CONNECT
Wall Street Banks Earned Billions in Profits off $7.7 Trillion in Secret Fed Loans Made During the Financial Crisis
ThinkProgress / News Analysis
Published: Monday 28 November 2011
“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.”
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.
Get Email Alerts from NationofChange
ABOUT Travis Waldron
Travis Waldron is a reporter/blogger for ThinkProgress.org at the Center for American Progress Action Fund. Travis grew up in Louisville, Kentucky, and holds a BA in journalism and political science from the University of Kentucky. Before coming to ThinkProgress, he worked as a press aide at the Health Information Center and as a staffer on Kentucky Attorney General Jack Conway’s 2010 Senate campaign. He also interned at National Journal’s Hotline and was a sports writer and political columnist at the Kentucky Kernel, the University of Kentucky’s daily student newspaper.
Top Stories
By Tara Culp- Ressler
15 comments on "Wall Street Banks Earned Billions in Profits off $7.7 Trillion in Secret Fed Loans Made During the Financial Crisis"
wtgggec
November 30, 2011 1:36am
The report is from the GAO (govt accounting office), the part of the government that is very respectable. It shows also loans to Deutsche Bank to the tune of $350 billion. That's $1,000 from every man, woman and child (including illegal immigrants).Try searching the news for reporting on this - you will be astonished that there is practically nothing. NOTHING!
November 29, 2011 11:05am
This is absolutely nothing new given Wall Street's history of malfeasance in a deregulated environment. The question is what are we going to do about it? Even reinstating Glass-Steagall is not enough; the Fed and all participants need to be audited.
http://borderlessnewsandviews.com/2011/10/another-big-bank-heist/
http://borderlessnewsandviews.com/2011/11/and-now-for-a-movie-break/
November 29, 2011 7:43am
The only year mentioned was 2009 and the Democrats were in total control of the government for over a year. Also, all the large banks paid back the loans with interest. Lastly Thomas is a Democrat and from the way his article reads, he appears to be a very bias one.
November 28, 2011 5:50pm
All you tea baggers - note the years of these "loans" (give-aways). These were not our President's doing. He hadn't even been elected, yet. These were cover-ups before the election.
I honestly believe the prior administration should be charged with war crimes AND crimes against the American people!
November 28, 2011 4:53pm
Not one of these criminals has been charged with a single violation of their own regulatory standards.....shame on you Treasury department.
November 28, 2011 4:49pm
Great point Thomas, when the Reps refer to 'the people', they are refering to their cronies and other such like minded supporters. Why would they include anyone who disagreed with them. In otherwords 40% of the population is their base of reference for 'the people' at best.
November 28, 2011 4:30pm
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 'SECRET" loans.
I believe that if Congress had such information, members of both parties would have changed their votes to favor Wall Street reform. Knowledge of the loans would 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.
So In effect we the Citizens of the United States of America had to pay off the Loans that the "TO BIG TO FAIL BANKS" had Secretly gotten from the Federal Reserve. While the very STUPID and CORRUPT Executives of these banks got HUGE Boneses for Bankrupting the very Institutions that "We the People" had to Bail-out.
For the Citizens of the United States of America this was a LOOSE LOOSE situation
I would like to know what the Congress of the United States of America has done to prevent the Federal Reserve from having the ability to make these Secret Loans??? Where is the Oversight that is suppose to exist for the Federal Reserve Board??? What was the Responsibility of the Secretary of the Treasury??? What is the responsibility of the Department of Justice to investigate and to Prosecute???
WHERE IS THE MEDIA AND WHY ARE THEY NOT SCREAMING ABOUT THIS?????
November 28, 2011 2:57pm
THE NEW AMERICAN PIRATES, ARE KILLING AMERICANS.
This is not about glamorized or fictional piracy. This is, “real piracy.”
Hundreds of our wealthiest leaders and most powerful corporations know that in the next few years, they will be able to siphon, skim, and steal, so much “NEW CASH,” that they and their progeny will be ultra-rich for generations to come.
No, this is not funny, or fiction, or a conspiracy, it is just simple greed and simple theft.
The new pirates of America have launched an all-out siege on us in order to capture, amass, and hold trillions of dollars for themselves.
All of the recent political power grabs and nonsensical debating is purely a slight-of-hand deflection. President Obama, Democrats, Republicans, the International Press, and even the Tea Party, are watching the tiny pea in the shell game…while the rich and powerful “Piratical Right” is stealing America right out from under us.
Consider that their combined total plunder from corporate flipping, downsizing, offshore labor, speculation, price fixing of oil and energy plus, corruption in defense, healthcare, banking, student loans, foreclosures, etc., etc., is a trillion dollar treasure for these pirates.
Go ahead, put your own calculator to it.
Are they smarter than we are? Yes, and they are laughing at us. I, we, you, and all of us, have not been able see the big picture of what is happening to our own country and to our own people. The rape and theft of America, has been cleverly packaged, promoted, and sold under the guise of “cost-cutting,” “deregulation,” and “free enterprise.”
The “Piratical Right” is directly responsible for millions of people dying, getting sick, losing their jobs and homes, losing their ability to fight, their spirit, and even losing their will to live. The sick smell of this carnage now permeates the air across America.
To us, this is all unimaginable, because we look for some sense or the morality of things. These modern-day American pirates however, have no moral compass. They are devoid of any conscience, humanity or soul, and are feeding on the flesh of the American people.
Don’t look to the President, the Senate, Congress, the press, or any political party to help. Sadly, they just don’t see it, don’t care, or are part of it. “We the people” are on our own. Start asking questions. Demand answers. If we don’t fight back America…who will?
History has taught us how to stop piracy.
V
November 28, 2011 8:21pm
Hi V,
First GREAT post I have seen on N.O.Change
You have highlighted the problem. And, it's not SMALL.
In fact, our problems are so great now, Most folks are missing them. As you rightly point out.
.. But you haven't (missed it). I very much salute you for that.
AND, if I am not mistaken, you have thrown down the challenge: What can we do about our big problems? Really do. A real solution. Far outside of the distracting 'hub-hub' where they want you to look, and think 'This is the only game...."
I saw this problem coming in 1999.
So, I have had more time to digest it. And think about a solution. A real solution. Solution that works.
A solution that works must be right in front of us. Something only we as an individual can do. (Not tell others what to do; Or, what's wrong. Or how to think or what to believe. That won't work.)
Great solutions to great problems have an elegance and simplicity. That's what makes them attractive to a hungry audience.
You can Not take on these great powers and all these mixed forces strangely in their own way working together (Rep and Dem and Gov are now actually all working together) - you can not take them on directly.
If you try to take them on directly, you will only empower them. (Have you noticed a slight disconnect in the WhiteHouse?)
Besides you don’t want anymore people to get hurt. Enough already are.
Our only hope is to make a future which is so bright, so tasteful, so healthy that they will want to join us there. They must ask to be a part of us. That is the key now to an elegant answer which works.
I do not want to give the answer yet.
But I want everyone to think about this: How can you own the 3 feet around you? How could you truly have a better life starting today. This minute. Just yourself. For yourself.
More later.
Thank you for reading.
Cheers,
Mark
November 28, 2011 2:56pm
Where was Byron Dorgan when the Democrats were looking for a presidential candidate, he has a long record of standing up for average Americans against the wealthy oligarks. Now, like many patriotic Democrats and Republicans in Congress, they are deserting a sinking ship while the band is still playing !
November 28, 2011 2:15pm
The federal bank did this without the approval of the congress? If it is true then the federal reserve leader needs to be prosecuted for looting the treasury, or for treason. These loans need to be taken back, with all of the money that was made from this fraud against our country.I swear!!!
November 28, 2011 2:05pm
This is fascinating and I stand w/ OWS, but where is the documentation to support this story? I don't see your sources.
November 28, 2011 12:06pm
Need a reason for the OWS movement? Some things are obvious. While I don't like where the country is, I have a long enough memory to know how we got here and who is responsible. To be specific, it was corporate boards of directors, oil barons and war profiteers of the previous Republican administrations that blatantly looted this country's treasury. Try two unfunded (borrowed money) and mismanaged Bush wars, an unfunded (borrowed money) prescription drug program, inappropriate tax cuts for the rich, a putrid stimulus effort and a very disturbing lack of government oversight in the financial industry. Just history.
It is axiomatic that in the absence of oversight there will be transgressions. It is the role of government to prevent transgressions. So, where are the conservatives coming from when they have a message of"...taking power from the federal government and bringing it back home to the people,"??? Who do they think "the people" are?
I beg Republican voters to take a critically serious look at how their party has behaved lately.
November 28, 2011 5:34pm
I too would beg for Republicans to take a critical no BS look at the behavior of that party and it's involvement in the sacking of the economy. It may require that you turn off Fox news since you will not likely be finding any information about this there......We are not broke either as a people or as a nation. It's just that the governments and the people aren't the ones sitting on the cash. The banks are as flush as they've ever been. The stock market is reporting a 200+ point rise in the Dow. But oh! We're broke! Does anyone doubt that the reason the economy is continuing to stumble is because banks are unwilling to allow the Obama administration any successes on the economy. They would like to make Mr. mcconnell a prophet (as well as a profit), and see that the black guy is a one termer. Thanks a lot for thinking of your country first. Thanks for demonstrating the profound sense of responsibility that you have toward the nation that affords you the chance to be rich. Thanks for all the lip service paid to "democracy" and "the people" and "our forefathers vision" and "the Constitution" and "rule of law". In a more honorable world, Mr. mcconnell and Mr. boehner would simply remove themselves from office and beg the forgiveness of the American people. Or maybe they would show real responsibility and take their own lives. I don't believe they possess even the modicum of shame to excuse themselves from the table.