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The Tax-Payers’ Tab: A Cool $9 Trillion

  • Written by Syndicated Publisher 51 Comments51 Comments Comments
    December 27, 2010

    On December 1, the Fed was forced to release details of 21,000 funding transactions it made during the financial crisis, naming names and dollar amounts. Disclosure was due to a provision sparked by Senator Bernie Sanders of Vermont. The voluminous data dump from the notoriously secret Fed shows just how deeply the Federal Reserve stepped into the shoes of Wall Street and, as the crisis grew and the normal channels of lending froze, the Fed effectively replaced Wall Street and money centers banks in terms of financing.

    The Fed has thus far reported, without even disclosing specifics of its lending from its discount window, which it continues to draw a dark curtain around, that it supplied, in total, more than $9 trillion to Wall Street firms, commercial banks, foreign banks, corporations and some highly questionable off balance sheet entities. (Much smaller amounts were outstanding at any one time.)

    A careful review of these data makes it highly likely the GAO will be releasing some startling findings come next July 2011. That’s when  the American people will have a much clearer picture of how the Federal Reserve shoveled taxpayer money to Wall Street by the trillions.  As a result of Senator Sanders’ legislative efforts, the Government Accountability Office (GAO) is to complete an audit by next summer of the Fed’s lending programs during the financial crisis.

    The data starkly show a comatose Wall Street being resuscitated with whatever financial might the Federal Reserve could pump into its tangled web of funding vehicles.  It also points to how the Fed was dispersing sums which dwarfed the U.S. Treasury’s $700 billion TARP (Troubled Asset Relief Program) bailout program while allowing the TARP to take the media heat for obscene funding of Wall Street.

    The Fed has made the task of seeing the big picture of what it was up to exceptionally difficult by segregating its multi-prong funding into a dizzying array of spread sheets. Nonetheless, a few things jump off the pages. On the spread sheet for the Primary Dealer Credit Facility (a program to provide overnight loans to key brokerage firms, known as primary dealers because they assist the Fed in open market operations) are astronomical sums that Citigroup, Morgan Stanley and Merrill Lynch were drawing from the Fed on a regular basis from the Spring of 2008 to the Spring of 2009 (and potentially well beyond).  The three firms borrowed almost equal sums which cumulatively totaled over $6 trillion, and that does not include their borrowing from other Fed facilities. In its current release the Fed cut off these data as of May 12, 2009 while the program lasted until February 1, 2010, making the full extent of this funding unknown at present.  Calls to the Fed on this point had not been answered at CounterPunch’s press time.

    Citigroup owns one of the largest commercial banks in the country, Citibank.  One could reason that the bank’s solvency had come under serious question at that time and it needed massive liquidity to meet depositor withdrawals from its bank as well as to fund its $2 trillion balance sheet (with another $1 trillion in off-balance-sheet vehicles).  Why Morgan Stanley and Merrill Lynch, which are large investment banks and retail brokerage firms, needed funds of this magnitude raises many questions.

    via Pam Martens: The Tax-Payers’ Tab: a Cool $9 Trillion.
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