The Federal Reserve has some explaining to do.
. . . . the Fed issued $9 trillion in low-interest overnight loans to banks and other Wall Street companies during the crisis. The $1.2 trillion figure represents the peak amount of outstanding loans, which occurred on December 5, 2008, according to Bloomberg News. (Huffington Post)
The Federal Reserve tried to keep this information secret.
The Federal Reserve tried to keep this information secret.
Bloomberg News was able to get this information only through Freedom of Information Act requests, months of litigation and an act of Congress.
Among other things Bloomberg uncovered, the Federal Reserve loaned 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.
Almost half of the Federal Reserve’s top 30 borrowers, measured by peak balances, were not even U.S. banks, but European firms! (Bloomberg)
The Federal Reserve tried to keep this information secret.
The Federal Reserve even relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.
(Bloomberg)
(Bloomberg)
The Federal Reserve tried to keep this information secret.
The Federal Reserve even loaned money at below market rates to some firms. (Bloomberg)
Richard Herring, a University of Pennsylvania professor, said some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.” Whether banks needed the Fed’s money for survival or used it because it offered advantageous rates, the central bank’s lender-of-last-resort role amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster, Herring said. (Bloomberg)
Analysts say they fear the loans may have contributed to an atmosphere of complacency on Wall Street. Banks that received emergency cash infusions during the crisis may now believe the Fed will always be there to bail them out of trouble, the thinking goes. "It is a classic case of moral hazard," Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College, told The Huffington Post.
The Federal Reserve tried to keep this information secret.
The Federal Reserve has some explaining to do.
