Bloomberg News reports that the full extent of the loans issued by the Federal Reserve during the mortgage crisis has been made public at last. The list of loan recipients was kept secret until now, but it’s not really surprising:
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
FOAI requests + months of litigation + act of Congress = “the most transparent Administration in history!”
It wasn’t just domestic fat cats sipping at that trillion-dollar bowl of federal cream:
Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
But let’s ignore all that and howl in outrage at Rick Perry for saying that Federal Reserve Chairman Ben Bernanke would be guilty of “almost treasonous” behavior if he keeps fooling around with the money supply!
As Bloomberg News reporters Bradley Keoun and Phil Kuntz note, the amount of these loans was triple the size of the federal budget deficit in the year they were issued. (The deficit has, in turn, tripled since then.) The $1.2 trillion sum is roughly equivalent to the value of the 6.5 million delinquent and foreclosed mortgages in the United States. It’s over seven times the amount of the $160 billion bank bailout we knew about, while these loans were kept secret. It’s more than “the total earnings of all federally insured banks in the U.S. for the decade through 2010.” Only fourteen nations on Earth have a larger GDP than the amount loaned out by the Fed.
The Fed says it hasn’t lost any money on these loans, and in fact has “netted $13 billion in interest and fee income” over the past two years. I presume that means they subtracted the cost of financing that extra trillion in U.S. debt, because we had to borrow all that money from somewhere, before we could loan it to Citigroup, Bank of America, and the Royal Bank of Scotland.
Let’s see now: $13 billion in interest over two years, earned by $1.2 trillion in loans, works out to less than 0.5% in annual interest. Is that a good rate of return? Isn’t the interest we’re paying on the national debt – considered a phenomenally low rate that we’re damned lucky to have – about nine times that high?
Well, never mind the rate of return, because it was essential to make those loans in the name of general financial stability. The government used force to distort the mortgage industry according to ideological demands, erasing the old standards for making sound, repayable loans. Numerous warnings about the dangers of this program were ignored throughout the Clinton and Bush Administrations, and in fact the critics were savaged as alarmists and heartless capitalists. The whole thing finally blew up, and the Fed found itself obliged to cover the losses of the American and foreign banks involved.
90% of the Federal Reserve’s spending in the name of stability was kept secret from the American public, because “releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs,” according to the Bloomberg report. Your banking and borrowing decisions had to be made in government-enforced ignorance, because the illusion of stability had to be maintained, in the judgment of people you don’t get to vote against.
Meanwhile, we’ve still got a seat at the European crap table, where things are coming up snake eyes for Greece, Portugal, Spain, and pretty much every other country that doesn’t end in “y”. Also, we’ve got over a trillion dollars of foreclosed real estate sitting around the United States, largely destroying the primary method middle-class Americans have used to accumulate real net worth. This is a real and lasting economic “transformation” – and not in a good way. Not only was the American public not consulted about it, they have been deceived and defrauded every step of the way, for the better part of two decades.
Rep. Walter Jones (R-NC) exclaimed, “Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic? They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”
That’s because the aristocracy of a nation that rejected aristocracy two centuries ago makes all the important decisions on these matters. It also decides when the little people will be notified about the decisions it has made.