Report: Federal Reserve lent banks nearly $8 trillion during 2007-2009 crises
Loan allowed banks to keep paying executives millions of dollars
Throughout the 2007 - 2009 financial crises, major American banks
assured the public that everything was fine - while at the same time
approaching the Federal Reserve to borrow $7.77 trillion. That mount was
many more times higher than the TARP bailout. The loan allowed the
banks to continue to pay out exorbitant fees - and many fear yet another
crisis is on the way.
The Fed contends that the biggest financial institutions in the country were too big to fail. That phrase has become a bone of contention among lawmakers. They argue that a 'too big to fail' bank is one that's too big to exist.
A win in court against a group representing the banks and a FOIA request filed by Bloomberg revealed the extent of the central bank's largesse - as well as the $13 billion in profits banks earned from those bailouts.
JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley, also known as "the big six," accounted for $4.8 billion of that total, nearly a quarter of their net income during that time.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
The narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
Until recently, those trillions were a deeply-buried secret. The highest-ranking Fed officials didn't know about the enormity of the handouts. Then-president of the Federal Reserve Bank of Minneapolis Gary H. Stern "wasn't aware of the magnitude." Unnamed sources say that even top aides to Treasury Department head Henry Paulson were denied information.
The "big six" received a total $160 billion in TARP funds. As much as $460 billion was lent from the Fed, raising the question as to how and why this nearly $8 trillion in loans, guarantees and limits remained under wraps for so long.
According to the reserve, the massive scale of banks' borrowing had to be kept secret to avoid spooking investors. They feared that if the magnitude of the borrowed funds would create a panic, or bank runs that would have had even more devastating consequences on the already battered economy.
The Fed contends that the biggest financial institutions in the country were too big to fail. That phrase has become a bone of contention among lawmakers. They argue that a "too big to fail" bank is one that's too big to exist.
Ohio Senator Sherrod Brown sponsored a bill last year that would cap a bank's non-deposit liabilities at 2 percent of gross domestic product, and crack down on workarounds banks currently use to bypass a 1994 law that prohibits any one bank from holding more than 10 percent of all deposits in the country.
© 2011, Catholic Online. Distributed by NEWS CONSORTIUM.
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Pope Benedict XVI's Prayer Intentions for January 2013
General Intention: The Faith of Christians. That in this Year of Faith Christians may deepen their knowledge of the mystery of Christ and witness joyfully to the gift of faith in him.
Missionary Intention: Middle Eastern Christians. That the Christian communities of the Middle East, often discriminated against, may receive from the Holy Spirit the strength of fidelity and perseverance.
Keywords: Federasl reserve, Big Six, banks, trillions, bailout
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