Fed Audit: Trillions For Foreign Banks, Conflicts of Interest

New American ^ | 7/22/2011 | Written by Alex Newman

[ex-Texan]

During a 2½ year period starting at the end of 2007, the Federal Reserve provided more than $16 trillion in secret bailouts to banks and other companies around the world, according to a government audit of some of the U.S. central bank’s operations.

Much of the Fed's largesse was lavished on banks in Europe (such as Barclays, left)  and Asia, the audit revealed. More than $3 trillion, for example, went to financial institutions in just five European countries. Trillions more flowed toward some of the biggest banks in America. Institutions from Brazil and Mexico to South Korea and Canada also benefited.

The 266-page report, produced by Congress’s non-partisan investigative service known as the Government Accountability Office (GAO), has already sparked intense outrage since its release on July 21. Fed apologists, however, have been quick to defend the actions, saying they were “necessary” to “save” the economy and justified under the Federal Reserve Act.  

“The scale and nature of this assistance amounted to an unprecedented expansion of the Federal Reserve System’s traditional role as lender-of-last-resort to depository institutions,” the report stated.

Beyond the secret bailouts — to put the figure in perspective, consider that the output of the entire U.S. economy last year was well under $15 trillion — problems with conflicts of interest and no-bid contracts also featured prominently in the audit report.

One example highlighted by Sen. Bernie Sanders (I - Vt.) was the CEO of JP Morgan Chase serving on the board of the New York Fed even as his firm scooped up almost $500 billion from the central bank. The bank was simultaneously helping to administer the Fed’s secret bailouts.

But JP Morgan Chase was hardly the only example. According to the analysis, more than 80 percent of the Fed’s largest contracts to manage the programs were awarded without bidding.

Many of the companies that received the contracts were also being showered with central-bank bailouts at the same time. And more than a few insiders were granted “waivers” to hold investments in companies that were being rescued by the Fed.

"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," Sen. Sanders, a self-described socialist, said in a statement about the report. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

The congressional investigation was triggered as part of the financial “reform” bill passed last year despite strong Fed opposition. After the original “audit the Fed” bill by Rep. Ron Paul (R-Texas) passed in the House and became extraordinarily popular with Americans, Sen. Sanders helped ensure that only a watered-down version made it out of the Senate.

But even with what is known so far, critics are on the attack. Another report about the Fed is also due to be released in October of this year. And in recent months, other previously secret information about the Fed and its operations has come out following years of litigation.

All of the disclosures have fueled a growing anti-Fed movement aiming to eventually abolish the central bank - essentially a sort of banking cartel with private shareholders but some veneer of government oversight. Sen. Sanders suggested in his public statement, however, that the institution should merely be “reformed” to serve "working families" and not just Wall Street CEOs.

"No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," he noted in the statement, perhaps not realizing that the Fed, by its own admission, is not an agency of the government. "No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed's board of directors or be employed by the Fed."

The biggest single beneficiary of the Fed’s bailouts was Citigroup, which received about $2.5 trillion in assistance. Several other top banks in the United States, including Bank of America and Morgan Stanley also benefited to the tune of trillions of dollars. British bank Barclays PLC took close to $1 trillion.

The GAO report suggested that the Fed should implement better policies to deal with conflicts of interest. Its policies on awarding contracts, record keeping and risk management should also be revised, the agency recommended.

The Fed’s chief lawyer responded by saying that the central bank would “strongly consider” the advice. But for now — following bailouts to a bank owned by Libyan dictator Muammar Gaddafi, blatant and widespread market manipulation, wild money printing, and secret bailouts larger than the U.S. economy — analysts expect outrage to continue growing.   

Photo: The Barclays Group is based in Canary Wharf in London's financial district.

[ex-Texan]

All of the disclosures have fueled a growing anti-Fed movement aiming to eventually abolish the central bank - essentially a sort of banking cartel with private shareholders * * * [with a purely vague veneer of government oversight.] * * *

"No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," he noted in the statement, perhaps not realizing that the Fed, by its own admission, is not an agency of the government. "No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed's board of directors or be employed by the Fed."

Those two paragraphs express my disgust perfectly. I say arrest these greedy bastards -- prosecute them for multiple felonies including treason -- and then throw away the keys to their prison cells.

But some people say these type of sentiments got JFK into major trouble and we all know what happened to him. 'Nuff said by me on FR

[ex-Texan]

* Ping* !

[SpaceBar]

Fed apologists, however, have been quick to defend the actions, saying they were “necessary” to “save” the economy...

Just not our ecomomy.

[count-your-change]

Just knowing that JP Morgan Chase, et al, is safe is enough for me.

[PieterCasparzen]

The begginnings of what caused the Fed to audaciously lend all over the world to the tune of trillions all starts with the Community Reinvestment Act of 1977. It is unconstitutional - and extremely unwise - for the government to dictate to banks regarding their loan practices.

Over the succeeding decades, government, prodded by activist groups, gained more influence in the marketplace. Government “guaranteed” mortgages, low-income housing, FHA - it’s all about favoring and controlling in the marketplace.

As the Fed tried to prop up the economy a few years ago and created the housing bubble, the Federal government had such an incestuous relationship with Wall Street and the wealthy - and was hopeful that Wall Street could simply spread the enormous risk of U.S. housing market default all around the world - that it did not even attempt to regulate CDOs and hedge funds.

When the defaults happened, Congress created as many sideshows as possible to distract the general public. The Fed, ever trying to smooth things over like a neurotic who just “wants everything to be ok”, was the one to go make amends around the world for the enormous losses which originated from Congress and the beast it created - the U.S. Federal bureaucracy.

If we deprive the Fed the ability to prop up and clean up, there is one critical change that needs to be made first: we need to eliminate the capability of Congress to overspend and bankrupt the U.S. government, and we need to eliminate the capability of it to create such enormous messes by meddling in markets.

It is, IMHO, becoming painfully obvious that the fox can no longer have the assignment of guarding the hen house.

However, simply flailing about making draconian changes will undoubtedly result in the same level of misery that will be caused by staying on the current course.

The challenge is to see where we are now, where we need to be, and how to get there.

IMHO, it is high time for a simple, elegant restatement of the governmental framework in a far simpler form; some Constitutional Amendments to clarify intent - so even a lawyer can’t misuse the intended meaning - and to create a sandbox that Congress can play in but can’t destroy the nation by passing ever crazier legislation.

[HeartlandOfAmerica]

Let's see. someone correct my math here:

16,000,000,000,000 / 300,000,000 = 53,000 per american citizen, the primary drivers of the American Economy. How many small businesses could have been started with that money to further accelerate the growth of the economy, increase the tax base and reduce the unemployment rate..

So much for the stewards of the American purse.

hate to say it. REALLY hate to say it, but in a lot of ways Ron Paul makes sense.

[steveab]

For later study

[RSmithOpt]

Just the tip of the iceberg exposing the immensity of the global derivatives Ponzi Scheme ($500-$700 trillion) which was the vehicle put in place to skim the cream and grow all goobermints on a global scale while conveniently destroying the US middle class..

Now it's time to pay the fiddler and the socialists cannot stand it.----The socialists have been Thatchered.

[RSmithOpt]

" If we deprive the Fed the ability to prop up and clean up, there is one critical change that needs to be made first: we need to eliminate the capability of Congress to overspend and bankrupt the U.S. government, and we need to eliminate the capability of it to create such enormous messes by meddling in markets."

BINGO!!

Hmmmmm.....anything like the 1 minute 250 million ounce silver commodity dump that occurred around 07/17 as a means to prop up the USD?

[bobk333]

>Just knowing that JP Morgan Chase, et al, is safe is enough for me.

But why wasn't Washington Mutual saved?

Why did the Fed bail out all of those foreign banks, but let WaMu, the sixth largest American bank and the largest on the west coast, go down? WaMu was by far -- nothing even close -- the largest bank failure in American history. The FDIC seized their assets and sold them to JPMorgan Chase for a bargain basement price of $1.9 billion, just pennies on the dollar.

Now the report is saying that the CEO of JPMorgan was on the board of the New York Federal Reserve and managed to get the Fed to give his own bank $500 billion.

That is not right. Why did they prop up JPMorgan and the foreign banks and let, Washington Mutual, the west coast bank that was out of the insiders loop, die? And why did they give WaMu to JPMorgan for a mere $1.9 billion after bailing JPMorgan out for $500 billion?

I'm sensing that the corruption here went well beyond the conflict of interest of the JPMorgan CEO being on the New York Federal Reserve board.

.

[giotto]

Meanwhile, our cities are cutting their police force and fire departments in half, small businesses are closing right and left, taxpayers are taking out loans to pay their taxes, and and Obama threatens to cut medicare and social security.

But anyone who complains about this outrageous situation is a potential terrorist.

[org.whodat]

You need a calculator with more o’s on it.

[maddog55]

Guess it’s me but the $16T number doesn’t make any sense.

[org.whodat]

Try reading about Phil gramme credit modernization act, before you jump the shark, it allowed the 650 Trillion of derivatives to get circulated. And AIG is still n business.

[wastoute]

Arrest, arraign, prosecute, and then long, long prison sentences. These bastards have stolen the entire productive output of the U.S. For a year and then some.

[count-your-change]

I usually don't mark my sarcastic comments as such but rather assume anyone reading here is savvy enough to understand.

You said, “Why did they prop up JPMorgan and the foreign banks and let, Washington Mutual, the west coast bank that was out of the insiders loop, die?”

I rather suppose you've answered your own question. Of course the depths of corruption will never be fully plumbed so there will always be questions.

But this I will easily predict: No one will go to jail or have to sell their summer house in Connecticut to pay legal bills or really have to explain their malfeasance so long as they stick to the script.

[9YearLurker]

Certainly $2.5T didn’t go on the balance sheet of Citicorp, so I’m assuming they are counting short-term, essentially revolving, loans and repayments from and to the Fed. That is, the same money lent over and over again.

That said, Ron Paul is essentially right about the Fed, and if it can’t be substantially reformed and trimmed it should, gulp, be abolished.

[Liz]

REFERENCE Behind The Real Size of Obama's Wall Street Bailout (more like $14 trillion)
Mother Jones | Dec. 21, 2009 / FR Posted January 04, 2010 by E. Pluribus Unum

A guide to the abbreviations, acronyms, and obscure programs that make up the $14 trillion federal bailout of Wall Street.

The price tag for the Wall Street bailout is often put at $700 billion—the size of the Troubled Assets Relief Program. But TARP is just the best known program in an array of more than 30 overseen by Treasury Department and Federal Reserve that have paid out or put aside money to bail out financial firms and inject money into the markets. To get a sense of the size of the real $14 trillion bailout, see our chart here. Below, a guide to the pieces of the puzzle:

Treasury Department bailout programs (controlled by Rahm Emanuel)

Money Market Mutual Fund: In September 2008, the Treasury announced that it would insure the holdings of publicly offered money market mutual funds. According to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), these guarantees could have potentially cost the federal government more than $3 trillion [PDF].

Public-Private Investment Fund: This joint Treasury-Federal Reserve program bought toxic assets from banks and brokerages—as much as $5 billion of assets per firm. According to SIGTARP, the government's potential exposure from the PPIF is between $500 million and $1 trillion [PDF].

TARP: As part of the Troubled Asset Relief Program, the Treasury has made loans to or investments more than 750 banks and financial institutions. $650 billion has been paid out (not including HAMP; see below). As of December 21, 2009, $117.5 billion of that has been repaid. Government-sponsored enterprise (GSE) stock purchase: The Treasury has bought $200 million in preferred stock from Fannie Mae and another $200 million from Freddie Mac [PDF] to show that they "will remain viable entities critical to the functioning of the housing and mortgage markets." GSE mortgage-backed securities purchase: Under the Housing and Economic Recovery Act of 2008, the Treasury may buy mortgage-backed securities from Fannie Mae and Freddie Mac. According to SIGTARP, these purchases could cost as much as $314 billion [PDF].

--SNIP--- long read

Federal Reserve bailout programs

Commercial Paper Funding Facility: With the support from the Treasury, the Fed established the CPFF in October 2008 to increase the availability of short-term debt (commercial paper) funding. Up to $1.8 trillion [PDF] was earmarked for the program.

Mortgage-backed securities purchase: In 2009, the Fed earmarked up to $1.25 trillion to buy investments based on home loans.

Term Asset-Backed Securities Loan Facility: TALF provides financing to investors who are buying asset-backed securities. In February 2009, the Fed and Treasury announced an expansion of the program to generate up to $1 trillion in new lending.

Foreign Central Bank Currency Liquidity Swaps: The Fed has provided $755 billion [PDF] for currency liquidity swaps with foreign central banks.

--SNIP--- long read

[grey_whiskers]

(Vanity) On Beyond Zillion, by Dr. Sue-us (with a nod to Fredrich Hayek)

Cheers!

[WellyP]

I missed what percentage of that debt was repaid TO the FED with interest?