Nowhere man, please listen, you don't know what you're missin', nowhere man, the world is at your command" (Beatles, Nowhere Man)
Banks qualifying to borrow at the "Fed Window" are receiving money at virtually zero interest rates. They are then using that money to purchase government bonds, aka, Treasuries, (backed by the full faith and credit of the United States) that pay more than their cost of borrowing and are pocketing the difference as profits, purporting to be financial geniuses worthy of billions in bonuses.
It would not be worth the effort for you or me to engage in that transaction for $100, as the "profit" would be about 6-12 cents. But, do that at the trillion dollar level, and the "profits" begin to pay for more than shoe-shines and massages.
To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives...for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer's voice has entertained a packed stadium. No batter has hit a walk-off double. No "risk"has even been "managed", the current mantra for what big banks do that is so goddamned important that it is doing "god's work".
Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.
Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.
And, stiff criminal penalties should be enacted for those banks that mislead the Fed about the destination of the money they are borrowing. Bernie Madoff needs company.