board members.

          The report outlines what was going in 2008-2009 financial bail out programs, something very non-routine which most people do not understand.  There was a lot of crisis management and funds that was passed directly to J.P. Morgan.  That bank name may ring bells for those recalling who replaced Emanuel Rahm as Chief of Staff.  This report helps summarize how the financial sector crises were handled over the last few years.  For example, you can read up on why Freddie Mac and Fannie Mac were put into conservatorship (bankruptcy) due to their combined $5.7 Trillion in assets at risk.  Or that 2/3rds of TAF and CPAF funds went to overseas branches and banks.

          The impact on 'Main Street' is not really addressed since the primary focus is on the role of The Federal Reserve with the big financial institutions (the too big to fail ones).

          When life gives you wingnuts, make wingnut butter!

          by antirove on Thu Jul 21, 2011 at 03:21:33 PM PDT

          [ Parent ]

          •  Sooo, if no wrong doing, at the very least they (2+ / 0-)
            Recommended by:
            neroden, polecat

            ignored best business practices? Ignored what would be recognized as standard or appropriate accounting methods that are the norm for the rest of us?

            Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

            by JTinDC on Thu Jul 21, 2011 at 03:26:21 PM PDT

            [ Parent ]

            •  Loosely translated, "they winged it" and didn't (4+ / 0-)
              Recommended by:
              JTinDC, polecat, ohmyheck, neroden

              put many controls, policies and typical audit functions in place when handling the $1.3 Trillion in TARP funds, and there were opportunities for individuals to enrich their own portfolios due to their positions.  That should change in the future...sometime.

              When life gives you wingnuts, make wingnut butter!

              by antirove on Thu Jul 21, 2011 at 05:28:12 PM PDT

              [ Parent ]

              •  enrich their own portfolios (3+ / 0-)
                Recommended by:
                Pescadero Bill, polecat, neroden

                Is this anything like insider trading? Is there a chance we may find that there were in fact crimes committed? Not that anyone should reasonably expect any justice if there were, not here in bizarro world where the rule of law is meaningless if you've got enough cash.

                Ds see human suffering and wonder what they can do to relieve it. Rs see human suffering and wonder how they can profit from it.

                by JTinDC on Thu Jul 21, 2011 at 05:46:58 PM PDT

                [ Parent ]

                •  Well, banks had been relying on MERS for mortgage (4+ / 0-)
                  Recommended by:
                  JTinDC, MKSinSA, jayden, neroden

                  foreclosures and evictions up until a relatively recent court ruling indicating possession of the original contracts was required.  

                  The banks operate hedge funds to 'offset' investments in risky loans.   Essentially these hedge funds, part of our 'too big to fail' financial ecosystem, bet large against average Americans being able to retain their jobs, pay mortgages and consumer loans, etc.  And they also are investing big in trying supplant public schools with 'voucher' private schools.  And ALEC model legislation supports this.

                  When life gives you wingnuts, make wingnut butter!

                  by antirove on Thu Jul 21, 2011 at 06:49:36 PM PDT

                  [ Parent ]

      •  The loans aren't wrong (20+ / 0-)

        That's not the problem, the Fed loans out that money in amazing amounts for very short terms all the time. Its the people the money went to that's the problem. Its that the companies getting bailout money were asked to essentially service their own loans, which they did by borrowing more from the Fed.

        •  Bingo. (7+ / 0-)

          "What could BPossibly go wrong??" -RLMiller "God is just pretend." - eru

          by nosleep4u on Thu Jul 21, 2011 at 04:33:23 PM PDT

          [ Parent ]

        •  I still don't get it. Money was electronically (2+ / 0-)
          Recommended by:
          ladypockt, ozsea1

          created to be loaned out short-term and since it was short-term, it already got paid back (i.e. electronically deleted) - and to pay it back, the borrowers simply asked for more electronically created money which again will be paid back with yet more loans? Is that how it works? Because, since short-term interest rates are close to zero so banks pay little for these loans, this seems like a scam to make banks look to be in much better shape than they are.

          •  IT is a scam. (2+ / 0-)
            Recommended by:
            JTinDC, J M F

            Approximately right, except that the banks were paid to borrow money.  It was a scam to transfer money to the banks, as well.

            Because it's all a scam to make the banks look healthy, and investors have spotted that, banks are trading at below book value.  Because investors assume the books are cooked.

            Until the rot is taken out of the system and the megabanks are destroyed and replaced with banks with decent reputations, the financial system cannot recover.

            Read pp. 1-7 of Krugman's _The Great Unraveling_ (available from Google Books). NOW.

            by neroden on Fri Jul 22, 2011 at 01:19:43 AM PDT

            [ Parent ]

          •  not just that (1+ / 0-)
            Recommended by:
            JTinDC

            Example:
            Goldman-Sachs takes out 10 billion for an overnight, since they are Goldman and the government is 'bailing them out' they get the money for something like 10 basis points. (That's 1/10th of a percent interest)

            That 10B gets transferred though their electronic brokering system in to an overseas market, or after-hours market, or active cash account.

            That 10B overnight loan earns Goldman 200-300 basis points in about 12 hours. (roughly) We'll go crazy and give them 300, for a total of 13B.

            Goldman doesn't pay the loan back, so the Fed automatically makes them another overnight for 10B.

            Goldman "defaults" on this initial 10B for a period of 30 days.

            Goldman finally pays back the initial 10B, with some interest (and here's the tricky part) and that interest goes right back to Goldman.

            Why? They are servicing their own loan, using money electronically created by the Fed and put in charge of handling their own interest. This means that Goldman is essentially printing their own money.

    •  wondered if anyone would (13+ / 0-)

      would mention this. Isn't it what the FED was designed to do?

      All the emergency fund programs were closed in 2010 and have about $43 billion outstanding (of that $16T, if I read it right).

      •  There are a couple of people who can be counted on (9+ / 0-)

        ...to point this out, but they can't be here 24/7.  

        I'll Rochambeau you for it.

        by Rich in PA on Thu Jul 21, 2011 at 02:54:01 PM PDT

        [ Parent ]

      •  finally! (2+ / 0-)
        Recommended by:
        CarbonFiberBoy, outragedinSF

        someone that actually understands the whole freaking point! The money is held as a reserve, loans don't come from the treasury. They "create" the money, and then uncreate it. The people that don't like this, are stupid tin-hat idiots like Ron Paul and Alan Grayson. When we went off the gold standard, we decided that this was the way to go. 40 years of relative economic stability show that this monetary policy works to the extent that people trust the system, and trust the full faith and credit of the United States. Now we have idiots of both the left and the right that are conspiring to destroy this system that works! because it is done with common sense by experts and not by politicians. If you are happy with today's politics, then eliminate the FED and let Congress set monetary policy, I am sure they will do as fine a job with it as they are with everything else, otherwise leave the FED alone so they can do their job!

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