Fed's 'Backdoor Bailout': Where the Money Went, What
Congress Should Do

1. Fed's 'Backdoor Bailout' Provided $3.3 Trillion in Loans
   to Banks, Corporations (John Nichols, The Nation.com
   Blogs)

2. The Big Float's a Big Scam (Laura Flanders, GRITtv)

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Fed's 'Backdoor Bailout' Provided $3.3 Trillion in Loans to
Banks, Corporations

by John Nichols

The Nation.com Blogs

December 2, 2010

http://www.thenation.com/blog/156794/feds-backdoor-bailout-provided-33-trillion-loans-banks-corporations

With the lifting of the "veil of secrecy at the Fed," in
response to a legislative push led by US Senator Bernie
Sanders, I-Vermont, reveals that the Federal Reserve gave
banks, multinational corporations and foreign financial
institutions - many of them with limited ties to the United
States - an estimated $3.3 trillion in emergency loans and
other forms of assistance during the course of the current
financial crisis.

"We now know that the Fed loaned trillions of dollars at
zero or near-zero interest rates not only to the largest
financial institutions in this country, but also to many of
our largest corporations - including GE, McDonalds and
Verizon. Most surprising, the Fed also lent huge sums of
money to foreign private banks and corporations" says
Sanders, who since the 1990s has, with Texas Congressman Ron
Paul, Florida Congressman Alan Grayson and a handful of
others, been an ardent critic of the Fed's secrecy,
unaccountable financial manipulations and coziness with Wall
Street.

The document dump confirms that the $700 billion Treasury
Department bank bailout out signed into law under President
George W. Bush in 2008 was a small down payment on an
secretive "backdoor bailout" that saw the Fed provide
roughly $3.3 trillion in liquidity and more than $9 trillion
in short-term loans and other financial arrangements. With
hundreds of billions in US money going to foreign financial
institutions, Sanders asks: "Has the Federal Reserve of the
United States become the central bank of the world?"

Questions like that explain why the Fed did not want to
release this information. Fed chairman Ben Bernanke lobbied
against the amendment Sanders attached to the financial
services reform legislation passed this year by the
Congress.  Sanders and his allies prevailed - although not
too the full extent that they had hoped - in forcing an the
release of secret Fed files and forcing the Government
Accountability Office to conduct a top-to-bottom audit of
the Fed.

"Almost two years ago I asked Chairman Bernanke to tell the
American people which financial institutions and
corporations received trillions of dollars as part of the
Wall Street bailout.  He refused," says Sanders. "Today, as
a result of an audit-the-Fed provision I put into the
financial reform bill, we finally learn the truth - and it
is astounding."

So astounding, in fact, that even the Wall Street Journal is
praising Sanders. "The release of this data on some 21,000
Fed transactions over the last three years is one of the
rare useful provisions in (the financial reform bill),"
writes the Journal, adding, "kudos to our favorite Socialist
for demanding it."

* Citigroup collected over $1.8 trillion.

* Morgan Stanley grabbed $2 trillion.

* Goldman Sachs took $600 billion.

* Bear Stearns received almost $1 trillion in short-term
loans with interest rates as low as 0.5 percent.

While the banks - and corporations such as Verizon and
Toyota - collected trillions, Sanders said, the American
people got little in return. Why? Because, as the senator
notes, the documents reveal that "the Fed failed to require
loan recipients to invest in rebuilding our economy and
protect the needs of ordinary Americans."

Indeed, Sanders suggests, the paperwork from the Fed raises
the prospect that the banks and corporations used the money
to pad their bottom lines. Indeed, an analysis by Sanders'
office, points to the prospect that  "secret Fed loans
turned out to be direct corporate welfare to big banks."

Sanders wants an investigation to determine whether banks
took loans at near-zero interest and then loaned that same
money back to the federal government at a significantly
higher interest rate.

"Instead of using this money to reinvest in the productive
economy, I suspect a large portion of these near-zero
interest loans were used to buy Treasury securities at a
higher interest rate providing free money to some of the
largest financial institutions in this country on the backs
of American taxpayers," says Sanders.

Sanders also wants to know: "How many big banks repaid
Treasury Department bailouts in order to avoid limits on
executive compensation received no-strings attached loans
from the Federal Reserve?"

Those are all good questions.

Here's one more: Isn't it time for members of Congress to
get serious about proposals to free up money sitting in Fed
accounts so that it can strengthen the US economy - as
opposed to merely collect interest for big banks and
corporations?

Robert Pollin, the co-director of the Political Economy
Research Institute at the University of Massachusetts-
Amherst who has written extensively about the Fed and
economic issues for The Nation, has been in the forefront of
this debate.

Here's a brief outline from Pollin of his smart proposal:

"The federal government must continue to aggressively fight
the recession created by Wall Street hyper-speculation and
promote recovery through both spending measures and credit
market interventions.

"Austerity is not a solution. The federal government's
deficit spending over the past two years succeeded in
averting a 1930s-style depression. Large deficits are still
needed now to prevent the economy's rickety floor from
collapsing. Are the deficit hawks really prepared, for
example, to preside over mass layoffs of teachers, nurses
and police officers that would result without continued
large-scale federal support for state and local governments?

"Credit must be channeled to small business. Credit markets
remain locked up, especially for small businesses, while
banks are holding an unprecedented $1.1 trillion in cash
reserves. The Federal Reserve's new "quantitative easing" is
a halfway solution. It directly reduces interest rates for
longer-term US Treasury bonds only. It will not be effective
at lowering interest rates and risks for private borrowers
and lenders.

"Two initiatives - one carrot and one stick - can deliver
lower rates and risks to businesses. The carrot is an
expansion of existing federal loan guarantees by $300
billion, which would roughly double what's annually
available now. Small businesses should be the primary
beneficiaries. The stick is a 1% to 2% tax on the excess
cash reserves now held by banks, to push them to become more
bullish on loans for job-creating investments.

"These measures could generate about 3 million jobs as the
$300 billion in loan guarantees turns into new business
investments. Job creation would be significantly higher if a
large proportion of the spending were for green activities
such as retrofitting buildings to make them energy-
efficient. Job creation per dollar of green investments is
about 50% greater than the economy-wide average. The total
costs for the program - mostly from loan defaults - would
almost certainly be well below 1% of the federal budget."

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The Big Float's a Big Scam

by Laura Flanders

GRITtv with Laura Flanders

December 2, 2010

http://www.grittv.org/2010/12/02/the-f-word-the-big-floats-a-big-scam/

WikiLeaks may be the biggest information explosion  this
week, but  Wednesday's mammoth release of documents
pertaining to the Fed's bank bail out program could well
spark the most outrage -- at least among those not fortunate
enough to head a firm on Wall Street.

The Federal Reserve, we know, floating cash all over the
place in the cold months of '08 and '09.  But not just to
Wall Street. Apparently Harley-Davidson and Verizon were
also "too big to fail."

And the government purchase of commercial paper - very
short-term loans to businesses to help them meet cash-on-
hand obligations - is the new news in this story. 21,000
commercial loan records have also been released under new
financial regulatory legislation.

Some of the biggest users of the Fed's expanded lending were
Goldman Sachs, who claimed they didn't need assistance.
Goldman hit up the Fed 84 times to borrow nearly $600
billion.  GE, parent company of NBC, got $16 billion from
the Fed --  all this, let us not forget, while credit for
the rest of us was frozen over.

Senator Bernie Sanders of Vermont, who wrote the provision
requiring these disclosures, noted that the Fed could have
forced the companies they helped to restrict executive pay
and lighten the burden on  mortgage holders. But they
didn't. Instead, the Fed loaned out trillions while families
lost their homes. $3,300B in taxpayer cash went to private
banks abroad while half a million Americans a month were
losing their jobs.

Did Congress authorize our Fed to become the world's private
banker? That's a question voters have a right to ask their
politicians. While the GOP grandstands over shutting
government down if they don't get tax breaks for the
wealthy, it just may be there's a message on which actual
voters -- from the Tea Party to the block party -- can
agree.

And that's this:  Dear Congress: you know what?  Go ahead,
shut  -- until you can prove that you're doing as much for
us as you've done for a group of enormously powerful people
-- who today in many instances are making even more money
than they did before they were bailed out by the taxpayers.

http://a.blip.tv/scripts/flash/stratos.swf?file=http%3A%2F%2Fblip.tv%2Frss%2Fflash%2F4478539&showplayerpath=http%3A%2F%2Fa.blip.tv%2Fscripts%2Fflash%2Fstratos.swf&feedurl=http%3A//grittv.blip.tv/rss/flash&brandname=GRITtv&brandlink=http%3A//lauraflanders.firedoglake.com/&enablejs=true&lightcolor=0xFFFB91&backcolor=0xFFFFFF&frontcolor=0xCD7202&tabType1=none&smokeduration=0

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