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April 2011, Week 5

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From James Vann
Oakland, California

Banks Play Shell Game With Taxpayer Dollars:  The TARP
Swindle Exposed

In the aftermath of the financial collapse in late
2007, early 2008, the Federal Reserve -- under Bush,
then Obama -- loaned to banks, insurances houses, and
Wall Street financiers about $700 Billion (almost $1
Trillion, yes, seven-hundred thousand million dollars)
under TARP (Troubled Asset Relief Program) because the
Wall Street banking industry was "too big to fail."

TARP funds were to be used by banks and insurers to
purchase their "toxic assets" (the massive horde of
real estate investments in their portfolios that in the
collapse had gone bad, and that threatened simultaneous
foreclosure which would immediately wipe out meager
banking reserves, worldwide.)

It always bothered me how the big banking houses were
able to pay back these huge sums roughly within one
year -- but the question was not asked, and no
explanations could be found.

Neither media, pundits, nor economic experts ever asked
-- even out of sheer curiosity -- how the loaned funds
could be paid back so soon when no foreclosures were
being repurchased, no mortgage modifications were being
approved, and no loans to small or commercial
businesses were being made ?  I accidentally ran across
an obscure article discussing the financial crisis that
mentioned government investment as one tool used by
lenders, but did not tie the tactic to the TARP
program.  Finally, Sen Bernie Sanders (Indep, Vermont)
asked the non-partisan Congressional Research Service
to conduct a study of TARP funds.  The findings of the
CRS study are "kindly" described by Sanders as a "shell
game played by the big financiers with taxpayer money."

In short, the big banks and Wall Street financial and
insurance houses took billions from the Federal Reserve
at near 0% interest.  With this huge cache -- after
paying themselves multi-million dollar bonuses -- US
Treasury Bonds were purchased with the loan balances at
interest rates up to 12 times the lending rate of the
Federal Reserve.  This "sleight of hand" resulted in
huge windfalls for the big banks, insurers, and Wall St
financiers.  And even after paying back the Federal
Reserve, the financial entities -- with no loans having
been made -- reported their largest profits in history.

The CRS Report was completed, and was released by
Bernie Sanders 5 April.  Until now, not one
administration official has commented.  ( The link is
to Bernie's original article, which includes a growing
list of interesting comments by readers. )

_________________

Banks Play Shell Game With Taxpayer Dollars

By Sen. Bernie Sanders Reader Supported News April 26,
2011

http://readersupportednews.org/news-section2/320-80/5750-bernie-sanders-banks-play-shell-game-with-taxpayer-dollars

A study requested by Sen. Bernie Sanders (I-Vt.) found
numerous instances during the financial crisis of 2008
and 2009 when banks took near zero-interest funds from
the Federal Reserve and then loaned money back to the
federal government on sweetheart terms for the banks.

The banks pocketed interest on government securities
that paid rates up to 12 times greater than the Fed's
rock bottom interest charges, according to a
Congressional Research Service analysis conducted for
Sanders.

"This report confirms that ultra-low interest loans
provided by the Federal Reserve during the financial
crisis turned out to be direct corporate welfare to big
banks," Sanders said. "Instead of using the Fed loans
to reinvest in the economy, some of the largest
financial institutions in this country appear to have
lent this money back to the federal government at a
higher rate of interest by purchasing US government
securities."

The Federal Reserve claimed at the time that the
emergency loans were needed so banks could provide
credit to small- and medium-sized businesses that
desperately needed money to create jobs or to prevent
layoffs. "Instead of using this money to reinvest in
the productive economy, however, it appears that
JPMorgan Chase, Citigroup, and Bank of America used a
large portion of these near-zero-interest loans to buy
US government securities and earn a higher interest
rate at the same time, providing free money to some of
the largest financial institutions in this country,"
Sanders said.

The Fed transactions during the financial crisis were
detailed in documents that the central bank was forced
to disclose last Dec. 1 to comply with a Sanders
provision in the Wall Street reform law. Sanders
subsequently asked the Congressional Research Service
to compare the emergency Fed loans with investments in
government securities by the nation's six largest bank
holding companies. The study found, for example, that:

    In the 1st quarter of 2008, JPMorgan Chase had an
    average of $1.2 billion in outstanding Fed loans
    with a 2.1 percent interest rate while it held $2.2
    billion in US government securities with an average
    yield of 4.6 percent.

    In the 4th quarter of 2008, JPMorgan Chase had an
    average of $10.1 billion in outstanding Fed loans
    with a 0.6 percent interest rate while it held
    $10.3 billion in US government securities with an
    average yield of 1.7 percent.

    In the 1st quarter of 2009, JPMorgan Chase had an
    average of $29.2 billion in outstanding Fed loans
    with a 0.3 percent interest rate and held $34.6
    billion in US government securities with an average
    yield of 2.1 percent.

    In the 2nd quarter of 2009, JPMorgan Chase had an
    average of $7.6 billion in outstanding Fed loans
    with an interest rate of 0.25 percent interest.
    Meanwhile, it held $34.6 billion in US government
    securities with an average yield of 2.3 percent.

    In the 1st quarter of 2008, Citigroup received over
    $5.2 billion in Fed loans with a 3.3 percent
    interest rate and held $7.9 billion in US Treasury
    Securities with an average yield of 4.4 percent.

    In the 4th quarter of 2008, Citigroup received
    $15.8 billion in Fed loans through the Fed's
    Primary Dealer Credit Facility with a 1.2 percent
    interest rate; $11.6 billion in Term Auction
    Facility loans with a 1.1 percent interest rate;
    and $4.9 billion in Commercial Paper Funding
    Facility loans with a 2.7 percent interest rate. It
    simultaneously held $24 billion in US government
    securities with an average yield of 3.1 percent.

    In the 1st quarter of 2009, Citigroup received over
    $12.1 billion in Fed loans with an interest rate of
    0.5 percent while holding $14.3 billion in US
    government securities with an average yield of 3.9
    percent.

    In the 2nd quarter of 2009, Citigroup received over
    $23 billion in Fed loans with an interest rate of
    0.5 percent while holding $24.3 billion in US
    government securities with an average yield of 2.3
    percent.

    In the 3rd quarter of 2009, Bank of America had an
    average of $2.9 billion in outstanding Fed loans
    with an interest rate of 0.25 percent while
    purchasing $23.5 billion in Treasury Securities
    with an average yield of 3.2 percent.

Another Sanders provision in the financial reform law
required the Government Accountability Office to audit
the Fed's activities during the financial crisis.
Sanders asked the non-partisan research arm of Congress
to examine in greater detail the sorts of transactions
that the Congressional Research Service highlighted. "I
hope the GAO will closely investigate this issue as
part of the top-to-bottom audit that I included in the
Wall Street reform bill last year," the senator said.

___________________________________________

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