Federal Reserve finally discloses *its* loans to banks

After repeated Freedom of Information Act requests, months of litigation and an act of Congress, the Federal Reserve has finally--and obviously reluctantly--disclosed how much of your money it loaned to various banks and other financial institutions in its efforts to solve the "mortgage crisis" of 2008.

Before getting to the details, let's try to give some perspective to the outrage:

In 2006, as home prices peaked, the 10 biggest U.S. banks and brokerage firms had their best year ever, earning combined profits of $104 billion.

Just two years later, with home prices collapsing and record numbers of foreclosures (most due to defaults by borrowers who would never have qualified for a loan under time-tested standards), the U.S. Treasury loaned these same top-ten firms $160 Billion to keep them in business.

The media reported this, typically with some degree of outrage about the Bush administration bailing out "its friends in the banking business."

Now comes the forced disclosure that the Federal Reserve loaned banks and "other financial institutions" as much as $1.2 trillion of supposedly-maybe-perhaps public money. That's seven times more than the U.S. Treasury bailout.

Just the three biggest recipients alone--Morgan Stanley ($107.3 billion), Citigroup ($99.5 billion) and Bank of America ($91.4 billion), got more in loans than the combined profits of the ten largest banks in their record year.

Another shocker is that almost half of the top 30 recipients of Fed loans were European firms.

In an effort at damage control, the Fed says it hasn’t lost any money on these loans. Of course it can't know that until they've all been repaid, can it? And if you think they've all been repaid, you probably shouldn't be voting because you're too gullible: In order to do that the banks would have had to record eleven times more profit in the last two years than they did in their record year of 2008.

Didn't happen. So the Fed is...how do you say it? Oh yeah: spouting crap.

The Fed also says it has actually “netted $13 billion in interest and fee income” over the past two years. Let’s assume all of that $13 billion was interest. $13 B in interest on a $1.2 Trillion loan for two years works out to an interest rate less than one-half of one percent.

To say thats a good rate for the banks is an understatement. By comparison, the interest the government pays on our national debt – a phenomenally low rate that we’re damned lucky to have – is about nine times higher.

Why did the Fed fight so hard for so long to keep 90% of its loans secret? The Fed says it's because “releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs,” according to Bloomberg. Thus any banking and borrowing decisions you made during this time were made without knowing the facts--because the most important objective was to maintain the illusion of stability. At least that's the judgment of people you don’t get to vote against.


(If you don't trust the information because of the link used, here's the original data at Bloomberg Financial.)