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Richard (RJ) Eskow
Published: Friday 2 December 2011
We now know that the Fed’s secret $7.7 trillion lending program wasn’t just the most massive bank bailout ever seen, and it wasn’t just free money for mega-bankers - though it was certainly both of those things.

The Greatest Hoax in the History of Money: The Fed, the Banks, the Lies

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It took the journalists at Bloomberg News two years - and presumably lots of legal fees - to pry information out of the Federal Reserve that should have been made public long ago. We now know that the Fed's secret $7.7 trillion lending program wasn't just the most massive bank bailout ever seen, and it wasn't just free money for mega-bankers - though it was certainly both of those things. It was also the greatest hoax in stock market history.

No, scratch that. It was the greatest hoax in the history of money. And it was built on lies. How many? Let us count the ways.

Here's the first one: The banks paid back all the money back that they were given. No, they didn't. They paid back the principal on these loans. But by obtaining loans at rates far below market value, we now know they received the equivalent of $13 billion in cash giveaways.

Here's another lie: Fed economists support a free-market economy.

Ben Bernanke is a conservative economist who claims to support a free-market system. But we now know that the Federal Reserve lent astonishing sums to US banks in secret, and Bernanke fought with all the resources at his disposal to ensure that this information didn't become public. He didn't just want it to be held back to avoid a panic during the crisis. He wanted it kept secret forever.

I don't know what you call somebody like that, but I know what you don't call him: A capitalist. Free markets need transparency, so that investors and customers can make informed decisions and 'the wisdom of the market' can prevail. Nobody wanted the market to do its job. When it came to banks, they wanted it to be blind, deaf, and dumb, unable to make sound judgments about their financial soundness.

They still want it that way. They don't want investors to know how badly Wall Street executives failed at their jobs. They don't want the free market to do what it does best - thin the herd so it's free of incompetent managers like the executives who still run our largest banks.

You can believe in the free market, or you can believe in today's Wall Street. But you can't do both.

Here's another lie, one that's spread by Dimon and others: Giant banks are more efficient. Size brings efficiency in other kinds of business, but these banks needed massive help. America's six largest banks accounted on any given day for an average of 63 percent of the debt on these loans. The only thing they're more efficient at is wringing free money out of government-created institutions.

And, wow. Jamie Dimon sure is a hypocrite. As Bloomberg noted:

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed's Term Auction Facility "at the request of the Federal Reserve to help motivate others to use the system." He didn't say that the New York-based bank's total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program's creation.

He also didn't mention that these favorable loans gave his bank nearly half a billion dollars in cash it otherwise wouldn't have had. Know what's convenient about that? It helps make up for the three-quarters of a billion Dimon's bank gave up to settle charges of bribery and corruption in Jefferson County, Alabama.

Chase borrowed massive sums of money, either because it was in bigger trouble than it has admitted or because it was bleeding an emergency public program out of greed. Either way, they weren't doing anybody a favor except themselves. How big a favor? Chase netted $457.9 million.

Citigroup's an even more extreme example. Once our largest bank (until continued mismanagement led to ongoing shrinkage). It only exists because Robert Rubin and other officials in the Clinton Administration, cleared the way for the largest merger in history with the enthusiastic support of the Republicans. That merger combined a bank with an insurance company, a harbinger of bad things to come in the risk area.

Citigroup's got the equivalent of a $1.8 billion gift, courtesy of Uncle Sam.

Bank of America CEO Brian Moynihan sneers at his critics, especially those who think you shouldn't foreclose on families without obtaining proof that you own their mortgage. "Oh, sure," he said in response to government demands, "we'll do our homework."

Bank of America's gift came to $1.5 billion.

Goldman Sachs shouldn't have been eligible for any Fed giveaways because it wasn't a commercial bank. But a special "waiver" allowed Goldman allowed to become commercial bank so it could be rescued from actions it took before it was a commercial bank. Before that it was an investment bank. Yet, strangely, it seems to have kept operating as an investment bank even after the transition, too, even though commercial banks aren't allowed to do that.

Understand that? Don't take it personally if you don't. You're not supposed.

Goldman Sachs's take? Just under $1 billion.

Washington's always telling us that bankers may have done naughty things, but they weren't illegal things. That gets us to our next lie: There's no evidence that bank executives have committed crimes. Thanks to Massachusetts Attorney General Martha Coakley, we may be about to discover whether that's true regarding foreclosures and mortgage filings. But when it comes to stock fraud, the evidence is already piling up.

The Federal Reserve and the US government may have stopped believing in the free market, but the law hasn't. It's a crime to deceive investors about the financial condition of your business, either by lying or by failing to provide the right information. Eliot Spitzer, who knows a thing or two about prosecuting financial crimes, hit the nail on the head when he asked: "where are the inquiries into the false statements made by the bank CEOs? And where are the inquiries about the Fed and Treasury officials who stood by silently as bank representatives made claims that were false, misleading, or worse?"

(Spitzer also proposes a five-point action plan that should be implemented immediately. His piece is well worth a read.)

How about this fib? The media's done a good job reporting on the banks. There's some great reporting going on out there -- Bloomberg, ProPublica, the Huffington Post, the Nation, the New York Times - but they're the exceptions.

Television's still a wasteland most of the time. Are you as sick of the "we got all the money back" line as I am? CNN personality Erin Burnett infamously used it to make an Occupy Wall Street demonstrator look stupid. But the reason he didn't know that because it isn't true. Banks paid back the principal but got a freebie from the interest. That's real money - billions of dollars of it.

You know that. I know that. But Erin Burnett, CNN financial reporter, doesn't seem to know that.

We're not condemning all television. Scott Pelley did a great report about homelessness on 60 Minutes just last week. But most channels haven't found the time to fully or accurately report on the enormity of this secret loan program. They've pretty much taken a pass on what, barring some ancient event I'm forgetting, is the greatest financial hoax in history.

And while we're on the topic of Occupy, let's thanking them for the fact we'll probably never hear this next lie again: "Wall Street and Main Street rise and fall together." Banks got massive giveaways. And despite their recent credit downgrade they're doing fine, thank you very much. The rest of the country? Not so much. In fact, let's do a quick inventory:

Robert Rubin made an estimated $155 million during his tenure at Citigroup.

One in four mortgages in this country is still underwater.

Brian Moynihan at Bank of America got promoted, then made that 'homework' wisecrack.

Twenty-four million Americans are un- or under-employed, including record numbers of young people and African-Americans.

The CEO of Goldman Sachs , Lloyd Blankfein, still has his job.

Poverty has soared to record levels since the financial crisis.

Erin Burnett, who made fun of a young demonstrator for not being aware of the misinformation she had repeated, still has an evening news program on CNN. She is engaged to be married to a Citigroup executive.

College graduates' unemployment rate rose last month, while the total amount of student loan debt in the United States is now greater than the total amount of credit card debt.

Jamie Dimon made a second career out of complaining that bankers are being unfairly criticized, even as Chase became the largest bank in the United States - and the world.

Jefferson County, Alabama, where Chase was forced to settle charges of bribing local officials, recently declared bankruptcy.



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ABOUT Richard (RJ) Eskow

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology.

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Thank you for the information

Thank you for the information on the number of members in the House not changing over the last 99 years. More information on this fact needs to be exposed to the American people. We are grossly underepresented and those that go to Washington immediately get swallowed by corporate lobbyists who orchastrate the legislator's decisions.One failed rigged system for the 99%ers. A marvelous system for the 1%!PC

SO DO IT! THAT WILL BE YOUR

SO DO IT! THAT WILL BE YOUR PART... INSTEAD OF JUST BEING A READER.... NO BETTER TIME TO PARTICIPATE THAN NOW, EH?

While I think this article is

While I think this article is incredibly important, I'm shocked by the number of typos - it needs to be proofread and corrected so that the professionalism of the site isn't called into question.

SO DO IT! THAT WILL BE YOUR

SO DO IT! THAT WILL BE YOUR PART... THERE IS NO BETTER TIME TO PARTICIPATE THAN NOW , EH?

While I think this article is

While I think this article is incredibly important, I'm shocked by the number of typos - it needs to be proofread and corrected so that the professionalism of the site isn't called into question.

While I think this article is

While I think this article is incredibly important, I'm shocked by the number of typos - it needs to be proofread and corrected so that the professionalism of the site isn't called into question.

No crimes were committed?

No crimes were committed? When you sell goods (investments) to purchasers the buyers are expecting in good faith that those instruments will serve as intended within reason. Although it is true that investments can go sour, when the seller bets against the goods he/she is selling, that is equivalent to a car manufacturer buying accident insurance on the lives of each purchaser of that car if the maker knows the wheel will fall off at high speed. It is illegal and it must be so codified in law. Anything else is malfeasance of office.

Exactly! You could add that

Exactly! You could add that Mussolini also said that for fascism to work, the people had to be lied to at all points. Ignorance of what is happening is part and parcel of the fascists game plan. We have had to be stupid so we did not revolt, but by being so damn stupid we can't compete with the rest of the world. That means our workers can't find jobs, and that means tax revenue drops and that means we have to mortgage our society to the Communist Chinese. Guess who won the Cold War? We sure as Hell did not!

When it comes to being on the

When it comes to being on the receiving end of Christmas "giving", wall street and the banks just love it.
To the tune of Jingle Bells.....
Spend your cash
Spend your cash
Go in debt up to your nose
Loose your home, job and family
But help ole Scrooge get richer.
Spend!
Dashing thru the store
Blowing your whole paycheck
Helping Scrooge get in the "black"
While you go in the "red"
Spend!
chorus
Where are a few good ghosts when you need them.

This is the face of Fascism

This is the face of Fascism that has taken over our government. Fascism according to Benito Mussollini the merger of Corporations and the State. This release ties into the US Senate passing the Suspension of Habeus Corpus. The politians are fearful of a revolution, hyper inflation and when the average American wakes up it wont be pretty for these guys.

Eventually, either the

Eventually, either the criminals will go to jail or the "coyote" that continues to protect them will go home in ignominy.

One thing is evident, the more we read about the crimes of these people and the corruption of the government at the highest places, the more Americans are rightfully going to demand that justice be made.

Finally I agree with a previous poster, the crimes of the bank's CEOs should be considered under the definition of Treason and the bankers guilty of it should be dealt with accordingly.

The media is FINALLY

The media is FINALLY reporting this, but again got it wrong.

It's more than double this $7.7trillion figure:

http://theeconomiccollapseblog.com/archives/have-you-heard-about-the-16-
trillion-dollar-bailout-the-federal-reserve-handed-to-the-too-big-to-fail-banks

AND
http://www.silverbearcafe.com/private/10.11/gaoaudit.html

Humpty Dumpty sat on a

Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the King's (US) horses and all the King's (US) men
Couldn't put Humpty together again

No matter how hard they try, Funny Money does No WORK

No Work, No Product, No Relevant Service

*********

They wrote the laws and made it legal to steal
They write the laws to enrich themselves
They are the vested interests
Who are THEY?
The 1%

Financial computer games are worthless.

The “corporate state”—the

The “corporate state”—the economic policy component of fascism. An essential ingredient of economic totalitarianism as practiced by Mussolini and Hitler. Adapted in the United States in the 1930s and surviving to this day—also known as “planned capitalism” or “industrial policy”. In practice, the evidence manifests as artificially propping up, and bailing out corporations and their programs and policies. “Mercantilism “ and “protectionism”, a massive system of corporate welfare, is subsidized by the government, and paid for by the American taxpayer. This is the worst kind of monopolistic practices at the expense of the little fellow who is squeezed out in the process.

The economic inefficiency of fascism is the reason for our present economic instability. In a free economy, invested wealth flows from unproductive hands to more productive ones. Unfortunately, under fascism, inefficient, unstable programs are allowed to survive. Examples of such fiscally irresponsible policies include the Chrysler bailout, tobacco and other agricultural subsidies, the recent bailout of the larger home loan corporations, the ongoing practice of rubber stamping inappropriate weapons systems from our defense contractors, the artificial manipulation of our interest rates to try to maintain impossible stability, and especially the subsidies for the petroleum companies, (I’m sure you feel as sorry for them as I do). When such policies and programs are allowed to prevail, the question that occurs to many of us is, are the people who make these expenditure decisions simply nuts-- or is there a darker motivation at work?

Within a “corporate state”, (collectivism, fascism), one goal is to make its citizens subservient to the state and to place power over resource allocation into the hands of a small elite. The continual interchange of personnel between civil service and private business, (especially our executive branch of government, the oil companies, the military, and the defense industries), insure the present system will not be changing any time soon. The crisis point is reached when invested wealth can no longer remain in the same hands, despite the artificial support. When this happens a great amount of wealth changes hands in a very short period of time. Many businesses collapse, as they were not forced to change their unstable practices before it was too late. Recessions, the worse of which are called depressions, are the result. The final act will be that the government will again interfere, artificially prop things up, and again create a future instability. This destructive cycle is not sustainable. If those in power refuse to yield their control, there is only one option left to them—war.

Imperialism is the worse form of economic fascism. Bailouts, grants, unsecured loans, credits, subsidies, price fixing—“pork” for political constituents support false economic results. When the well starts running dry, someone has to pay to maintain the gravy train. When commercial interests collide and business is tied to government, trade wars, colonial wars, and even “orchestrated” crises resulting in military “police actions” are the result. An entire industry is created to support these wars, massive wealth for the few, trickle down benefit for the many, good PR for our leaders, and possible plunder (the spoils of war) in the form of oil, labor, and other products and concessions from subjugated nations. None of this creates anything lasting. A fascist style economy will never continue under our version of tyranny without turning to military expansion, seizing control of foreign wealth, and consolidating power by mustering national pride and glorifying the military. This is nothing new in history. Nazi Germany was a brief “flash in the pan” in comparison with Imperial Rome. The final result is always the same—a failed state, a devastated people.

“If a free society cannot help the many who are poor, it cannot save the few who are rich.” John F. Kennedy

Forget Stalin. He was just

Forget Stalin. He was just another czar by another name. Forget Mao. He was just another murdering Confucian. Neither one of them and few of their followers knew much about the critique of capitalism rendered by Marx and Engels. The fact is that Marx's predictions about the fate of capitalism are coming true in this nation. You don't have to be a Marxist OR a communist to understand that Marx and Engels had it correct. Go ahead and read it. It won't compel god to abandon you. It will allow you to better understand what is happening to our nation and why the fleecing of the American middle class is as natural as an abcessed tooth and just about as comforting. The banks need to be broken up. If they're too big to fail, they're too big to exist. The Fed needs to be dissolved and the monetary policy brought back into the light of day. And the so called "free market" system? It's actually not a bad idea. In fact, it's such a good idea I think its worth trying in this country. It just can't be allowed to operate unsupervised.

Norman Allen's picture

Have you heard of the golden

Have you heard of the golden rule? Those who have gold make the rules, especially in poly-tics and bidness. The history of modern world is the history of swindlers at the top and the rest or the 99% the swindled. The whole system is supported by force, paid by the labor/lives of the 99%. If you have not realized this yet, you have wasted your life. However, it is good to let them know we know their game so they don't assume we are all stupid.

Obama calls them "Savvy

Obama calls them "Savvy Businessmen". That must be Government Orwellian Doublespeak for goddamn thieves.

The politics of this entire

The politics of this entire nation, from the lowest courts in the land to the 'Supreme' Court to the office of the President is nothing but a corrupt failed experiment in the CONCEPT of democracy.

I suggest you do a little

I suggest you do a little reading: the letters of Madison and Jefferson are a good start. Then download to your e-book a copy of the Bill of Rights and the Constitution. Do a word search for "democracy". It ain't there! The Founders were republicans- they had nothing but scorn for democracy and democratic ideals. Why do you think they made the citizens of this nation nothing but white, male, landowners? We've made a few baby steps toward democratic concepts but the main thrust of our political system is one managed by the Party, with it's two related wings, and the Rule by Money. If you have lots of it you can participate in our politics... and if you are a republican/fascist. Otherwise the corporate news will ridicule you, women will be found to accuse you and doctored photos will appear on Faux News. It's corrupted insofar as a democratic system can be, but it's moving along just fine as a money laundering scheme for the benefit of the Fascists in power.

When the "Occupiers" run

When the "Occupiers" run for and win majority seats in the Hose of Representatives and the Senate this next election,, one of their first moves should be o officially re-define the captial offence of Treason to include "Gross Betrayal of the P:public Trust and then seize all the Mega banks, liquidate them, and then indict all the CEO's, for Treason and deal with them accordingly

estrayer's picture

Didn't Mao try that? How

Didn't Mao try that? How about Robespierre? You jest though, certainly. But your reference to the betrayal of the public trust is dead on. The punishment is nationalization. Clearly capitalism as an ideology (not as a tool) has failed. It is time to try the dirty "S" word. It has worked quite well for northern Europe.

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The people are not

The people are not represented in this republic.The number of members of the house of representatives was setat 435 in 1912 as a result of a Supreme Court case which held that any less of a number would be unconstitutional representation for 90 million citizens in the then 48 states! We now have 50 states and over 300 million citizens with the same number of representatives. So, do we need to wonder why all the laws passed by congress criminalizes almost everything a person does but immunizes banks and other well placed corporations from the same consequences. Do we need to wonder why the citizens don't have public health care, reasonable social services, labor bargaining rights and good, free public education.The tea party is right that the census is really unnecessary when the outcome of the tally of citizens only results in the rearrangement of the deck chairs on Titanic America.

Occupy the tea party!!!

Occupy the tea party!!!

Tea Baggers eat crow

Tea Baggers eat crow

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