Bradley Keoun and Phil Kuntz, of Bloomberg News, have just disclosed the names, amounts, and dates, of the banks that received $1.2 trillion in secret loans from the Federal Reserve to ward of collapse of the global financial system between 2007 and 2010. Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans. Ironically, Keoun and Kuntz point out that this is about the same amount that U.S. Homeowners owe on delinquent, and foreclosed mortgages, but who are getting little help now.
Bloomberg obtained the exact details over the Federal Reserve's objection through the Freedom of Information Act. Until now, the exact amounts, and the names of the banks participation remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
These are staggering numbers, which appear to be understated. This disclosure is so large, and has so many pieces I'm having trouble condensing it. But, I read somewhere the $1.2 trillion is just the amount of the largest current balance, and that the total amount of all loans over the period exceeded $9 trillion, which for the most part were paid back, on a revolving basis.
And, it wasn't just American banks. Bloomberg reports that 'almost half of the Fed's top 30 borrowers, ... were European firms.'
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.” ...
The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg. ...
As an amusing aside, Keoun and Kunst note that,
Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc. ...
“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” U.S. Representative Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. “They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”
I guess this illustrates the old banking joke.
"When you can't re-pay your bank loan, you are in big trouble."
"When Venezuela can't repay it's bank loan, the bank is in big trouble."
Now, we will have to add, "When the banks can't repay their loans, the Federal Reserve and the whole country is in big trouble."
Regulators are “not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.
Federal Officials tried to prevent this information from becoming public for more than two years. The banks asked the Supreme Court to block the release of their names, and keep these transactions secret. The SCOTUS declined.
The authors also provide a poignant history, of what appears to be disingenuity, from Morgan Stanley, JP Morgan, and Goldman Sachs, all who made public statements denying they were in trouble. But, from what I can gather, they say, now, that any lack of complete candor was for the good of the nation, so they were actually being heroic.
The article closes with an worthwhile discussion by Kenneth Rogoff of moral hazard, where we questions whether or not the Federal Reserve's willingness to extend such colossal backup, may have led, or lead now to the banks taking on more risk, than they otherwise might.
These articles are chock full of fascinating and important information which I hope you all will help me pull out and analyze more in the comments, which are an open thread, on the broadest range of financial and economic topics.
Cheers.