Hippie: The other shoe drops
Not sure if you saw this article from Bloomberg News: http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
But the gist is that while the federal government was providing the 700 billion dollar TARP bailout, the Federal Reserve was providing about 7.7 trillion in loans to many of these same banks.
“TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says.”
So while the TARP money “insulated” the Fed from losses, the Fed continued to loan money to the banks at discount rates to ”protect” Treasury’s TARP investment. So the treasury and the Fed are protecting each other from losses by issuing discounted loans to the banks? Even if there is a perfectly legitimate reason for all the money moving and special privileges, forgive us regular folk if we feel left out of all this “protecting” and “insulating”.
“Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard — the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers.”
I have yet to see as good of an explanation of “too big to fail” as that. I’d like to phase out the use of that phrase since it has been used so much and replace it with “moral hazard” because as explained in the excerpt, I think it’s the operative concept here.
I had some other excerpts to point out but I want to get too far off track and I’m sure this Bloomberg report will be weaving its way in and out of our discussions to come. Frankly, 8 trillion dollars is a such a huge amount of money I don’t even know how to take this.
My first question would be: did the banks pay back the Fed these loans? Language I’m seeing isn’t making that clear. If they did, I think the crux of the argument stays the same but is exacerbated by the magnitude of lending we’re seeing here.
You can probably still make the same argument that it’s different giving money to these big banks than to the states because the banks are likely to pay them back.
I can probably still make the same argument that it’s not the idea of lending and paying back that bothers people but the head-spinning rapidity with which the financial services sector receives help as compared to the average person or even local governments’ access to help from societal institutions. The jaw dropping amount of 7.7 trillion in quickly doled out loans (the linked article gives a portrait of time frame and specific loan amounts) only serves to demonstrate how rigged for the elites the system is when you think about the fact that our congress debates and deliberates over unemployment benefit extensions and a payroll tax cut for the middle class but doesn’t seem to take all that much time at all to give financiers all of the help they need. The 7.7 trillion figure can’t help but make me think about mortgage relief for regular Americans or a bailout for the states and how such projects could be financed with even a fraction of the kind of money being dealt with in these Federal Reserve transactions.
I recently watched all of Barney Frank’s Charlie Rose interviews at the below link.
In one of the post-crisis interviews he talks about how Ben Bernanke was basically walking around with a trillion dollars in his back pocket with which to save the global economy. Congressman Frank talked about how no man should ever have such a burden; if he only knew.
Something to key to keep in mind regarding what is detailed in the Bloomberg report(http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html) , Congress was kept in the dark about these transactions until Bloomberg News successfully extracted the needed documentation with a Freedom of Information Act request. I am not even fully sure how to react to this, the amount of money is just so staggering but here’s a start:
The Bloomberg headline was: Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress.
The 13 billion is referred to in the article later on and it seems to basically be the profit that the 6 biggest banks in the country made as a result of the remedying methods of the Federal Reserve and the Treasury department. This is crazy to me, that trillions would be spent, measures rammed through Congress, a people enraged all so that 6 companies could see a few billion when they expect to?
Give me liberty or give me a break!