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Fed Audit's Initial Report Reveals Trillions in Secret Loans
An anonymous reader writes "The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression."
Its not some sort of secret, it has been disclosed by the Fed in their annual reports as required by law.
http://finance.fortune.cnn.com/2011/07/08/surprise-the-big-bad-bailout-is-paying-off/ Fortune Magazine Article
OK, so they loaned out a truly epic amount of money. A reasonable thing to do during a crisis: you borrow money to get through the bad times, then you pay it back when times are better.
The questions are:
* Did they pay it back?
* Did they pay interest?
* How much?
I don't really care about the absolute dollar figure: this was an international crisis and the dollar figures are going to be proportional to the size of economies, which will measure in the trillions. As long as the net result was that the economy survived (which it did), that it didn't blow up inflation rates (which it didn't; inflation was negative for a while), and that in the end the books balance (thus my questions).
It may well be that the interest rates were so low as to be questionable, especially given that the banks have been giving nonexistent interest to depositors and have been very chary about turning that money around to investment. But I'm not going to wring my hands over the size of it. I'm more concerned about the terms.
A) These are loans, almost all of which get paid back.
B) this is not a secret. Just because something goes on you didn't know about, doesn't mean it was a secret. It just means you where ignorant.
C) This benefits the US. The US MADE money from this.
I just had to get that out there, I know it wont stop the frothing lunatics.
The Kruger Dunning explains most post on
But Ron Paul does not advocate return to pure gold standard, he advocates allowing competing currencies, some backed by gold, other by silver, third by "trust in US Government", and letting people/markets decide which one do they prefer.
Because multiple competing currencies worked so great during the Articles of Confederation days, right? Oh wait, it was an abysmal failure.
As a poster suggested above, these were overnight loans that were almost immediately repaid.
Here's the deal on this: Ron Paul is one of the minority in Congress who actually believes what he's saying and isn't for sale. It's actually not unusual for him to ally himself with the likes of Bernie Sanders (S-VT) and Dennis Kucinich (D-OH), because he will come to the same conclusions they do for completely different reasons. For instance, Kucinich and Paul have worked together trying to stop the war in Libya. Dennis is against it for typical liberal peacenik reasons like thinking it immoral to bomb people who present no threat to the United States. Ron is against it because he thinks of big military spending as tax-and-spend big government.
Now, Paul has been pushing "audit the Fed" from a conservative angle for years. Sanders, on the other hand, actually managed to get it into law. Kudos to both of them for making the right decision.
I am officially gone from
Both are pretty bad actually.
Gold is valuable as a currency because it looks pretty, doesn't have many industrial uses, is difficult to counterfeit, and cannot be created infinitely by the controlling authority. There's no artificial scarcity involved with gold like their is with paper money. Classically, staying on the gold standard was a good idea because almost every attempt to create a paper currency throughout history ended in the controlling authority (the monarchy usually, the Fed and congress in our case) printing more money to cover their debts until inflation rendered the currency worthless.
Unfortunately, when the population and economy expand, the money supply has to expand with it. When administered responsibly (I.E. not just printing more money to cover debts), a paper money supply can be controlled much more finely. The gold supply expands in a fairly unpredictable way, controlled by how fast mining can be done, which can be completely unrelated to current economic conditions.
Basically, if you have a responsible and knowledgeable administrator, fiat currency can be superior to the gold standard. If you have an irresponsible administrator, fiat currency can and will turn into economic doomsday.
It's on page 131, table 8, bottom right:
In short, it's a pretty absurdly inflated number. Loaning 10 billion for 1 day, and doing it for 30 days, is counted as 300 billion of loans, rather than a 10 billion 30-day loan.
"Table 8 aggregates total dollar transaction amounts by adding the total dollar amount of all loans but does not adjust these amounts to reflect differences across programs in the term over which loans were outstanding. For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30
business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30... In contrast, a TAF loan of $10 billion extended over a 1-month period would appear as $10 billion. As a result, the total transaction amounts shown in table 8 for PDCF are not directly comparable to the total transaction amounts shown for TAF and other programs that made loans for periods longer than overnight"
Further, this is pretty much regular operations of the Fed as part of their work in stabilizing the economy through monetary policy. It's what they were made to do.
The GAO is pointing out failures in controls. Offering some perspective as a public company auditor (not a government auditor) I see failures in control all over because there is the concept of an ideal control environment, but every control represents additional costs and times, and general inefficiency. It adds hoops to jump through to get things done. At some point companies look at the risk and the cost needed to implement additional controls on that risk and decide that it's not worth it to strive for 100% security against a problem that may or may not exist. However, auditors point out these risks because that's their job, and the risks are real, whether or not the cost/benefit makes sense. In this specific case, revolving around conflicts of interest, there's only so much you can do, but considering the nature of the issue, it is damned important to have strong controls in these area. In summary, it's not suprising to see control deficiencies, and control deficiencies are not evidence of fraud or misstatement, but it's always better to have less control risk.
You're deluded if you don't think inflation isn't a problem. You're also nuts if you think all of these commodity spikes are somehow "speculation" driven.
Ron Paul follows the Austrian school of economics. They believe that mathematical models and statistics can't be used to analyze economics, and that you cannot conduct tests are experiments to determine the validity of economic theories. You just have to reason it out from first principles. It is basically a rejection of the idea that economics can be developed as a science or based on real world data.
They are essentially the economic equivalent of creationists, rejecting science. A Ron Paul economy would be a disaster.
Maybe he'd be better on non-economic issues. Oh wait--he's tried three times now to use an underhanded legislative trick (jurisdiction stripping) to make it so the Constitutional prohibition of establishment of religion would not apply to the states. Yeah, state sponsored religion--that's just what we need.
How about education? He supports spending public money on vouchers for Christian schools, but voted against vouchers for DC schools. I guess he thinks public schools are good enough for Black kids.
Votes no on pretty much anything designed to encourage development of clean energy or to reduce our dependency on oil.
Do Ron Paul supporters ever actually look into his record? Nearly all of them I've seen on the net seem to support him because he agrees with one or two of their pet issues, and they have no idea of how terrible he is on so many things.
. 13 other countries besides the U.K. had decided to abandon their currencies' gold parity in 1931. Bernanke and James' data for the average growth rate of industrial production for these countries (plotted in the top panel above) was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth. - this entire paragraph is ridiculous.
The US didn't begin a recovery in 1933 at all. US only recovered once the WWII ended, so the government stopped with the spending and the credit could be reallocated back into the private sector. 1929-1945 were the years of bail outs and stimulus. And when talking about 'output decline', yeah, that's their most important metric. For the government of-course, as when prices fall in a deflation, they collect less taxes and they owe money, so to a government this is a double hit - they collect less in taxes and they must repay debts in appreciating currency.
Of-course they hate deflation, but deflation is great for the consumer. FDIC was created to fight an imaginary problem - only 2% of deposits were wiped out during the Depression, but the prices fell by a much bigger amount due to the deflationary pressure, which was a healthy unwinding of the bubble, that the US government has created in the twenties, when it was buying UK debt, to prop up UK pound, so they inflated a huge bubble in agriculture, prices needed to go down and they fought it tooth and nail by printing so much money, it was obscene by those times.
The consumers who didn't have their deposits disappear, gained hugely from the increase in purchasing power, much more than 2%, as the prices for agricultural products were plummeting, and government was trying to keep the prices up then, just like it's trying to keep prices for houses and various companies (banks, GE, GM, etc.) up today.
Real gold standard wouldn't have let US to get into the Great Depression in the first place, because the Fed wouldn't be able to print money. The current depression wouldn't have happened either.
You can't handle the truth.