First Federal Reserve Audit Reveals Trillions in Secret Bailouts

Matthew Cardinale
Inter Press Service / News Report
Published: Monday 29 August 2011
“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.” –U.S. Senator Bernie Sanders
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The first-ever audit of the U.S. Federal Reserve has revealed 16 trillion dollars in secret bank bailouts and has raised more questions about the quasi-private agency’s opaque operations.

"This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else," U.S. Senator Bernie Sanders, an Independent from Vermont, said in a statement.

The majority of loans were issues by the Federal Reserve Bank of New York (FRBNY).

"From late 2007 through mid-2010, Reserve Banks provided more than a trillion dollars… in emergency loans to the financial sector to address strains in credit markets and to avert failures of individual institutions believed to be a threat to the stability of the financial system," the audit report states.

"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," according to the report.

The report notes that all the short-term, emergency loans were repaid, or are expected to be repaid.

The emergency loans included eight broad-based programmes, and also provided assistance for certain individual financial institutions. The Fed provided loans to JP Morgan Chase bank to acquire Bear Stears, a failed investment firm; provided loans to keep American International Group (AIG), a multinational insurance corporation, afloat; extended lending commitments to Bank of America and Citigroup; and purchased risky mortgage-backed securities to get them off private banks’ books.

Overall, the greatest borrowing was done by a small number of institutions. Over the three years, Citigroup borrowed a total of 2.5 trillion dollars, Morgan Stanley borrowed two trillion; Merryll Lynch, which was acquired by Bank of America, borrowed 1.9 trillion; and Bank of America borrowed 1.3 trillion.

Banks based in counties other than the U.S. also received money from the Fed, including Barclays of the United Kingdom, the Royal Bank of Scotland Group (UK), Deutsche Bank (Germany), UBS (Switzerland), Credit Suisse Group (Switzerland), Bank of Scotland (UK), BNP Paribas (France), Dexia (Belgium), Dresdner Bank (Germany), and Societe General (France).

"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," Sanders wrote.

In recent days, ‘Bloomberg News’ obtained 29,346 pages of documentation from the Federal Reserve about some of these secret loans, after months of fighting in court for access to the records under the Freedom of Information Act.

Some of the financial institutions secretly receiving loans were meanwhile claiming in their public reports to have ample cash reserves, Bloomberg noted.

The Federal Reserve has neither explained how they legally justified several of the emergency loans, nor how they decided to provide assistance to certain firms but not others.

"The main problem is the lack of Congressional oversight, and the way the Fed seemed to pick winners who would be protected at any cost," Randall Wray, professor of economics at University of Missouri- Kansas City, told IPS.

"If such lending is not illegal, it should be. Our nation really did go through a liquidity crisis - a run on the short-term liabilities of financial institutions. There is only one way to stop a run: lend reserves without limit to all qualifying institutions. The Fed bumbled around before it finally sort of did that," Wray said.

"But then it turned to phase two, which was to try to resolve problems of insolvency by increasing Uncle Sam’s stake in the banksters’ fiasco. That never should have been done. You close down fraudsters, period. The Fed and FDIC (Federal Deposit Insurance Commission) should have gone into the biggest banks immediately, replaced all top management, and should have started to resolve them," Wray said.

Renewed questions about the Federal Reserve have inspired some young activists to organise grassroots protests across the U.S.

"Since its creation by the U.S. Government in 1913, the Federal Reserve has created so much new money out of thin air that it has destroyed 95 percent of the dollar’s value," Joseph Brown, a college student and one of the organisers of a recent protest of the Federal Reserve Bank of Atlanta, said.

"This hidden inflation tax benefits Wall Street and the government, but hurts the poor and those living on fixed incomes, such as senior citizens, the most," Brown said.

The U.S. Government Accountability Office (GAO) audit itself was the result of at least two years of grassroots lobbying. IPS reported in June 2009 a wide bi-partisan coalition of Members of Congress had co-sponsored legislation to audit the Federal Reserve.

The audit was ordered as an amendment by Sanders as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act - a major banking overhaul passed by President Barack Obama and the U.S. Congress in 2010.

"I think this (the first ever GAO audit) was a good start to uncovering what the Fed did so that we can begin to determine whether similar actions should ever be permitted again," Wray wrote, adding, "my preliminary answer is a resounding no."

The GAO also found existing Federal Reserve policies do not prevent significant conflicts of interest. For example, "the FRBNY’s existing restrictions on its employees’ financial interests did not specifically prohibit investments in certain non-bank institutions that received emergency assistance," the report stated.

The GAO report noted on Sep. 19, 2008, William Dudley, who is now the President of the FRBNY, was granted a waiver to let him keep investments in AIG and General Electric, while at the same time the Federal Reserve granted bailout funds to the same two companies.

"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," Sanders said.

The GAO is currently working on a more detailed report regarding Federal Reserve conflicts of interest, which is due on Oct. 18, 2011.



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32 comments on "First Federal Reserve Audit Reveals Trillions in Secret Bailouts"

grandmastershek

March 25, 2012 2:51pm

Are you psychic?

njmlpolg

bluepeahen

December 12, 2011 5:15am

Ron Paul has been trying to tell you about this....for DECADES. You just called him a wacky, kooky, out of touch, nutball. Very little of this money will be re-paid. You know it, I know it and they know it.

JT

November 28, 2011 5:56pm

http://www.nytimes.com/2010/06/18/business/18regulate.html

yes they did do an audit, you think they would want people to know?

JT

November 28, 2011 5:57pm

Federal Reserve has been audited .....this news is not false

Adam Michael Luebke

September 30, 2011 9:17pm

I really dig Nation of Change. You're going on my Dear Dirty America blog roll!

Adam Michael Luebke

September 30, 2011 9:17pm

I really dig Nation of Change. You're going on my Dear Dirty America blog roll!

Adam Michael Luebke

September 30, 2011 9:15pm

I really dig Nation of Change. You're going on my Dear Dirty America blog roll!

Jo Gil

September 01, 2011 9:59am

Here is the GAO audit document on the FED.

http://www.gao.gov/new.items/d11696.pdf

HankCurtis

August 30, 2011 2:04pm

This news item is false. It has been flating around for a while now. I researched it and there is no such audit report. 3 out of every 5 political blogs or mails include false, missleading or incomplete information

JT

November 28, 2011 6:05pm

http://www.nytimes.com/2010/06/18/business/18regulate.html

there was an audit - NYT posted that there was an audit in june , 2010 but it got stopped by republicans that had gotten into office..the GOP did not want it to be finished..wonder why? ...the GOP ended the audit, they were trying to prevent it, but the audit got started, and when the repbulicans got into office in 2010 the audit got stopped..but it was not a finished audit..but they were doing it long enough to realize that a ton of money from feds went overseas

Jo Gil

September 01, 2011 9:58am

Here is the GAO audit of the FED document.

http://www.gao.gov/new.items/d11696.pdf

Michael McGee's picture
Michael McGee
TX
August 30, 2011 9:40am

Anyone up for a protest march in Washington concerning the economy after Labor Day? NPR reported 14 million people out of work, seven million for over one year. Not everyone could attend but they could sure march locally. I also heard on NPR that Europeans are amazed that no one has organized one. I am amazed, too, given the numbers of people complaining about the government and their reps on numerous web sites. :( I know people are beaten down about all of this. But it will take all of us to change it.

Elisa Montiel-Molina

August 30, 2011 1:22pm

You are so right about this. I'm surprised myself. Its called misinformed. Ugg the irony. People are more against eachother then for eachother. Thats why we are all screwed. The media has the upper hand cause people are easily lied too.

Mozzie

August 30, 2011 1:56am

They did mention that the money is expected to be paid back. Hope that means the foreign banks too. Maybe we'll never see it. Look at all the money that France, etc. owe us from WWII that we'll never see - and that was 70 years ago.

Bob Winkler

August 29, 2011 11:31pm

It's just another story about how the have's screw the have not's. When will american's wake up and take back our country & turn it around to what it once was.

Mozzie

August 30, 2011 2:00am

@Bob Winkler: When we band together and march on Washington - like we did in the '60s. It's OUR money!

Bob Winkler

August 29, 2011 11:23pm

Yes they are all thieves. Read about the Federal Reserve, its a private organization not even part of the government. It's controlled by the money changers. Very interesting reading.

Brian Glennie

August 29, 2011 7:23pm

'The Sheriff of Nottingham School of Economics"-steal from the poor and give to the rich, its just common cents!

geof01

August 29, 2011 6:13pm

The bailout was Ten percent more than the deficit. I've said this before. The Fed should bail us out.

Instead the bankers chose the moment congress went into recess and used the contrived crisis to crash the market. The bankers, fed by the FED invested in a stock bubble. They cashed in, the indices dropped. They bought into Gold and commodities. They cashed them in and there was an adjustment. The market will have another bubble.

Look at the value of the market. 7500 points on the DOW tops. Add the value of 5,000 points to the DOW, points to S&P, points to Nasdaq, the inflated oil barrel etc. $16T will be short of the bubble. Why? Because you and I put some money in the pot which evaporated.

They made a profit on the borrowed money. Now they will put it back in for another round. Look for the DOW at 13,000 in December.

70% of the income gained in the past 4 years has gone to the top 1%. It is time to stop banking with the top 10. It is time to take back our money. It is time to claim our jobs.

10 million people would be back to work by repealing the exempt employee act. You know the one. You work 60 hours and the paycheck is for 40.

Don I
Washingon
August 29, 2011 6:10pm

I'm wondering about the facts being claimed in the article. Since the writer was very obviously mistaken about the Fed not having been audited before, it leaves me wondering just how accurate the remaining claims are. Would be nice to know for sure if the claims are true. Would be criminal for them to be giving money to banks/businesses not being located in America.

Don I
Washingon
August 29, 2011 6:05pm

@Betty Harris, - - While your plan of sending the forms back sounds good, it wouldn't really do anything to hurt the companies because the companies are writing the cost of all those postage paid envelopes , off when they pay their taxes.

philosopher3000
San Diego, CA
August 29, 2011 4:27pm

I see different numbers here, one says 16-trillion, the other says 1.2-trillion, then this article says individual banks got as much as 2.5-trillion in loans. Are these revolving loans? Are they being paid back at rates that keep the total as low as 1.2-trillion, or is there currently 16-trillion in outstanding debt to the Fed. from these banks?

My understanding was that to 'print money' the Fed. had to create debt, by borrowing from these 13 banks, is Quantitative Easing fundamentally different, is it truly creating money out of thin air with no collateral or debt incurred?

If so, then we have broken the debt cycle by devaluing the dollar, and are effectively borrowing money from the future without interest. That debt could be forgiven, or revoked, without consequence to the country, only the given banks would suffer.

Maite

August 29, 2011 4:20pm

Was intended for Chris Hedges' " Election of the trolls" article.

pamann

August 29, 2011 3:53pm

That's bad if someone is changing what people post. Are the people in charge here doing anything about it?
To find this many secret bailouts means we need way more transparentcy.

Betty Harris

August 29, 2011 3:51pm

Well, don't you think it is time that we fight back? Want to talk about how to do that? I've got an idea or two.
1. stop using credit cards....this then means that small businesses will get the full ticket price...and won't have to give that fee to the banks..
2. all those "golden opportunities" that come in the mail every day from Chase (mostly).... tear off the piece with your address and insert back into the envelop...and send it back...postage paid...which costs a lot more than a 44 cent stamp. If a million people did this every day? Last time I remember using one of the postage paid envelopes for business it costs 58 cents each to get them back... I'm sure the cost has gone up since then.. Let's assume that it is 68 cents now...do the math. 68 cents times 1 million people...$680,000 a day... how many do you get in the mail each week? I get one a day 6 days a week and sometimes 2... so 6 days a week would run to $4,080,000 a week... and 52 weeks a year is $212,160,000 a year.. think that will cut into their profits?
Go for it..

Roger Zimmerman

August 29, 2011 3:00pm

MY POSTS ARE BEING DELETED!!!!!!!!!!!!!!!!
WHY BOTHER POSTING AT ALL??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????

Roger Zimmerman

August 29, 2011 2:59pm

questioner ...??? "Political Research Associates says the Federal Reserve has been audited since its inception"

OBVIOUSLY, YOU MEANT TO SAY " ...HAS ***NEVER*** BEEN AUDITED, SINCE IT'S INCEPTION." ---??? --- BUT ??? SOMEONE ??? CHANGED YOUR POST !!!

HOW SWEET!!!

Edward Murphy

August 29, 2011 2:28pm

I say let the Rich buy the planet. After all, by the time we all get through with it, it won't be worth a plugged nickel anyway. They can use their greenbacks for toilet paper, while the poor will have to use some other dead plant material. However, when the last eating starts, eat those rich; fat food for lean times. We'll be sad then, there are so few of them.

Edward Murphy

August 29, 2011 2:22pm

You mean the Rich are an old boys club?!

Diane Ribbentrop

August 29, 2011 1:09pm

Speak out now & often Hammer them till they listen
We must all Do our part if not do not complain about your gov't
www.whitehouse.gov 202 456 1111
www.congress.gov www.senate.gov

questioner

August 29, 2011 12:35pm

Political Research Associates says the Federal Reserve has been audited since its inception. I don't doubt that the Fed does a whole lot that's not in the best interests of the majority of US citizens, but I'd like to get clear on facts. It seems there are many on both sides of this great left/right divide that only use those facts that serve our/their perspective.http://www.publiceye.org/conspire/flaherty/flaherty6.html