The Federal Reserve given big bucks to banks and wall street?

LTC Private RallyPoint Member — Wed, 04 Nov 2015 13:39:49 -0500

Another WTF moment in the Obama administration. $9-TRILLION, REALLY?

http://realitieswatch.com/9-trillion-dollars-missing-federal-reserve/

NEW YORK (CNNMoney.com) -- The Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data released Wednesday.

The loans were made through a special loan program set up by the Fed in the wake of the Bear Stearns collapse in March 2008 to keep the nation's bond markets trading normally.

The amount of cash being pumped out to the financial giants was not previously disclosed. All the loans were backed by collateral and all were paid back with a very low interest rate to the Fed -- an annual rate of between 0.5% to 3.5%.

Still, the total amount was a surprise, even to some who had followed the Fed's rescue efforts closely.

"That's a real number, even for the Fed," said FusionIQ's Barry Ritholtz, author of the book "Bailout Nation." While the fact that the markets were in trouble was already well known, he said the amount of help they needed is still surprising.

"It makes it very clear this was a very serious, very unusual situation," he said.

Sen. Bernie Sanders, the Vermont independent who had authored the provision of the financial reform law that required Wednesday's disclosure, called the data that was released incredible and jaw-dropping.

"The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution," Sanders said.

He said that even if the Fed was right to make the loans to keep the economy from toppling into a depression, it should have made stronger demands that the banks help American consumers and small businesses.

"They may have repaid their loans, but that's not good enough," he said. "It's clear the demands the Fed made were not enough."

The Wall Street firm that received the most assistance was Merrill Lynch, which received $2.1 trillion, spread across 226 loans. The firm did not survive the crisis as an independent company, and was purchased by Bank of America (BAC, Fortune 500) just as Lehman Brothers was failing.

Citigroup (C, Fortune 500), which ended up with a majority of its shares owned by the Treasury Department due to a separate federal bailout, was No. 2 on the list with 279 loans totaling $2 trillion. Morgan Stanley (MS, Fortune 500) was third with $1.9 trillion coming from 212 loans.

"As we have previously disclosed, Morgan Stanley utilized some of the Federal Reserve's emergency lending facilities during a time of immense financial turmoil throughout the banking sector and the broader market," Morgan Stanley said in a statement Wednesday. "The Fed's actions were timely and critical, and we commend them for providing liquidity and stabilizing the financial system during that period.''

The largest single loan was by Barclays Capital, which borrowed $47.9 billion on Sept. 18, 2008, in the days after the Lehman bankruptcy. The loan financed Barclays' purchase of Lehman's remaining assets.

Some Wall Street firms disputed the way the Fed reported the numbers. An executive from one of the firms said that many of the overnight loans were rolled over for days at a time, and that each day it was counted as a new loan. "It's being double, triple, quadruple counted in some cases," said the executive.

Can our opinion of banks get any worse?
Not all the major banks needed much help from the Fed. JPMorgan Chase (JPM, Fortune 500) received only three loans from this program for a total of $3 billion.

The last loan was made under the program in May 2009, and the program, known as the primary dealer credit facility, was officially discontinued in February of this year.

The Federal Reserve revealed details of that program as part of a large scale release of data on all the steps it took to stabilize the nation's financial sector during the markets crisis of the last few years.

The central bank posted details of more than 21,000 transactions with major banks and Wall Street firms between December of 2007 and July of 2010.

In addition to the loan program for bond dealers, the data covered the Fed's purchases of more $1 trillion in mortgages, and spending to back consumer and small business loans, as well as commercial paper used to keep large corporations running.

The rescues of the investment bank Bear Stearns in March of 2008, and insurance behemoth AIG in September of that year, were also revealed in far greater detail, as were programs to make dollars available to foreign central banks in return for their currency, in order to keep international trade flowing.

The Fed's full data
Most of the special programs set up by the Fed in response to the crisis of 2008 have since expired, although it still holds close to $2 trillion in assets it purchased during that time.

The Fed said it did not lose money on any of the transactions that have been closed, and that it does not expect to lose money on the assets it still holds.

The details of which banks participated in the Fed's emergency programs, and how the banks benefited from the transactions, had never before been revealed.

The Fed argued that revealing the information could cause a run on the banks that needed to draw cash at the discount window. But under the financial regulatory reform act that was passed in July, the Fed will reveal future discount window transactions following a two-year lag

Fed made $9 trillion in emergency overnight loans

Federal Reserve reveals details of more than 21,000 transactions it had with banks and Wall Street firms during height of financial crisis.

Response by SCPO David Lockwood made Nov 4 at 2015 1:41 PM

SCPO David Lockwood — Wed, 04 Nov 2015 13:41:30 -0500

Why is that? Let them dig themselves out of the whole they dug themselves into. No one is offering to bail me out!

Response by Capt Seid Waddell made Nov 4 at 2015 1:42 PM

Capt Seid Waddell — Wed, 04 Nov 2015 13:42:49 -0500

That is in addition to the $10 trillion they have added to the debt.

And you can see what this has done to our currency.

https://research.stlouisfed.org/fred2/series/BASE

St. Louis Adjusted Monetary Base

Series: BASE, Bil. of $, Bi-Weekly, Ending Wednesday, 1984-02-15 to 2015-10-28, SA, FRED: Download, graph, and track economic data. Tags: nation, usa, sa, frb stl, adjusted, monetary base, bi-weekly.

Response by COL Ted Mc made Nov 4 at 2015 1:46 PM

COL Ted Mc — Wed, 04 Nov 2015 13:46:10 -0500

LTC Private RallyPoint Member - Colonel; "Overnight" loans are exactly that. They have to be paid back the next day (plus interest).

Response by SPC(P) Private RallyPoint Member made Nov 4 at 2015 1:55 PM

SPC(P) Private RallyPoint Member — Wed, 04 Nov 2015 13:55:33 -0500

This is a false characterization and by all means I am not an Obama supporter. However, overnight loans are from bank to bank through the FED to be paid back with interest. Essentially if Bank A has excess reserves at the end of the day, they call up the New York Federal Reserve Bank and say they have X dollars to loan out, Bank B has someone wanting to take out loans, and they do not have the excess reserves to supply it, so they call up the NY FED who then provides them an overnight loan of Bank A's excess reserves, to be paid back at an interest rate set by the FED.

Response by SSgt Alex Robinson made Nov 4 at 2015 2:25 PM

SSgt Alex Robinson — Wed, 04 Nov 2015 14:25:39 -0500

We need to stop spending money we don't have

Response by 1SG Private RallyPoint Member made Nov 4 at 2015 2:36 PM

1SG Private RallyPoint Member — Wed, 04 Nov 2015 14:36:18 -0500

This is what the Federal Reserve Bank is for. Inter-bank loans are exactly it's purpose for being. It lends capital ALL THE TIME and has for decades, for the purposes of supporting transactions. This is why the mortgage rates are closely tied to the Prime Lending Rate set by the Fed.
The net effect of this is a product of runs on banks in 1929. Back in the day, a "Savings and Loan" literally had to have at least as much on deposit as it did out on loan, and a high percentage of it had to be on the premises in the vault. The Great Depression started the big changes in banking that we know today.
Originally, the Fed had to have on deposit a Gold Reserve to back the amount of currency in circulation, just in case people took the option to "pay the bearer on demand" as was printed on old paper currency. That was mostly kept at Fort Knox, with smaller amounts at the three mints and other secure locations.

Response by CPT Jack Durish made Nov 4 at 2015 2:42 PM

CPT Jack Durish — Wed, 04 Nov 2015 14:42:16 -0500

All discussion threads referring to economics should begin "Abandon all hope ye who enter here". If monetary policy is being discussed, "You deserve whatever you get." I studied both in college under duress and yet, it seems that those in elected office know even less than I. Thus, The Fed may be doing well or worse and no one is the wiser. Statements such as "Fed made $9 trillion in emergency overnight loans" is meaningless for most. I suppose the word "emergency" is what scares most of us. It implies that something went terribly wrong. If it had merely said that "Fed made $9 million in overnight loans" I would side with those who interpret the news as routine. (Does anyone know what the Fed's "routine" actually looks like?) However, that word "emergency" is disconcerting, isn't it? It implies that there was a mistake or an accident that had to be fixed. Can we afford a "$9 trillion fix"? I doubt it. Then again, can we afford a $20 trillion debt. Hell no. But we've become inured to that. Can we become inured to a $9 trillion fix? For those who suffered this far let me close with one simple observation: I don't trust the people who are supposed to be minding the store. Do you?