[News] Feds lent $1.2 trillion to Wall St. elite

[Anti-Imperialist News]

Feds lent $1.2 trillion to Wall St. elite

Bradley Keoun,Phil Kuntz, Bloomberg News

Tuesday, August 23, 2011

Citigroup and Bank of America were the reigning champions of finance 
in 2006 as home prices peaked, leading the 10 biggest U.S. banks and 
brokerage firms to their best years ever with $104 billion of profits.

By 2008, the housing market's collapse forced those companies to take 
more than six times that much, $669 billion, in emergency loans from 
the U.S. Federal Reserve. The loans dwarfed the $160 billion in 
public bailouts the top 10 got from the U.S. Treasury, yet until now 
the full amounts had remained secret.

Fed Chairman Ben Bernanke's unprecedented effort to keep the economy 
from plunging into depression included lending 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. The largest borrower, Morgan Stanley, got 
$107.3 billion, while Citigroup took $99.5 billion and Bank of 
America $91.4 billion, according to a compilation of data obtained 
through Freedom of Information Act requests, months of litigation and 
an act of Congress.

"These are all whopping numbers," said Robert Litan, a former Justice 
Department official who in the 1990s served on a commission probing 
the causes of the savings and loan crisis. "You're talking about the 
aristocracy of American finance going down the tubes without the 
federal money."

It wasn't just American finance. Almost half of the Fed's top 30 
borrowers, measured by peak balances, were European firms. They 
included Edinburgh-based Royal Bank of Scotland PLC, which took $84.5 
billion. Germany's Hypo <http://www.sfgate.com/realestate/>Real 
Estate Holding AG borrowed $28.7 billion, an average of $21 million 
for each of its 1,366 employees.

The $1.2 trillion peak, on Dec. 5, 2008 - the combined outstanding 
balance under the seven programs tallied - was almost three times the 
size of the U.S. federal 
<http://www.sfgate.com/california_budget/>budget deficit that year 
and more than the total earnings of all federally insured banks in 
the United States for the decade through 2010.

The balance was more than 25 times the Fed's precrisis lending peak 
of $46 billion, on Sept. 12, 2001, the day after terrorists attacked 
the World Trade Center in New York and the Pentagon. Denominated in 
$1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

The Fed has said it had "no credit losses" from the emergency 
programs, and a report by Federal Reserve Bank of New York staffers 
in February said they netted $13 billion in interest and fee income 
from August 2007 through December 2009.

"We designed our broad-based emergency programs to both effectively 
stem the crisis and minimize the financial risks to the U.S. 
taxpayer," said James Clouse, deputy director of the Fed's division 
of monetary affairs in Washington. "Nearly all of our 
emergency-lending programs have been closed. We have incurred no 
losses and expect no losses."

While the 18-month U.S. recession that ended in June 2009 after a 5.1 
percent contraction in gross domestic product was nowhere near the 
four-year, 27 percent decline between August 1929 and March 1933, the 
economy remains stressed. Homeowners are more than 30 days past due 
on mortgage payments for 4.4 million properties in the United States, 
and 2.2 million more properties are in foreclosure, representing a 
combined $1.27 trillion of unpaid principal, estimates Lender 
Processing Services Inc.

"Why in hell does the Federal Reserve seem to be able to find the way 
to help these entities that are gigantic?" Rep. Walter B. Jones, 
R-N.C., said at a June 1 congressional hearing in Washington. "They 
get help when the average businessperson down in eastern North 
Carolina, and probably across America, they can't even go to a bank 
they've been banking with for 15 or 20 years and get a loan."

Fed officials had resisted releasing borrowers' identities, saying it 
would stigmatize banks, damaging stock prices or leading to depositor 
runs. Last year's Dodd-Frank Act mandated an initial round of such 
disclosures in December. A group of the biggest commercial banks last 
year asked the U.S. Supreme Court to keep some details secret. In 
March, the high court declined to hear that appeal, and the central 
bank made an unprecedented release of records.

Data gleaned from 29,346 pages of documents and from other Fed 
databases reflect seven programs from August 2007 through April 2010: 
the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity 
Facility, Commercial Paper Funding Facility, discount window, Primary 
Dealer Credit Facility, Term Auction Facility, Term Securities 
Lending Facility and single-tranche open market operations.

The data show for the first time how deeply the world's largest banks 
depended on the U.S. central bank. Even as firms asserted in news 
releases or earnings calls that they had ample cash, they drew Fed 
funding in secret, avoiding the stigma of weakness.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/08/23/BUM11KQCJN.DTL

This article appeared on page D - 1 of the San Francisco Chronicle




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