Fed Gave Banks Eye-Popping Emergency Loans, Without Telling Congress

An anonymous reader writes with this excerpt: "The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates, Bloomberg Markets magazine reports in its January issue."

Comments

Most do not know this but...

[AlienSexist]

The Federal Reserve is not a government institution. Is not Federal. Is not a Reserve. It is a private bank, run for profit, with shareholders. In some regions they are even correctly listed in the Business Pages rather than Government listings. A private bank does not necessarily need government approval to take actions with another bank. What is unique about the Federal Reserve is that it is a private enterprise delegated the responsibility to print the nations money. Decide for yourselves if that is a good or bad thing.

Re:Most do not know this but...

[iggymanz]

Not quite true, the Federal Reserve has both private and public components. http://en.wikipedia.org/wiki/Federal_Reserve_System

Re:Capitalism

[Anonymous Coward]

It's capitalism, meaning you can buy anything and do anything for profit. They just happen to change who gets the benefits, but it's still capitalism.

Re:Capitalism

[rhakka]

Doesn't have to be corporatism. Could be "richguyism" or, as it's commonly known, Plutocracy. However, it just so happens all that money is in corporations in our current economic structure.

Oh, and it's an inevitable result of laissez faire policies when capitalism is allowed to run amok. money is power. letting it all accumulate in the hands of a few just hands the reigns of power over to them.

Huh? [Re:Is that all?]

[Geoffrey.landis]

And before you bemoan corporate cronyism, that isn't the only problem. We give 100% of federal revenue to the old and the poor these days

Huh?

Do you mean social security? Let me remind you, that's not a hand-out; it's paid for. And it's not "100% of federal revenue".

In any case, if you're looking at the US budget, Defense, not "the old and the poor," is the largest share. Here's the discretionary portion of the budget: http://oranges-world.com/the-federal-budget.html

Re:Huh? [Re:Is that all?]

[lgw]

You're way off. Take a look at the link in my sig for the up-to-the-minute numbers. Also, I did say hand-out, I said money goven to the old and poor - the most favored political groups for spending, aside from corporations. Quick summary of the top 6 (as a percentage of revenue, spending is about 160% of revenue):

• Medicare - 36%
• Social Security - 31%
• Defense and wars - 30%
• Income Security - 18% (include a variety of programs for the poor, especially children)
• Interest on the debt - 9%
• Federal Pensions - 9%

Don't know why people think we spend the most on defense, it's less than 20% of the budget.

Another myth is that the social security you get is what paid for. The system completely doesn't work that way - your taxes pay for your parents and grandparents. Your kids and grandkids pay for you. Any "getting out what you paid in" in a comforting illusion - it's not a 401k, no money is saved or invested any more, the government spends every cent instantly these days (and would you ever expect them to do otherwise?!).

Re:Huh? [Re:Is that all?]

[Dcnjoe60]

You're way off. Take a look at the link in my sig for the up-to-the-minute numbers. Also, I did say hand-out, I said money goven to the old and poor - the most favored political groups for spending, aside from corporations. Quick summary of the top 6 (as a percentage of revenue, spending is about 160% of revenue):

• Medicare - 36%
• Social Security - 31%
• Defense and wars - 30%
• Income Security - 18% (include a variety of programs for the poor, especially children)
• Interest on the debt - 9%
• Federal Pensions - 9%

Don't know why people think we spend the most on defense, it's less than 20% of the budget.

Another myth is that the social security you get is what paid for. The system completely doesn't work that way - your taxes pay for your parents and grandparents. Your kids and grandkids pay for you. Any "getting out what you paid in" in a comforting illusion - it's not a 401k, no money is saved or invested any more, the government spends every cent instantly these days (and would you ever expect them to do otherwise?!).

I'm not a mathematician, but your percentages total more than 100% and don't include any spending for salaries and wages and all the other stuff the government spends money on. It could be because you are comparing apples with oranges in figuring your revenues and expenditures. And of course if your are going to include social welfare, you should include corporate welfare, also, which far outweighs all of the TARP money that was spent on the banks.

And of course, spending is up on social programs. The government is paying extended unemployment benefits for just under 9% of the workforce. As for social security, the government doesn't spend every cent instantly in the way you suggest. The SSA does purchase treasuries from the government, just like most pension funds do. Eventually, those treasury securities come do and are swapped for new treasuries, but technically, the funds are invested.

Re:Huh? [Re:Is that all?]

[lgw]

Quick summary of the top 6 (as a percentage of revenue, spending is about 160% of revenue): [snip]

I'm not a mathematician, but your percentages total more than 100% and don't include any spending for salaries and wages and all the other stuff the government spends money on.

Try that again - is it more clear now?

The SSA does purchase treasuries from the government, just like most pension funds do.

The SSA only has IOUs with no economic value these days. The "securities" it has can't be sold, and are only bookkeeping entries to remind us how much new tax revenue (or borrowing) will be needed to meet our promises. (Really - they're these unique bonds that exist nowhere else but the SSA, and the SSA can't sell them).

It's exactly as if you've borrowed all the money from your 401K. There's a fincancial instrument left in your 401K - your loan to yourself - but is has no ecoomnic value: every penny for your retirement has already been spent, and you now have to put a dollar in in order to get a dollar out! Yes, that's the kind of bastards our politicians are; I'm sure you're shocked.

Re:Huh? [Re:Is that all?]

[Dcnjoe60]

Actually, that isn't the budget, just a pie chart representing broad expense categories.

Welcome to how the US government does budgets. It worries about how to spend the money, not about how to get it.

. For instance, if social security is bringing in 22% of the revenue and only expending 20%, then the 20% expense is not a problem. For the record, I do not know what social security brings in, but it supposedly "solvent" for another 20 years, so even if it is deficit spending, it isn't impacting what current tax dollars are being used for.

There is no concept of "solvency" for Social Security. The bonds it supposedly holds are an accounting fiction (and wouldn't come close to covering its future obligations as you admit). It has no assets to speak of. And it is running a deficit now.

Do you own your house outright, or do you have a mortgage. If you have a mortgage, then you, too, just like the SSA, are deficit spending, by using debt to offset current needs.

Don't get me wrong, there are serious problems with revenues and expenditures of the federal government, but actual deficit spending is not the problem, but a symptom. As an example, the government collects fuel taxes that it then distributes. When the economy tanked in 2009, the government spent more on highway funding than it brought in. Was that a problem, no, because it came from previous reserves, or unspent fuel taxes, from prior years. In that case, a deficit is exactly what you would expect -- accumulated reserves are used to cover current costs or deficit spending.

The problem is that the government does not have the political strength to accumulate excess reserves in good times, so instead, it uses funds from other restricted sources, such as the SSA and those organizations hold the debt of the government. Or they sell debt to other countries, like China. Personally, I would much rather the debt of the US to be owned by its citizens then the Chinese, but that's not my call.

The SSA is solvent if its current revenues plus reserves cover its current expenditures, even if those reserves are held by the rest of the government. At that point where it does not, then it isn't solvent. Currently, it is solvent. At some point in the future, without an increase in revenues or a decrease in expenditures, it will become insolvent. The fact that they are running a deficit has nothing to do with it.

Re:Huh? [Re:Is that all?]

[lgw]

I stated that Social Security is a benefit that is paid for. That is to say: I pay money to social security, and in return for this payment, social security pays me when I retire. Is that clear enough?

You do know that a federal judge has ruled the opposite, right? Social secuity is a tax, and no more than a tax - the government has no legal obligation to pay you anything in return. The program has always worked that way - it's not like a 401K (but IMO it should be, how can anyone still trust our thieving government to hold the money?!).

, but they don't address my point that social security is a benefit that is paid for.

Social security is a benifit where some people pay money to other people, it is not any kind of savings plan. On average, the old are more wealthy than the young - why is the money flowing that direction again?

Re:Is that all?

[yincrash]

It was actually $7.7 trillion. Half of the US GDP. $13 bill. is the profits reaped by a rough calculation given the data they got. $7.77 trillion is the total amount committed to rescuing the financial system. TARP was only $700 billion. GDP of the US is $14.58 trillion.

Re:Arbitrage buys profit at the expense of trust

[k10quaint]

The real issue here isn't that the Fed made money available, but the disparity of interest rates between that at which the money was available to select parties and that which the open market would bear: that let the banks borrow massive quantities at virtually no interest, only to lend it back out at much higher interest rates. Pure arbitrage between the "emergency" funds' near-zero interest rate on a restricted market and the open market's willingness to pay interest. It's not even clear that the banks taking the loans were unhealthy--they may have just recognized the profitability of free temporary money that could be loaned out for more than it cost (arbitrage).

The alternative was banks start to go bust because they could not finance their day to day activities. Would that have been a problem given how smoothly Lehman Brothers went? The few billion the banks made on the discount window was dwarfed by the hundreds of billions they were hemorrhaging in asset and loan losses. The LIBOR rates of the open market were crazy high, and there was no liquidity behind them so using those rates for a comparison to determine "what the banks made" isn't really proper accounting. As soon as there was liquidity available and interbank lending started again, the LIBOR rates fell dramatically.

Re:Is that all?

[ncgnu08]

No 13 billion is the profit the banks made. The banks got 7.7 trillion at .001 interest rate, and then used that money to buy t-bills at a 3% yield. So basically our central bank loaned the banks money at a -3% rate. Why is this so hard to report correctly?

Re:Is that all?

[D'Sphitz]

We give 100% of federal revenue to the old and the poor these days.

Bullshit, all the cries of socialism and handouts for the lazy, criminal, and brown people are a charade to keep the crooks in power so they can continue to rob you while you blame socialism. A scheme that works quite well, apparently, so well that millions of people blame a guy who sleeps in an alley for their stolen wallet and take up arms to defend the billionaire who actually stole it, even sending more money to his campaign fund.

Welfare for the poor: $191 billion
Tax breaks and loopholes: $1 trillion
Welfare for millionaires: bailouts, corporate welfare, no-bid contracts, war profiteers: $trillions

So go on being so focused on boogeymen like socialism, sharia law, and global warming denial that you're oblivious to the real crimes, corruption and waste plaguing this shithole we absurdly proclaim "the greatest country on earth", you're following the script to a tee.

Re:Capitalism

[meta-monkey]

Indeed. I am a capitalist (I own two small businesses, that while things are way tougher today, are still in the black). I do not understand why other capitalists are mocking the OWS crowd. What those people are mostly protesting is corporatism, and that corporatism is hurting capitalists like me.

For instance, if I need a loan to expand my business today, it's really, really hard to get, even with an 800+ credit score and good financials. Lending rates are way down. Banks aren't lending anybody money. Why? Prime is .25%. US Treasury bonds are 2%+ on a 5-year not. Banks are borrowing money from the Fed at .25%, and then lending it to back to the government at 2%+. They are literally conjuring profits out of thin air. And we can't get in on that action because we're not a huge bank. That ain't capitalism...that's corporatism, and it's hurting every small business in america.

Re:The FED was created BY Wall Street FOR Wall Str

[Colin Smith]

No, it was created by Wall Street banks in order to save their asses when they screwed up and pump the leverage up too high. That's what it does.

The people who created the Federal Reserve were Wall Street:
http://en.wikipedia.org/wiki/Jekyll_Island#Planning_of_the_Federal_Reserve_System

Paul Warburg - Kuhn, Loeb & Co. (Rothschild) - Lehman Brothers
Frank Vanderlip - National City Bank of New York - Citibank
Henry P. Davison - JP Morgan
Benjamin Strong - JP Morgan
Charles D. Norton - First National Bank of New York - Citibank

Bank runs and failures prevent banks from becoming Too Big To Fail, and taking down the entire world economy. Which they did just as soon as they were able to ramp up the leverage (backed by the FED) during the "roaring" 1920s (can you say Credit Bubble?) until the inevitable result ... The Great Depression, Hitler, World War II etc.

Banks are fundamentally unstable organisations, they operate through leverage so small negative changes cause catastrophic results, and central banks as lenders of last resort provide insurance, which allow banks to lend with higher leverage than they would if they had no insurance. The losses are obviously then socialised. This is highly desirable if you happen to be a Wall Street banker. Lucky they've got one then eh?

That is, central banks make the problem bigger. Tada, here we are again. Great Depression? Greater Depression? Greatest Depression? Are we going to see World War III as the results continue to roll round the world?