Posted on Nov 4, 2015
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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
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SPC(P) Civil Affairs Specialist
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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.
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1SG Claims Assistant
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Yes.
And contrary to many people's belief, that is exactly what the Federal Reserve Bank is for.
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MCPO Roger Collins
MCPO Roger Collins
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1SG (Join to see) - The article was from 2010 and has been discontinued. The article quotes Bernie Sanders and actually says something I can agree on. It was supposed to be a short term program. Where do the Fed top execs come from? Where do they end up after their stint with the Fed?
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SSgt Alex Robinson
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We need to stop spending money we don't have
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COL Ted Mc
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LTC (Join to see) - Colonel; "Overnight" loans are exactly that. They have to be paid back the next day (plus interest).
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MCPO Roger Collins
MCPO Roger Collins
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The Federal Reserve has a -$4T balance sheet. Where does the cash come from to loan this huge amount of overnight loans and how is it backed should they default? The printing presses just keep on printing.
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COL Ted Mc
COL Ted Mc
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MCPO Roger Collins - Master Chief; You could have an overall negative balance at your bank but still have money in your current account. (All you have to do is factor in your mortgage.)

The "spot cash" market works on the fact that people have money that they don't have to pay out RIGHT NOW so they can use it until they actually have to pay it to someone else.

PS - If your bank had to pay out every dime it owed people all at once - it couldn't. In the US, banks are required to have a reserve requirement (also known as a liquidity ratio) which varies according to the size of the bank. As of 23 JAN 14, institutions with net transactions accounts:

[1] of less than $13.3 million have no minimum reserve requirement;
[2] between $13.3 million and $103.6 million must have a liquidity ratio of 3% of liabilities; and
[3] exceeding $103.6 million must have a liquidity ratio of 10% of liabilities.

So, on a good day, you can count on the average bank being able to pay out a MAXIMUM of 10% of the amount of money it owes. Any demand for more than that amount causes a "banking crisis".
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MCPO Roger Collins
MCPO Roger Collins
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COL Ted Mc - And here I was mistaken to think we were discussing the Federal Reserve. Oh wait, we were! The Fed has self imposed rules that are quite different from the commercial banks. In fact, if you look up the history of the Fed it becomes obvious how this all gets organized to assist the commercial banking system. It took three times to get one that was acceptable and has lasted. We still have a Federal Reserve that is politically motivated and has more interest in protecting the current president than actually stabilizing the dollar. Yellen has been called the most political Fed Chair in history. Could they withstand the "stress test" that is required by all other banks, possibly with the exception of those "too big to fail"?
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COL Ted Mc
COL Ted Mc
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MCPO Roger Collins - Master Chief; We were talking about "overnight loans" and whether those "overnight loans" added to the national debt if they were repaid the next day.

As long as the "withdrawal demand" does not exceed the "payment capacity" then ANY organization is (effectively) solvent - even though it takes accounting that makes writing cheques on one bank account to cover a shortfall on another bank account with the intention of depositing money into the second bank account before the cheque is presented to that bank look like it actually makes sense.

If EVERY debt that the United States of America were presented for payment at the same time, there would only be around $1,390,000,000,000 available cash to pay off around $18,511,936,000,000 in debt (that's around 7.508% of the total owed). That would also mean that there wasn't a dime left for ANYONE to spend. There isn't a single financial institution that is "too big to fail" although there are several that are "too big to be allowed to fail".

A useful site which tracks the national debt in real time is

http://www.usdebtclock.org/
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