The big question of "can we trust whet the government tells us?" Was answered for us this week with the release ( although slyly and begrudgingly) by the FED of the extent of loans, temporary and otherwise to a whopping 21,000 individual institutions ranging from the world's biggest banks to the largest corporations including GE, HARLEY DAVIDSON and others. SURPRISE!!!!!
If it were not for specific previously passed legislation that mandated the disclosure of these unbelievable intervention loans which at its height reached a staggering $8 TRILLION, we would just be all treated as too dumb to be told about the extent of the intervention.
Literally, everybody who asked got money from the FED ( not us citizens of course, our collateral-homes, are just repossessed with no fanfare). Keep in mind the FED has no money, it just writes checks that never bounce though internal bookkeeping that can best be described as "don't ask don't tell" accounting. That is not according to GAAP, accounting standards the rest of the world needs to abide by.
The FED took collateral of every type ( not really, it was just told that it would have such collateral pleaded for its benefit) to extend the loans. It bought commercial paper of GE, of HARLEY DAVIDSON and took "securities of indeterminable value" of some $800 BILLION while extending loans.
Based on what we know about literally every department of the government, do you actually think that someone there knows anything about the 21,000 "loans" that were extended? Does the purported collateral actually exist?
So, forget Congress AND ITS "OVERSIGHT", forget common sense, the FED can do as it pleases with no oversight, and can "lend" TRILLIONS" if it wants to on its own. IT'S IRRESPONSIBLE LENDING CAN DESTROY THE DOLLAR!
Time to rein it in, don't you think!? THEY NEED DAILY oversight and supervision.
he Federal Reserve withheld details on individual securities pledged as collateral by recipients of $885 billion in central bank loans, denying taxpayers a measure of the risks they faced from its emergency aid.
The central bank yesterday released data on 21,000 transactions from $3.3 trillion in emergency lending to stem the financial crisis. July’s Dodd-Frank law required the Fed to disclose the names of borrowers, the size and interest rates of loans, and “information identifying the types and amounts of collateral pledged or assets transferred.”
For three of the Fed’s six emergency facilities, the central bank released information on groups of collateral it accepted by asset type and rating, without specifying individual securities. Among them was the Primary Dealer Credit Facility, created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed.
“This is a half-step,” said former Atlanta Fed research director Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “If you were going to audit the facilities, then would this enable you to do an audit? The answer is ‘No,’ you would have to go in and look at the individual amounts of collateral and how it was broken down to do that. And that is the spirit of what the requirements were in Dodd-Frank.”
Fed spokesmen in Washington declined to comment.
Public Disclosure
The public disclosure of the lending data should have been prevented because it could spur runs on the banks listed, said Darrell Duffie, a finance professor at Stanford University ( yeah, let's just lie instead, genius!).
“That’s a very destructive process,” he said. Still, with the data released, “if you’re justified in getting the information, then you’re justified to get enough information to judge the risk the Fed took,” he said.
Under its definition of the “ratings unavailable” category for collateral posted under the PDCF, the Fed said that “in some limited cases, ineligible collateral was pledged, but it was reviewed with the clearing banks for exclusion from future pledges.” The central bank didn’t elaborate.
The secrecy surrounding Fed bailouts led lawmakers to demand disclosure after the central bank approved aid dwarfing the federal government’s $700 billion Troubled Asset Relief Program. Think about it $ 8 TRILLION...that is more than the Gross National Product of all countries in the largest 7 together excluding the USA.
Collateral Pledged
The loans extended to primary dealers under the PDCF by the New York Fed were recourse loans, meaning the potential liability of borrowers who defaulted was greater than the value of the collateral pledged, according to the Fed. Primary dealers are the firms authorized to deal in government securities directly with the Fed. At its peak, borrowing under the facility came to about $156 billion.
It is “specifically impossible” to know how much risk taxpayers were taking by looking at pools of collateral grouped by asset class and rating, said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “Elements of Structured Finance,” published in May by Oxford University Press.
“I need to know the individual composition because a $2 billion pool can be one asset of $2 billion, which would be very risky, or 2,000 assets of $1 million each, and that’s not risky at all,” Raynes said. “The spirit of Dodd-Frank was not respected, and they used the vagueness in the wording of the law to weasel out of fulfilling their duty to the American people.”
Corporate Debt
Over the life of the PDCF, $1.5 trillion of collateral with “ratings unavailable” was pledged, according to the Fed data. That’s larger than the $1.39 trillion of municipal debt pledged. Corporate debt posted totaled $2.35 trillion.
A total of $8.95 trillion was lent over the life of the PDCF, backed by $9.67 trillion in collateral.
The Fed released details identifying thousands of transactions including bonds bought under its mortgage purchase program and asset-backed commercial paper pledged under its Asset-Backed Commercial Paper Money-Market Mutual Fund Liquidity Facility.
The central bank also omitted details on individual securities pledged as collateral under its Term Auction Facility and its Term Securities Lending Facility, which was announced on March 11, 2008, as the first program under which the Fed planned to lend to non-bank dealers.
The Fed authorized its New York branch to establish the PDCF on March 16, 2008, the same day it made commitments to convince JPMorgan Chase & Co. to buy troubled dealer Bear Stearns. A run on New York-based Bear Stearns was seen as threatening the stability of global markets, and the PDCF for the first time allowed dealers to borrow on a collateralized basis from the New York Fed.
Lehman Collapse
In September that year, as Lehman Brothers Holdings Inc. was on the brink of filing for bankruptcy, the PDCF was expanded to accept all types of collateral pledged in tri-party repo deals, including high-yield, high-risk securities and equities. The previous program only accepted investment-grade debt securities.
The first peak of PDCF lending occurred in April 2008 at nearly $40 billion, according to the New York Fed. As financial markets improved, banks reduced their balance-sheet risk and the PDCF pricing became less attractive, usage of the facility fell off and stopped in mid-July that year.
Borrowing then leapt to over $140 billion in mid-September 2008 from no activity the previous week, according to the New York Fed. The program ended Feb. 1 this year.
Under the TSLF, dealers could swap investment-grade securities, including mortgage bonds, for U.S. Treasuries for 28 days. Usage peaked at $235.5 billion in October 2008, and the program was also closed in February.
The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.
The Fed's efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household-name companies such as Verizon, Harley-Davidson and Toyota. The central bank's aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.
The biggest users of the Fed lending programs were some of the world's largest banks, including Citigroup, Bank of America, Goldman Sachs, Swiss-based UBS and Britain's Barclays, according to more than 21,000 loan records released Wednesday under new financial regulatory legislation.
The data reveal banks turning to the Fed for help almost daily in the fall of 2008 as the central bank lowered lending standards and extended relief to all kinds of institutions it had never assisted before.
Fed officials emphasize that their actions were meant to stabilize a financial system that was on the verge of collapse in late 2008. They note that the actions worked to prevent a complete financial meltdown and that none of the special lending programs has lost money. (Some have recorded healthy profits for taxpayers.)
But the extent of the lending to major banks - and the generous terms of some of those deals - heighten the political peril for a central bank that is already under the gun for a wide range of actions, including a recent decision to try to stimulate the economy by buying $600 billion in U.S. bonds.
"The American people are finally learning the incredible and jaw-dropping details of the Fed's multitrillion-dollar bailout of Wall Street and corporate America," said Sen. Bernard Sanders (I-Vt.), a longtime Fed critic whose provision in the Wall Street regulatory overhaul required the new disclosures. "Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions."
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The Fed launched emergency programs totaling $3.3 trillion in aid, a figure reached by adding up the peak amount of lending in each program.
Companies that few people would associate with Wall Street benefited through the Fed's program to ease the market for commercial paper, a form of short-term debt used by major corporations to fund their daily activities.
By the fall of 2008, credit had frozen across the financial system, including the commercial paper market. The Fed then purchased commercial paper issued by GE 12 times for a total of $16 billion. It bought paper from Harley-Davidson 33 times, for a total of $2.3 billion. It picked up debt issued by Verizon twice, totaling $1.5 billion.
"It is hard to say what would have happened without the facility, and how its absence might have affected GE, but overall the program was extremely effective in helping stabilize the market," GE spokesman Russell Wilkerson said by e-mail.
Verizon spokesman Robert A. Varettoni said that it was "an extraordinary time," adding that there was no credit available otherwise at the time.
The data revealed that the Fed continued making purchases into the summer of 2009 - after the official end of the recession - showing that it was still concerned about a fundamental part of the financial system even as economic growth was returning.
The disclosure shows "how really profound the financial crisis was in the fall of 2008 and the firepower the Fed mustered in response," said analyst Karen Shaw Petrou of Federal Financial Analytics.
Foreign-owned banks also benefited from the Fed's commercial-paper facility. The Korean Development Bank, owned by the South Korean government, used the program to the tune of billions of dollars, including a $407 million short-term loan on a single day. Many foreign banks, including the French BNP Paribas, the Swiss UBS and the German Deutsche Bank, took extensive advantage of various programs. Even a major bank in Bavaria benefited, as well as another one headquartered in Bahrain, a tiny island country in the Middle East.
Another Fed program allowed investment banks for the first time to borrow directly from the Fed as officials sought to stem the panic that had taken down Wall Street titan Bear Stearns. The central bank assisted 18 companies through this program. Among the biggest beneficiaries was Citigroup, which in a single day in November 2008 borrowed $18.6 billion from the Fed.
The data also demonstrate how the Fed, in its scramble to keep the financial system afloat, eventually lowered its standards for the kind of collateral it allowed participating banks to post. From Citigroup, for instance, it accepted $156 million in triple-C collateral or lower - grades that indicate that the assets carried the greatest risk of default.
Dallas Federal Reserve President Richard Fisher defended the Fed's actions during the financial crisis, saying the central bank "stepped into the breach" in its role as a lender of last resort.
"That's what we are paid to do," he said. "We took an enormous amount of risk with the people's money," he acknowledged. But the crisis lending programs are now all closed, he said, "and we didn't lose a dime, and in fact we made money on every one of them."
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The banks universally hailed the Fed on Wednesday ( what a surprise?).
"In late 2008, many of the US funding markets were clearly broken," Goldman Sachs said in a statement, echoing similar comments made by Bank of America and Citigroup. "The Federal Reserve took essential steps to fix these markets and its actions were very successful."
By 2009, Goldman and other Wall Street firms were reporting their best profits ever. That allowed these banks to pay out huge salaries again, but it also drew the ire of lawmakers and ordinary Americans.
Sanders, for one, said these banks got off easy while receiving extraordinary aid. In rescuing these firms, the Fed never required them to lend to small businesses, modify the mortgages of homeowners or invest in a way that would create jobs.
"We bailed these guys out, but the requirements placed upon them had very little positive impact on the needs of ordinary Americans," Sanders said.
RIGHT ON, MR. SANDERS!!!!!!
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