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talkpoliticsWall Street Banks Earned Billions In Profits Off $7.7 Trillion In Secret Fed Loans Made During The Financial Crisis
In the lead-up to the financial crisis that crippled the American economy and plunged the country into a recession, the Federal Reserve made trillions in undisclosed loans to struggling banks and financial institutions, according to official documents obtained by Bloomberg News. Banks then turned those loans into more than $13 billion in previously undisclosed profits.
The total commitment of the Fed loans amounted to $7.77 trillion, and unlike the funds made available by the Troubled Asset Relief Program (TARP), the loans came with virtually no strings attached for the banks.
Congress was unaware of $7.77 trillion in secret Fed loans ahead of TARP vote
The Federal Reserve doled out a staggering 7.77 trillion dollars in secret loans in an effort to stabilize banks during the financial crisis — cheap money from the public purse that the banks subsequently lent out at higher rates for a profit of $13 billion dollars, Bloomberg News reports.
This is potentially *THE* biggest story in the recent decade. No, several decades. I wonder how it'll be met by the public. Hell, I wonder how much coverage it'll get on the mainstream media, if any. How would this reflect on the government, and more importantly, the Fed? Because you have to ask the question (again) who's really calling the shots, since apparently Congress had been conveniently kept in the dark about this throughout the entire duration of the scheme. And subsequently, ask the question how relevant representative democracy actually is in the US.
I bet there'll be some "hearings" now. Like the ones that happened around the *official* bailout. Some people were being publicly interrogated. And that was it. Did someone go to jail? Did it have any real consequences? Did anything change in the system? You can answer for yourself.
Those who still prefer to be in denial about the US essentially being the hugest oligarchic system this planet has EVER seen, would better think again - but this time think real deep, and shed all the ideological talking points they've been spoon-fed by their respective fave talking-heads in their respective partisan media, if only for a minute.
Warning: rhetorical question follows. How come the central bank of the most powerful economy in the world (a central bank which, let's face it, is essentially a private cartel with unlimited powers), whose board of directors are among the wealthiest guys in the Universe, blessed with unlimited money-creation capabilities of (still) the most sought currency in the world, have no problems whatsoever with fabricating and implementing secret schemes to enrich the top 1%-something of the world, making them EVEN richer?
You know why. Because they can!
In fact, the legendary, the "genius" Greenspan has openly admitted that the Fed is above and outside any law, and answers to no one.
Fractional-reserve banking is sooo fun! Have you seen the fractional-reserve banking manual? It's a wonderful read, it's full of fancy words and graphs, and intimidating and incomprehensible terminology that would make the head of the biggest finance experts assplode - and that's for a very good reason.
But yeah, I suggest we all keep watching baseball on Friday night and American Idol, there's nothing to see here, move along folks.
In the lead-up to the financial crisis that crippled the American economy and plunged the country into a recession, the Federal Reserve made trillions in undisclosed loans to struggling banks and financial institutions, according to official documents obtained by Bloomberg News. Banks then turned those loans into more than $13 billion in previously undisclosed profits.
The total commitment of the Fed loans amounted to $7.77 trillion, and unlike the funds made available by the Troubled Asset Relief Program (TARP), the loans came with virtually no strings attached for the banks.
Congress was unaware of $7.77 trillion in secret Fed loans ahead of TARP vote
The Federal Reserve doled out a staggering 7.77 trillion dollars in secret loans in an effort to stabilize banks during the financial crisis — cheap money from the public purse that the banks subsequently lent out at higher rates for a profit of $13 billion dollars, Bloomberg News reports.
This is potentially *THE* biggest story in the recent decade. No, several decades. I wonder how it'll be met by the public. Hell, I wonder how much coverage it'll get on the mainstream media, if any. How would this reflect on the government, and more importantly, the Fed? Because you have to ask the question (again) who's really calling the shots, since apparently Congress had been conveniently kept in the dark about this throughout the entire duration of the scheme. And subsequently, ask the question how relevant representative democracy actually is in the US.
I bet there'll be some "hearings" now. Like the ones that happened around the *official* bailout. Some people were being publicly interrogated. And that was it. Did someone go to jail? Did it have any real consequences? Did anything change in the system? You can answer for yourself.
Those who still prefer to be in denial about the US essentially being the hugest oligarchic system this planet has EVER seen, would better think again - but this time think real deep, and shed all the ideological talking points they've been spoon-fed by their respective fave talking-heads in their respective partisan media, if only for a minute.
Warning: rhetorical question follows. How come the central bank of the most powerful economy in the world (a central bank which, let's face it, is essentially a private cartel with unlimited powers), whose board of directors are among the wealthiest guys in the Universe, blessed with unlimited money-creation capabilities of (still) the most sought currency in the world, have no problems whatsoever with fabricating and implementing secret schemes to enrich the top 1%-something of the world, making them EVEN richer?
You know why. Because they can!
In fact, the legendary, the "genius" Greenspan has openly admitted that the Fed is above and outside any law, and answers to no one.
Fractional-reserve banking is sooo fun! Have you seen the fractional-reserve banking manual? It's a wonderful read, it's full of fancy words and graphs, and intimidating and incomprehensible terminology that would make the head of the biggest finance experts assplode - and that's for a very good reason.
But yeah, I suggest we all keep watching baseball on Friday night and American Idol, there's nothing to see here, move along folks.
(no subject)
Date: 3/12/11 20:49 (UTC)(no subject)
Date: 3/12/11 20:48 (UTC)I mean, I don't like it or accept it, but it was pretty common knowledge that banks were using Fed loans at .01 percent to invest in T-bills at 1-2-3 percent and make money off the difference.
So I'm sort of flumoxxed by all the outrage *now*. Shit, look who just caught up!
(no subject)
Date: 3/12/11 20:51 (UTC)I propose that we all have a beer now, it's a done deal really, is it not? Nothing can be done. Like I said, move along.
(no subject)
Date: 3/12/11 20:56 (UTC)I mean, shit, I have as much money as I've ever had, because I didn't have much to fall down from, so I've been watching everything from the bleachers. Good times or bad times, it's all the same to me.
(no subject)
Date: 3/12/11 21:07 (UTC)If the shit really hits the fan, we can always return to basics, go look after a ridge of potatoes or two maybe, and a few sheep and chickens in the countryside. Then when the big guys sort everything out, we re-emerge with a bowl of nice omelette and a cool woollen sweater as if nothing has happened. And when someone asks, "But did you know what happened!?!?11", we'll just smirk and say, "Heh heh I knew it all along mate... by the way look what a cool sweater I've got!"
(no subject)
Date: 3/12/11 21:08 (UTC)(no subject)
Date: 3/12/11 21:16 (UTC)"Having everything" is a very emphemeral thing btw. At least from the POV of empire life cycles. Hell, even from the POV of ordinary people. I mean, look at your baby boomers. I bet they could swear they'd have unimpeded prosperity forever.
(no subject)
Date: 3/12/11 21:19 (UTC)Of course the whole thing is just a game. There is nothing keeping us from massive investments other than our petty rules about ownership and rules. But, we insist on an order and a system, and part of that system is a shadow game about money, otherwise how would you perpetuate the class structure of society? IT WOULD BE CATS AND DOGS AND ANARCHY!
(no subject)
Date: 3/12/11 21:43 (UTC)Ah, yet another package dealer
Date: 5/12/11 22:45 (UTC)Re: Ah, yet another package dealer
Date: 5/12/11 22:47 (UTC)(no subject)
Date: 6/12/11 20:33 (UTC)That is no longer the case. Petroleum extraction hasn't increased since May, 2005. Therefore, the money supply is growing in size (for whatever reason), but is declining in value, and all the assets that depend upon a growing real economy are tanking (suburban real estate, transportation), dragging the financing down with them.
We saw a general increase in human standards of living in the US for 150 years. We now have standards declining alongside the fuel extraction rate.
Ah, well. It was a good run.
(no subject)
Date: 3/12/11 21:53 (UTC)childrengrandchildrenmexicansdispossessed.Wait, what?
Date: 4/12/11 01:10 (UTC)Re: Wait, what?
Date: 4/12/11 14:29 (UTC)Assume the Can is Open. . . .
Date: 3/12/11 23:00 (UTC)I would heartily disagree. We have what we have not because of which flavor of money we use, but because of all them dead dinosaurs begging to be burned.
The idea that a system of exchange can lead to prosperity is the main blind spot in just about all of economics today.
Re: Assume the Can is Open. . . .
Date: 5/12/11 22:48 (UTC)Re: Assume the Can is Open. . . .
Date: 5/12/11 23:03 (UTC)Re: Assume the Can is Open. . . .
Date: 5/12/11 23:27 (UTC)The quoted statement is false. Is that a clear enough expression of the meaning of the comment? The purpose of the comment was to assert the counter proposition: that the belief in such superstitions as economic determinism is what is causing most, if not all, of the economic disasters plaguing the world today.
Re: Assume the Can is Open. . . .
Date: 6/12/11 20:24 (UTC)To get back to the original comment to which I replied:
Whine about the modern money situation all you want, but everything we have is here because of it.
This is patently false, as I pointed out. I can have a million bucks in my pocket, but without gas in the tank my car will not move. If no one has gas to sell me, I'd best use that million to buy something available.
Everything we have is here because of the energy we harnessed and unleash daily, energy that allowed us to replace human and animal power for motive transportation. The money we spend is merely a reflection of the value this fuel and the infrastructure it moves provides us in our daily life. Marx has nothing to do with it (or maybe he does mention it, but like I said, I'm no Marxist). As John Michael Greer pointed out, "If you don't have inputs from nature, you don't have an economy."
I'd be happy to provide citations not easily dismissed.
Re: Assume the Can is Open. . . .
Date: 6/12/11 22:22 (UTC)The exploitation of fossil fuel and the energy storage available in hydrocarbons was not a "historical inevitability," as Marx would have claimed. It was the result of human action and decision-making in the face of alternatives. The distinction may sound like hair-splitting but it is actually crucial: if material forces have intrinsic value which dictates their eventual disposition, then human action is not responsible for economic valuation and development. In such a system, objective, intrinsic values could conceivably be discovered and human civilization and material well being planned by a single person or small committee of people. Central planning doesn't work because value is not objective but subjective and context-dependent.
Re: Assume the Can is Open. . . .
Date: 7/12/11 02:13 (UTC)First, yes, we as a race have always faced alternatives in history to what we ended up doing. (More importantly, some nations and cultures have chosen one path, often only to get trounced or subsumed by another nation or culture that chose a more energy exploitative trajectory; but that's not really important.) That's less important than where we find ourselves today. The human decisions that brought western technological culture to where it is today have been made, often centuries ago. As a map might explain, We Are Here . . . we are not somewhere else.
I emboldened a portion of your explanation to bring up a non-rhetorical question: Since we now today rely on dwindling energy to literally fuel our economy, what alternatives do we face?
This question has nothing to do with central planning v. non-coordinated distributed action v. the magic of collective delusion (or whatever). It has only to do with what physical, technological, and (most importantly) non-political options are available for our future economies based on the fuel supplies we have left and those we can realistically develop for the future.
Re: Assume the Can is Open. . . .
Date: 7/12/11 21:43 (UTC)Re: Assume the Can is Open. . . .
Date: 7/12/11 22:15 (UTC)Oh, this old trope. Look, our economy is no longer married to gold, so we can simply drop that shiny metal as in any way relevant. The fact that both gold and petroleum are limited resources is their only present day connection, not some grand indictment of today's legal tender and accusations of the weakness thereof.
While I agree about the speculative research path, here's a question: Who will finance it? Unless it is a rock solid investment with a guaranteed payout, banks won't touch it. Unless the tech promises fairly high risk but will pay out grandly if it works, venture capital won't touch it. Even a modest risk and modest payout will spook most, if the reason it pays will be because petroleum will be sky high in the future. Why? Because petroleum now runs the economy. If it's too high, the country will be in necessary recession, so no one will have money to buy this next big thing.
The current situation is like none seen in centuries, ever since the Roman Empire expanded so much that they became overly dependent on grain shipments from overseas to prevent the poor rioting. Think about it. When we made the transition from sail and horsies to coal, the wind still blew and the glue factories still grazed. When we made the switch from coal to liquid fuels, there was still coal in the ground a'plenty. Every time, there was significant overlap between the past fuels and the future. Heck, Hitler's Germany moved about 50% of its civilian cargo with horses within country, saving the scarce fuel for the artillery and more important supplies. They just didn't bother putting all the horse carts in the propaganda films.
This switch to (whatever comes next) will be the first time the dominant driver of the economy will be in decline at the same time that nothing better is around to replace it. Gold is being purchased in enormous quantities not because it has anything to do with our economy, but because people are scared, and scared people turn to things that held value in the past whether or not these tokens and icons and trinkets will hold value in the future. In a way, they're right . . . to be scared.
Re: Assume the Can is Open. . . .
Date: 7/12/11 22:41 (UTC)Lets ignore gravity, while we're at it too, m'kay? I don't like it and don't want to be "married to it."
People with capital. The same people who finance any research or development. If you want names, consult a psychic. The fact that innovators are not known for the discovery of an innovation before they discover it is the reason free societies work better than centrally planned ones.
Analogy: We will obviously run out of whale oil long before we develop an alternative method for lighting our houses.
...and people purchase burgers because they are hungry, but obviously that "has nothing to do with the economy," either, to extend your reasoning.
Gold has been valued by individuals in human civilizations that have had access to it for over six thousand years. It is valued today. There is no reason to believe that it will be massively disvalued in terms of all other commodities any time soon. The spot price, in dollars, for which many traders in gold are willing to part with one troy ounce of it is, at this moment, $1742.65
Re: Assume the Can is Open. . . .
Date: 7/12/11 23:04 (UTC)The chemistry professor suggests heating the can in the fire; once the contents start boiling, the can will burst, perhaps in a way that will not spoil all the contents.
The metallurgist notes that even before boiling starts, they might be able to strike open a heated can before it bursts. The heat should weaken the can's seams.
The economist says, "Assume the can is open. . . ."
And here we have the fundamental problem. Our society is currently in the thrall of a cadre of dogma-spewing professionals that no one has seriously questioned (yourself, apparently, included). These neo-classical economists cite laughable things (like the tying of gold to gas prices) and never get called on it. They are irrationally equating things of value with the media that buy and sell things of value and seeing nothing amiss at all.
To correct this, perhaps we should strand a bunch of economists on an island with a million bucks each (why not; make it gold) and no food, water, or means of transport or communication. I'm sure they could use that gold to invest in the next big thing and make a fortune.
Re: Assume the Can is Open. . . .
Date: 8/12/11 00:44 (UTC)It would help if you understood how to make an economic argument. Here's your problem: you want to argue some sort of alternative theory of money but you either will not or cannot state its terms. As such, you might have a valid idea to argue but if you cannot express it in recognizable terms then how is anyone to know?
Here's an example, this phrase: "...like the tying of gold to gas prices..." It's gibberish.
You want real economic monetary theory? Money is simply the most tradable commodity. It is the one commodity in a market that has come to enjoy universal tradeability. Calling it "the medium of exchange" does not change that nature; it merely describes its function. Causing legal tender laws to be passed and refusing to redeem currency for any commodity, like gold or silver, does not change that nature, either. People exchange money for things. People value money in terms of that for which it can be traded. Very few people value money simply because they like collecting little green pieces of paper with pictures of dead politicians on them. Money is a medium of exchange because it is the most tradeable commodity and people will treat it that way even if the Treasury Secretary will not redeem the currency for any commodity directly. The valuation of money people have depends upon what they perceive others as being willing to trade to have it. Similarly, when various goods and services are valued in terms of monetary units, their prices and historical tradeabilities can be compared and analyzed. The price of cheesburgers can be discussed in terms of dollars and the price of dollars discussed in terms of cheeseburgers. The dollar price of cheeseburgers can be ratioed to the dollar price of oil or gold. There is no "tying." Where did you come up with that concept? Cheeseburgers and oil can be discussed in terms of troy ounces of gold that could be traded to purchase either item, not in any or all hypothetical circumstances obtaining anywhere from now until the end of time, but in the market, in general, in terms of the circumstances obtaining very recently. What is your problem with this?
Your Robinson Crusoe scenario and apparent frustration with economists stems from a failure to understand that price is a historical datum. Value is subjective and context dependent. Actual value is imputed by individual human beings dependent upon their value criteria and their context. Analogy: you're arguing that gravity is a force that pulls everything toward the center of the earth. The physicist points out that gravity is an effect of the curvature of spacetime. For that, you are calling the physicists stupid.
Re: Assume the Can is Open. . . .
Date: 8/12/11 19:30 (UTC)A fair point. I started by typing exactly that, offering details of monetary policy and creation that outline my points. I've been discussing that so very much, however, that I just ended on a joke.
Okay, then. I'll bite. I'm working my way through John Cassidy's How Markets Fail. Just last night I finished the chapter outlining the theories of Hiram Minsky. It turns out he's getting a lot of attention recently simply because he predicted the current economic crisis a decade before his death in 1996. He was in a position to appreciate the blind side most neo-classical economists suffer; he worked in a bank.
Most of the well-known economists suffer what John Michael Greer called the Cartesian Fallacy; they measure the price a commodity fetches in dollars and equate the dollars for the commodity. This ignores the simple fact that dollars are created through lending, something Minsky knew all too well. Banks don't lend portions of their deposits; they actually create the money lent with a simple bookkeeping entry. Minsky (to paraphrase and possibly misquote Cassidy) saw the loosening of the Glass-Steagall Act separation between strict depository banks and the kind of speculative lending engaged by investment banks (which do not create money), and rightly predicted this practice, rampant during the pre-'29 crash banks, would lead to trouble. He noted this was probably the proximate cause of the S&L troubles in the '80s.
Other authors who have pointed out the problems leading from rampant, un-secured lending include Greer, Tim Jackson in Prosperity Without Growth, Richard Heinberg, Dmitri Orlov . . . the list is long. I finished half of the Pecora Report recently and was dismayed to see how many of the practices brought out in the hearings in '33 were rampant once again today, with the legal restrictions set then completely removed.
So, we have today a growing monetary supply and subsequently a growing stock market, despite the fact that the fuel literally driving actual productive economic activity has been stagnant since mid-2005. That's why I shared the chart below and the link. When Meus above declared the unrestricted monetary creation ability led to the stuff we have today, I had to correct him. The assets funded by the lending brought the money into existence, but the fuel that drove those assets — the cars, the farm machinery, the factory equipment, and to a huge extent the houses situated farther from workplaces that depended on the cars — that is the literal driving force behind our current lifestyle.
As it depletes, our societal complexity should start to unwind starting with our economy. This has kinda happened, but because of legal loop holes (Gramm-Leach-Bliley Act of '99 chief among them) the banks have managed to prop up the facade of continued growth.
Long Windage part II
Date: 8/12/11 19:47 (UTC)Serious economists have said fuel shouldn't affect food prices, for example, because it is only about 3% of the economy, neglecting to enter into their equation how much value petroleum inputs affect food production. When the price of fuel goes up, the price of every step of food goes way up. The alternatives that would arise from cheap food shortages are called gardens; they take time to develop.
So here we have a nearly stagnant economy with falling wages and a dwindling tax base . . . and gas is still over $3.50 a gallon for regular. Yet no talking head with a econ PhD. is bothering to point out the obvious, that it's weird, isn't it, when the fuel to make money doesn't seem to matter to the current money supply.
So, back to your point: Money is simply the most tradable commodity. Ah, but given its creation through lending, it's supply should be falling, given the fact that most assets are declining in value and should therefore not be considered as sound collateral, and that every time a loan defaults, the money it created disappears from the economy. Which brings us right back to the OP noting the scale of monetary bailout from the Fed. It seems we are not being told the scope and extent of our financial troubles, perhaps because so few of us (myself included) understand the system well enough to make predictions about what should be happening if there were no interference.
Re: Assume the Can is Open. . . .
Date: 7/12/11 02:31 (UTC)(no subject)
Date: 3/12/11 23:14 (UTC)Well, before you guys at least used to produce stuff. Now you (Plural) produce hot air and digital papers. And you wonder where the problem is? The monetary system? Nah, not really.
(no subject)
Date: 7/12/11 02:14 (UTC)(no subject)
Date: 3/12/11 22:08 (UTC)(no subject)
Date: 3/12/11 20:54 (UTC)(no subject)
Date: 3/12/11 20:55 (UTC)(no subject)
Date: 3/12/11 21:17 (UTC)(no subject)
Date: 3/12/11 22:29 (UTC)(no subject)
Date: 3/12/11 21:01 (UTC)(no subject)
Date: 3/12/11 23:53 (UTC)(no subject)
Date: 4/12/11 01:16 (UTC)I could do better than that in minor collectables (altho I'm not sure there are 7.7 trillion dollars worth of collectables...but if there were, look out!!)
(no subject)
Date: 4/12/11 11:34 (UTC)(no subject)
Date: 5/12/11 04:06 (UTC)My dad was a sucker for those kind of things.
(no subject)
Date: 4/12/11 11:53 (UTC)(no subject)
Date: 4/12/11 12:05 (UTC)My guess is that there is either much more or much less to this story than thingprogress is letting on. This could simply be the Fed's way of playing the money market, which might mase sense since all of the money from the money market went right into T-bills.
(no subject)
Date: 4/12/11 13:32 (UTC)(no subject)
Date: 4/12/11 14:33 (UTC)It'd've been nice if it was just Thinkprogress who broke this story. I picked the first link that came in my sight and it happened to be Thinkprogress.
(no subject)
Date: 5/12/11 01:37 (UTC)Seriously, I am really curious about how this money was spent. The money market is about half the size of this amount and turns over pretty quickly, it also pays something like 1% - 2%, so interest on this amount for a couple of months would be in the ballpark of $18 billion. Also, most of the money went into T-bills (i.e. the Fed) when Lehman went under. If the Fed used the big banks to put the money back, this doesn't seem like a bad use of the money. This is completely speculation based on the amount of money and the return, but it is an example that there would be some legitimate reasons for these loans to have been made.
(no subject)
Date: 5/12/11 05:59 (UTC)