That Bank Bailout Was Way Bigger Than Anyone Thought

[n2doc]

ADAM MARTIN 1,989 Views9:58 AM ET
Remember the $700 billion Troubled Asset Relief Program with which the federal government came to the rescue of faltering banks in 2008? Well, according to a Bloomberg report, that was just a fraction of the financial help the Federal Reserve Bank wound up doling out to troubled lenders. The real total was reportedly closer to $8 trillion, after you add up benefits outside TARP, including emergency loans given at below-market rates:

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

Bloomberg came up with that number after reviewing "29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions." Bloomberg adds, "The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day." That's nearly twice the amount made public in TARP.


http://www.theatlanticwire.com/business/2011/11/bank-bailout-was-way-bigger-anyone-thought/45432/

[Recursion]

1. Good. That's a central bank's job

No taxpayer money was risked and the Fed got the money back. Sounds good to me.

[MannyGoldstein]

2. Am I wrong in understanding that the Fed holds $2+ trillion in junk assets

purchased from banks to get them off of their balance sheets?

If I'm correct, then why is there no risk to non-bankers from this?

What about the trillions in shaky derivatives that the Fed encouraged BoA to move from its investment banking arm to its (FDIC insured) depository arm? Not a risk?

[Recursion]

5. The Fed doesn't take taxpayer money, though it does pay us profits

The Fed bought a crapload of assets that banks would have found very difficult to get liquid. The Fed assumed the risk (the bonds are for the most part worth *something*) which means the taxpayers didn't have to.

[MannyGoldstein]

7. So lets say that the bonds go south. Who gets a haircut?

Thanks.

[Recursion]

9. The Fed's private shareholders (nt)

[MannyGoldstein]

10. And who are their private shareholders?

Thanks again.

[Recursion]

13. A bunch of banks mostly (nt)

[MannyGoldstein]

17. So if the banks get nicked for a few hundred billion, will there be few ramifications for taxpayers?

Again, thanks for putting up with my naivete in this area!

[Recursion]

20. More for "bank customers" than "taxpayers"

Though the two groups are pretty much the same people.

Basically the Fed created a bunch of money and used it to buy stuff. The downside is everybody's dollars came to be worth slightly less than they otherwise would have.

[Recursion]

14. A bunch of banks mostly (nt)

[girl gone mad]

22. Taxpayers will have to absorb the losses, Manny.

Someone is trying to pull one over on you.

Profits and losses from the Federal Reserve always show up in the budget eventually.

[banned from Kos]

6. you would be very wrong - the Fed holds $2.8 trillion in assets

mostly in US Treasuries, 100% guaranteed GSE bonds, and gold certificates.

The Fed does hold some $30 billion in Bear Stearns bonds it had to deal with to get rid of them. (1%)

[MannyGoldstein]

8. The Christian Science Monitor basically agrees with me

http://www.csmonitor.com/Business/Mises-Economics/2010/0804/Can-the-Fed-unload-its-toxic-assets-successfully

"Some of the enacted programs were self-liquidating, and now pose minimal danger to the financial system (central-bank liquidity swaps spring to mind, as does the money-market mutual-fund liquidity provision). Other programs have continued growing and cannot be so easily phased out. Over $1.1 trillion of mortgage-backed securities have been purchased since March 1, 2009. These assets, typically rated subprime, are of questionable quality (with total assets of almost $2.4 trillion as of July 1, 2010, nearly half of the Fed's total assets are subprime). More troubling is that these mortgages cannot be properly valued until they are sold to a willing buyer — buyers who are increasingly in short supply."

[banned from Kos]

12. good article - I had not seen that. I point you to critical info

"The value of the mortgage-backed securities that the Fed holds is far less certain. While the reported value on its balance sheet is $1.1 trillion, we should note that the Fed is balancing its books based on the current face values of these securities. These trillion odd dollars represent the outstanding principle on this debt, which is guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. While these assets may have been purchased originally by the Fed for this recorded amount, the maintenance of this value is questionable."

The purchase price is unknown but the marked value is (1.1 trillion) is. The Fed historically buys at a heavy discount to GSE book.

[banned from Kos]

3. Exactly. "Lender of Last Resort" worked as planned.

and turned a tidy $125 billion profit for taxpayers.

[girl gone mad]

15. "No taxpayer money was risked"

Good lord, where do people come up with this crap?

[Recursion]

16. Where do you think taxpayer money was risked? This was the Fed (nt)

[girl gone mad]

18. We've been through this routine before. Taxpayers backstop the Federal Reserve.

The Federal Reserve holds well under $3 Trillion in assets, almost all of which is in the form of U.S. Treasuries. What gives these Treasuries (and every other dollar-based asset) its worth is the power of the U.S. government to collect taxes.

Federal Reserve Notes are backed only by the "full faith and credit of the U.S. government," which means their worth derives solely from the government's ability to levy taxes.

If our government loses its ability to collect taxes, the Fed's assets become worthless. If the Fed monetizes excessively, the dollar will be devalued and taxes will have to be increased in order to restore the dollar's purchasing power.

[banned from Kos]

19. That is such lucid writing I forgot why we disagree so much n/t

[girl gone mad]

21. We disagree because you make dishonest statements such as the one above..

"The Fed returned a tidy $125 billion profit for taxpayers"

which really have no place in intelligent discourse.

[bvar22]

25. Concise & To the Point.

:patriot:



You will know them by their WORKS,
not by their excuses.
Solidarity99!
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[phasma ex machina]

4. "The last duty of a central banker is to tell the public the truth."

–Federal Reserve Board Vice Chairman Alan Blinder, Nightly Business Report, 1994


$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months

http://www.zerohedge.com/print/440943

Somebody owns all those hundreds of trillions. The most likely suspect is the Rothschild family.

The Rothschild family

"The Rothschild family, known as The House of Rothschild, or more simply as the Rothschilds, is a Jewish-German family that established European banking and finance houses starting in the late 18th century. Five lines of the Austrian branch of the family have been elevated to Austrian nobility being given hereditary baronies of the Habsburg Empire by Emperor Francis II in 1816. The British branch of the family was elevated to British nobility at the request of Queen Victoria. It has been argued that during the 19th century, the family possessed by far the largest private fortune in the world as well as by far the largest fortune in modern world history."

http://en.wikipedia.org/wiki/Rothschild_family

Although "possessed by far the largest private fortune in the world" leaves an impression of a bygone era it seems quite reasonable that to this very day the family headed by Jacob Rothschild, 4th Baron Rothschild continues to possess the largest private fortune in the world.


Banking System Rotten to the Core - an orchard of one percenters.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x2393171

[Huey P. Long]

11. yes sir. -eom

[populist3]

23. There is something wrong when this kind of bailout isn't seen as wrong

this kind of moral hazard is nothing to dismiss. I wonder if the first place it will be noticed is on imports, were oil exporting countries want to be paid in un-watered currency. This would be a hidden tax on all americans.

[slipslidingaway]

24. Geithner, head of the NY Fed since 2003 knows...

and Surprise Obama picks him to head up the Treasury in November 2008.

:shrug: