Moral Low Ground

Economy

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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10 Comments

  1. wildSeptember 10, 2011 at 2:59 pmReply

    Someone lied to the R from NC. Does it make sense that interests rates have NEVER been so low, for so long…and no one can get a practical loan? Just ask for a ‘small business loan’ and the sky is the limit, literally!

    Also this story is not new http://www.federalreserve.gov/newsevents/press/monetary/20101201a.htm
    but a huge thankyou to Bloomberg for the FOIA request that disclosed this previously ‘secret’ information. An easy way to find most of the documents in one place is at: http://www.propublica.org/special/search-the-feds-documents-detailing-lending-to-banks (be sure to ‘allow’ documentcloud on your browser to get to the documents)

    wild;)

  2. collinSeptember 18, 2011 at 11:28 amReply

    As a small business owner I can attest to the difficulty in getting a loan. Sure rates are low but u need a completely spotless credit history to qualify @ any interest rate. One medical bill that hasn’t been satisfied and you’re outta luck. I have decent credit and could go buy a new car or get a personal credit card but can’t qualify for a mortgage or an sba.

  3. RyanSeptember 26, 2011 at 7:15 pmReply

    It’s bad that the fed is able to do this, but at least their making money back on it. i can understand helping out businesses rather than individuals – if the businesses fail there’s even more individuals to help. and it’s more likely a large firm will be able to repay their loan.

  4. DeanSeptember 29, 2011 at 10:34 amReply

    It is NOT SAFE to obtain a loan from a bank; there are too many rackets and scams out there to STEAL your small business income/assets and flip it back into their fraudulent economy. Pull out all Investments from Wall Street, sell your gold/silver and/or network in your community for citizens to buy shares in your small business.

  5. joeOctober 8, 2011 at 7:10 amReply

    The loan was much larger, you are only reporting what the Fed let you find out. The mainstream media’s attempt of trying to side with the public is way to little, and way way to late. Nice try but no cigar.

  6. jeffOctober 8, 2011 at 8:48 amReply

    I tried to get a business loan from a bank that my family has been with forever. had a home loan and investments. tried to get a business loan and was rejected, however, i could get a home equity loan and finance my business that way. long story short, they’re turds. Peace all.

  7. JamesOctober 8, 2011 at 9:15 amReply

    Ryan,

    It might appear like they are making their money back on it, but that is only an illusion. There is now more money owed in the world than there is money in the world. And since all new money is created and then loaned at interest, there will never be enough money to satisfy all the debt.

    The debt is utterly intractable. It is being shifted around the globe to delay the inevitable. It’s like using one credit card to pay off another credit card over and over again. The interest eventually annihilates the principle, such that the debt becomes like collapsing star. We are headed straight in to economic super nova.

  8. Michael R. OwensOctober 9, 2011 at 5:08 amReply

    IN A “REPUBLIC” THIS WOULD NEVER HAVE HAPPENED. DEMOCRACY SUCKS!…MIKE…

  9. RayOctober 9, 2011 at 12:14 pmReply

    Who,what, WHEN, where?????

    What happened to the dates?? Very important to publish dates.

    • Brett WilkinsOctober 9, 2011 at 9:58 pmReplyAuthor

      Journalism 101… thanks for the refresher. These loans took place during 2008, peaking on December 5. I added this to the post.

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