Executive Branch

Bloomberg: Secret $7.77T in Fed Loans, Limits and Guarantees Saved Banks, Helped Industry Earn $13B


Corrected: Saved by a stunning amount of secret low-interest emergency loans by the Federal Reserve at the same time they were assuring their investors that they were on solid financial footing during the financial crisis, a number of the nation’s banks also lobbied successfully against regulatory reform.

Now the industry is back in the black and has reaped some $13 billion in profits thanks to the government’s help, reports Bloomberg Markets Magazine.

The total of the emergency Fed loans, guarantees and lending limits, for help given between 2007 and 2010, was about $7.77 trillion, the article reports. At the height of the program, the Fed lent $1.2 trillion to banks on a single day, Dec. 5, 2008.

Those amounts dwarf the the $700 billion that funded the controversial Troubled Asset Relief Program to help address toxic bank holdings.

The article is based on some 29,000 pages of federal documents. The news agency obtained them under the Freedom of Information Act, after winning a court case against the Fed and Clearing House Association LLC, a group formed by big banks. The litigation reached a conclusion earlier this year when the U.S. Supreme Court refused to hear an appeal by the banks.

The article suggests that the Fed’s secret emergency loans may have concealed information from lawmakers that would have persuaded them to enact regulatory reforms and shored up a banking system that may not be operating in the best interest of consumers. Big banks, some experts say, put the nation at risk of a chain-reaction financial crisis if they were to fail and, even today, are paying workers above-market salaries, according to Bloomberg.

“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sen. Sherrod Brown, D-Ohio, who tried without success to persuade fellow lawmakers to limit the size of big banks.

“This is an issue that can unite the Tea Party and Occupy Wall Street,” he told Bloomberg. “There are lawmakers in both parties who would change their votes now.”

Others say that the Fed-orchestrated relief program for banks, which included both the emergency loans and TARP, was not only within the Fed’s legal authority but necessary to deal with a financial crisis.

For more details, read the full article.

Updated at 11:46 a.m. to correct the amount of money in the Troubled Asset Relief Program to $700 billion.


Correction

Updated at 11:46 a.m. to correct the amount of money in the Troubled Asset Relief Program to $700 billion.


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