We've just learned about the Federal Reserve's extraordinary secret bailout of the country's big banks. We now know that the TARP bailout program was only the tip of the iceberg, and that financial institutions received a total of $1.2 trillion in loans and other funds while the rest of the country was left to struggle for economic survival.
We also know that, despite all that "we got our money back" rhetoric, these loans represent a cash giveaway to the banks that totals up to tens of billions of dollars -- while homeowners and student loan borrowers continue to struggle.
Here's what we now know about this secret bailout, thanks to a Bloomberg report, along with what we already knew -- and what we still don't know:
We now know that the 10 biggest banks in America received $669 billion in emergency loans from the Fed.
We already knew that the same 10 banks now own 77% of the country's banking assets, more than before the crisis, making them even more "too big to fail" than ever.
We now know that the low interest rates they received were, in fact, a massive transfusion of cash -- courtesy of the American taxpayer -- just like TARP. Whenever Tim Geithner or Ben Bernanke says "We've got all our money back," they're distracting you from the real point. These banks received short-term loans at 1.1%, instead of the prevailing 3.8%.
That means each bank received a gift of $27 million each -- tax-free, no less -- for every billion they received under that particular program.
We already knew that the banks have not been asked to write down any of the principal on underwater homes, even though their industry spent decades persuading homeowners that real estate was a foolproof investment -- and even though they often hired adjusters who inflated the estimated value of those homes.
We now know that the American taxpayer was asked to rescue failing businesses without being given any of the concessions any other lender or investor would have been demanded -- like replacing the failed executives who ruined the enterprise, ending the practices that brought down the corporation (and the economy), or ensuring that the lender (who is also a customer) be treated fairly in all future business dealings.
We already knew that they've refused to refinance most homeowners, even though underwater homes are arguably more reliable than some of the collateral the Fed accepted when it rescued Wall Street. At the peak of the crisis it agreed to accept junk bonds and essentially worthless stocks in return for a trillion in loans -- and tens of billions in giveaways.
We now know that the total amount of this secret bailout is $1.2 trillion -- which, as Bloomberg's investigative journalists observe, is roughly the same amount that's owed on delinquent and foreclosed mortgages.
We already knew that the nation's homeowners owe banks between $750 billion and $1 trillion in loans for nonexistent home value, since that's the estimated difference between what people owe on their mortgages and what their homes are currently worth. Banks have never been asked to write down the principal for loans, even though they fueled the housing bubble and frequently knew (or should have known) that estimated home values were exaggerated.
We now know that Jamie Dimon's JPMorgan Chase received $48 billion in direct emergency loans, and that it also benefited from the $107.3 billion in loans given to Morgan Stanley. It did this while it was bragging about its "fortress balance sheet" and its financial invincibility -- no less than 16 times, according to Bloomberg. We also know that it kept taking these loans a year later, which means it was lying when it said it took these loans merely to convince other banks to do the same, out of patriotic duty.
We already knew that Dimon and JPM made the same claim about the TARP funds they received, so that was a bogus claim too. And we also knew that Dimon has thrown public tantrums about the criticism directed toward his profession ("Bankers! Bankers! Bankers!") even though he knew about these loans.
We now know that the amount lent to these banks exceeded their total earnings for the entire decade!
We already knew that the Dodd/Frank bill did not reinstitute the Glass-Steagall Act and did not include a "too big to fail" provision.
We know now that, in the words of the Bloomberg report, "Even as the firms asserted in news releases or earnings that they had ample cash they drew Fed funding in secret, avoiding the stigma of weakness."
We already knew that there have been no indictments of senior Wall Street executives, despite abundant evidence of criminality, and that many cases of stock fraud have been settled with no convictions and relatively small cash settlements. Those settlements are paid by the very same investors who were defrauded, not by the executives who defrauded them.
We now know that America's banks, which were too mismanaged to receive credit from any reputable institution, received massive loans -- even though the only collateral they provided was pretty much worthless at that point.
We already knew that these shaky enterprises depend on the kindness of strangers -- in Washington and certain Attorney General's offices around the country -- to protect them from the consequences of their own illegal behavior. That strategy's worked pretty well for them so far, to the detriment of the nation and the global economy.
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As for what we don't know yet -- well, as Donald Rumsfeld said, there are the "known unknowns" and the "unknown unknowns." (Or whatever the hell he said -- you get the point.) Here are three "known unknowns":
Did JPMorgan Chase lie to investors when it bragged about its rock-solid balance sheet, or did it take emergency loans it didn't need in order to bilk the taxpayer?
It's a crime to lie to investors about your own balance sheets, so how many bankers committed stock fraud by taking these loans, failing to disclose them, and making false statements about their own bank's financial stability?
Why did the Federal Reserve and the government demand secrecy for these loans and fight so hard to prevent them from being exposed? If they wanted to maintain confidence in the banks and prevent a panic, have they decided where to draw the line between protecting the economy and deceiving the public? (f they have, they've drawn it in the wrong place.)
How much outrage is required before people demand rigorous bank reform, strong regulation, and criminal investigations?
I gotta tell ya -- it's that last question that keeps me up at night.
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We discussed this issue the other day on Thom Hartmann's "The Big Picture." The video is here.
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
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The peak amount was $1.2 trillion on one day but the average was less than half of that.
The term of the loans was typically less than 30 days.
The loans were made against collateral (maybe crappy, but secured none the less).
The vast majority has been repaid.
The rate was very low (which might explain why institutions borrowed there even when they didn't need to).
First, if the institutions were not insolvent (assets worth less than liabilities) then providing liquidity to the financial system is explicitly why the Fed exists. They are the lender of last resort (when banks won't lend to each other because of lack of trust). That way solvent institutions don't fail because of a liquidity crisis.
Second, if we assume the actual rate a bank would pay to stay liquid in a crisis is twice the going rate (3.8% in the article) then the gift from the Fed to the banks was $500 billion (the annual average outstanding balance) times 6.5% (3.8%*2 - 1.1%) or $32.5 billion for the year. Not a small amount, but equal to a one time payment of $100 per man, woman and child in the US. Not enough to change much.
Third, providing short term loans (against collateral) would not have helped people who are insolvent (the home is worth less than the mortgage) so why suggest that is a solution.
"DIMON: We go through this every five or six years and you can just go back in history. They are always a little bit different. But there are a lot of commonalities: Fear, specter of recession, credit assets, re-price, spreads re-price, etcetera. You've seen sub-prime, SIV, CDOs, CLOs (ph) and now it is monolines, municipals, wraps. But at the end of the day, those things will resolve and our system has resolved a lot of them. A lot has been de-leveraged. A lot has been paid off. A lot of problems have popped up are now gone. It's not over yet, but you know, I would be surprised if the financial part of this isn't over by the end of the year."
http://www.pbs.org/nbr/site/onair/gharib/080214_gharib/
How's he doing? Should we be getting ready for the other shoe to drop?
There's sufficient outrage, although maybe it's more like a free-floating & perhaps sometimes misguided outrage? Personally I think it makes much sense to demand reform & regulation, moving toward remedy & solutions.
Mr. Eskow writes about what we, the people, now know or already knew. What did the mortgage lenders, investment banks & credit rating agencies already know about the people?
Mortgage lenders knew they would be able to reap immediate & huge profits by selling their mortgages to investment banks.
It didn't matter whether or not the borrowers (people) were likely to repay.
Investment banks knew they needed to retain AAA credit ratings essential to the marketing & selling of their mortgage-backed securities.
It didn't matter whether or not the borrowers (people) were likely to repay.
Credit rating agencies gave AAA ratings to financial 'products' developed by the investment banks. Mainly accomplished by structuring the products based on tranches, basically a device properly meant to mimic the performance of 'pools' of mortgages. Here it was used to disguise systemic 'toxicity'.
It didn't matter whether or not the borrowers (people) were likely to repay.
What DID matter was that everyone was raking in record profits - from mortgage lenders to rating agencies to investment banks. It became a self-feeding cycle where the supply of mortgages (whether or not they were repaid) could not meet the demand for maximizing profits.
& guess what? Apparently it STILL doesn't matter ...
How should the success of the financial sector be measured?
By how well they provide financial services to actual consumers & corporations?
or
By how effectively they make money for themselves?
The (global) systemic risks are still present in our financial systems. I'm not quite sure the FIRE sector is interested in addressing these risks because, at the end of the day (or debacle), they are still effectively able to increase profits. Heads they win, tails we the people (& Country) lose.
It still doesn't matter ...
1) Move all money holdings held in deposit into a community bank or preferrably a credit union. Convert retirement savings into physical gold and silver stored in a safety deposit box or in a personal secure, secret location. Invest directly in local businesses instead of the stock market.
2) Grow as much of your own food as you are personally capable of, and source as much as possible from local farmers markets. Raise chickens for eggs if possible, and hunt for meat when possible. Reduce consumption of grains and dairy as much as possible.
3) Push your municipality to adopt anaerobic digestion of all biowastes in place of landfills and sewage treatment. Start a community solar investment cooperative as an investment vehicle to help local residents purchase solar panels with local investment capital.
4) Focus your personal consumption patterns on local products and services instead of those offered by large, multinational corporations.
5) Educate yourself in economics, history, politics, science, and philosophy. Sports, TV, social networks, video games, and celebrity are tools designed to misdirect and enslave one's attention away from important matters. People might actually have the time to analyze and understand a piece of legislation Congress is voting on if everybody wasn't guzzling booze and Facebooking while watching their
And don't get me started on the lack of civics lessons.
How did I know it? I read it somewhere that I found credible. I don't know where I read it, because I am not a journalist or a professional financial analyst and I never thought that memorizing my every source was important. I tell you, though, it was not a secret that was hidden from the general public until being recently revealed. I'm not nuts. I'm not.
http://www.unelected.org/audit-of-the-federal-reserve-reveals-16-trillion-in-secret-bailouts
Bloomberg had a recent article about 1.2 trillion. I've just ordered a book, "It Takes A Pillage," but haven't started reading yet; one of the reasons for purchasing was mention of 16 trillion dollar bailout.
Underlined question that will never see justice by the light of day. Their secret back door deals will keep the short memory casualties in the dark just long enough to create... even More Diversion! Keep those eyes closed... and those spin wheels cranking people. It'll hurt less!
People's repesentative do no need to get rid of attorney generals who are trying to do their jobs. The people do not need to have cases settled until the full damages are assessed after a thorough investigation. The full financial scheme::: speculation(which drives up prices which should deflate like worker salaries), hedge fund, worthless paper shuffling, gambling in stock should all be charged a high fee to pay for investigation they caused (CEO Bonuses can pay it) and to help pay down the debt. The fees could also be used to pay back people's retirement. The mortgage mess can not be solved by using people's taxes to pay the have's(the finanicial markets) which stole the money in the first place,they have had their's already, now it is time for main street,,,,Take the foreclosed homes with no rewards for the holders of worthless paper, give fixed motgages of 4% to homeowners on the current values of homes.
The deck is stacked against reform, from the WH on down. Our "demands" have no currency, so presenting them is a waste of time.
nobody told you
how to unfold
your love.
I don't how
someone controlled you.
They bought and sold you.
-------George Harrison
http://www.youtube.com/watch?v=F3RYvO2X0Oo