Wall Street Banks Earned Billions In Profits Off $7.7 Trillion In Secret Fed Loans Made During The Financial Crisis
By Travis Waldron on Nov 28, 2011 at 9:25 am
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. Six of the country’s largest banks then turned those loans into more than $13 billion in previously undisclosed profits.
The total cost 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:
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”
In one month, Morgan Stanley — one of the most vulnerable financial companies at the time — took $107 billion in secret loans, enough to pay off a tenth of the nation’s delinquent mortgages. The loans, like those made to other institutions, were never reported to Morgan Stanley’s shareholders or the taxpayers who subsidized them.
Other banks drew similar loans without disclosing them. Bank of America, for instance, held $86 billion in public debt on the day then-CEO Ken Lewis declared his company “one of the strongest and most stable major banks in the world.” Bank of America’s Fed borrowing peaked at $91.4 billion in February 2009; at the same time, it benefited from $45 billion in TARP loans.
And even while members of Congress were working to overhaul the nation’s financial regulatory system, the banks and the Fed kept them in the dark about the loans. Rep. Barney Frank (D-MA), one of the architects of the Wall Street reform act that eventually became law, and former Sen. Judd Gregg (R-NH), the GOP’s lead negotiator on TARP, told Bloomberg they were unaware of the specifics of such loans.
Had Congress had such information, members of both parties would have changed their votes to favor Wall Street reform, Sen. Sherrod Brown (D-OH) said. Former Sen. Byron Dorgan (D-ND), meanwhile, said knowledge of the loans could have led to a push to reinstate the Glass-Steagall Act, which prohibited banks from owning investment companies and vice versa, thereby limiting their size and vulnerability to such crises.
The secret nature of the loans, however, instead helped Wall Street work to “preserve a broken status quo” that allowed its biggest banks to grow even larger than they were before the crisis. The nation’s largest banks have turned more in profit in the last 30 months than they did in nearly eight years preceding the crisis, all while spending millions to derail significant reform legislation. And since the Dodd-Frank Act became law, they have spent millions more to weaken its rules and prevent certain regulations from taking effect. Bank lobbying, in fact, is now on pace to reach a record high this year.
-------------------- Wise men learn more from fools than fools from the wise. Posts: 3784 | From: beautiful California | Registered: Sep 2008
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quote:Originally posted by CashCowMoo: So where is the wall st reform that was promised in 2008?
cash? what are you going on about now? the *pitiful* reforms that were done are being used to blame Obama for being an "over-regulator".
face it, Capitalism collapsed under it's own weight, and before you jump on this article cuz it is from thinkprogress? you should read the bloomberg article:
bloomberg had to go the SCOTUS to get the Fed to admit how much they did to prop up our collpased system:
Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.
Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase.
Disgusting!! American people are going to be pissed when they hear about all this Secrecy. The occupy wallstreet movement is going to eat this stuff up.
Posts: 2363 | From: Detroit | Registered: Mar 2005
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That is so stupid Pagan, didnt you see the recent news report that showed that DEMOCRATS made more money off insider trading than Republicans? Yeah yeah Republicans did it too, but they tracked down the majority being dems. Seven of the Top Ten Wealthiest Members of Congress Are Democrats
Funny, I thought dems were good ol folk working hard for the working man. Wealthy Democrats tend to inherit their money. Republicans tend to earn it.
"Tea Party Republican Scott Brown, the senator from Massachusetts, proposed a bill that would attempt to outlaw insider trading on Capitol Hill. "
Then, a Democrat plans to undermine it:
"Sen. Gillibrand is proposing to do to Sen. Brown’s bill. She’s basically proposing adding a clause that nearly cancels out the entire thing."
The issue of politics and money has been a complicated one. President Barack Obama brought in far more money from Wall Street in his 2008 campaign than his Republican opponent Sen. John McCain (R-AZ). Obama raked in $1 million from Goldman Sachs employees that year. While his numbers are lower this year, the President has attracted $15.2 million from the financial services industry that he attacks so frequently.
Many Democrats run institutions on Wall Street. Jamie Dimon, the CEO of J.P. Morgan has been a long-time Democratic supporter. So too has Goldman Sachs Chairman and Chief Executive Officer Lloyd C. Blankfein.
didnt you see the recent news report that showed that DEMOCRATS made more money off insider trading than Republicans?
LOL... cash. you were here back when the GOP's ran congress. there is no doubt that the richest Dems make money offa insider trading NOW. but it's alwyas been legal, the fact was posted here and kicked around the block years ago when Bush and DeLay was still in office...
Kerry? his money is OLD (so old it's dusty ) money. Pelosi? She lives in and represents one of the wealthiest districts in Congress anyway (4/5's is San Francisco proper)
Dick Cheney? now there's one of your best examples of insider criminal behaviour ever. the freak was born poor, boasts a 40 year "public service" career and has 50 million in the BANK? dude, i'll take born rich over his type anyday.
none of this is even news....
as to the wealthy Democratic supporters? you should listen to your own words and stop calling progressives Socialists, i've been trying to tell you and everybody else here that for years now... I'm not a democrat, never will be, but i know the differnce between a socialist and Democrat. As long as the GOP keeps up with that kind of talk? They'll make themselves more irrelevant. The 1% is mostly willing to pay more in taxes just ask them.. it's the second thru teh 15th that are freaking out about it, cuz they are dead set on cracking the top 1%-
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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Fed seeks to prevent another crisis with proposed rules for banks
The Federal Reserve has issued proposals intended to prevent the collapse of major financial firms, including limits on banks' credit exposure to one another and new risk-management responsibilities for boards of directors. The rules would apply to banks with $50 billion or more in assets and other systemically important firms. "The proposal would create an integrated set of requirements that seeks to meaningfully reduce the probability of failure of systemically important companies and minimize damage to the financial system and the broader economy in the event such a company fails," according to the central bank.