U.S. Federal Reserve Secretly Loaned $1,200,000,000,000 in Public Money to Wall Street Firms
The U.S. Federal Reserve secretly loaned $1.2 trillion in public money to leading Wall Street firms in an attempt to keep the American economy from entering a depression in late 2008, a Bloomberg investigation has found.
Following months of litigation, an act of Congress and multiple Freedom of Information Act requests, Bloomberg has been able to put together an alarming list of figures of how much top Wall Street banks borrowed from the Fed, often an below-market interest rates.
The loans reached the $1.2 trillion mark on December 5, 2008 according to Bloomberg’s calculations.
Morgan Stanley was the top recipient of public funds, borrowing a staggering $107.3 billion. Citigroup got $99.5 billion. Bank of America took $91.4 billion.
And it wasn’t just American firms that benefited from secret Fed loans. The Royal Bank of Scotland borrowed $84.5 billion, Switzerland’s UBS AG took $77.2 billion, Germany’s Hypo Real Estate Holding AG received $28.7 billion and other firms in countries including France and Belgium also were assisted by Fed loans.
The $1.2 trillion in total secret fed loans is more than the gross domestic products (GDP) of all but 12 of the world’s countries. It is roughly equivalent to the GDP of Australia, the world’s 13th largest economy. The $1.2 trillion figure is also about the same as U.S. homeowners owe on the 6.5 million delinquent and foreclosed mortgages across the nation.
According to Bloomberg, $1.2 trillion in $1 bills would fill 539 Olympic-sized swimming pools.
The Fed tried to put a positive spin on the loans, pointing out that the central bank made $13 billion from interest and fees on the loans.
“We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer,” James Clouse, deputy director of monetary affairs for the Fed in Washington, told Bloomberg. “Nearly all of our emergency lending programs have been closed. We have incurred no losses and expect no losses.”
Still, such liquidity lifelines encourage excessive risk-taking by firms which borrow money from the Fed, and the assumption that easy bailout money is readily available can lead to risky behavior. This is known as ‘moral hazard.’
And speaking of morals, what does it say about our country that massive Wall Street firms get bailouts while ordinary citizens– homeowners and small business owners– got hung out to dry?
“Why in the hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” Rep. Walter B. Jones (R-NC) asked at a June 1 congressional hearing 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?”
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