Actual Bailout May Exceed $10 Trillion
by: Matt Renner
t r u t h o u t
13 May 2009
http://www.truthout.org/051309J?n
the stakes in an ongoing fight between Congress and
the Federal Reserve over transparency in the massive
bailout of the financial sector.
Ask most people on the street how much money
taxpayers are using to save banks and you will
probably hear the number $700 billion. The Troubled
Asset Relief Program (TARP) passed by Congress at
the urging of the Bush administration and then
Treasury secretary Henry Paulson, allocated an
unprecedented sum of taxpayer money for the sole
purpose of propping up the financial sector in its darkest hour.
But the actual number is much bigger. The current
block of taxpayer money that has been pledged by the
system from collapsing, according to an analysis by
Bloomberg News, is roughly $12.8 trillion as of
March 31. This money has been lent, spent or
guaranteed to prevent a systemic collapse. The
Bloomberg report and a chart showing broad
categories of where the money has come from and the
programs it funds can be found here.
Critics have pointed out that the Federal Reserve,
the public-private partnership that controls the
supply of dollars on the world stage and in the
emergency money - $7.765 trillion - and is being
secretive about where the money is going.
In an interview with Truthout, Rep. Alan Grayson (D-
"Enron accounting," and has "socialized Wall
Street's bad bets."
A lawyer with years of experience battling
corruption on behalf of taxpayers and
whistleblowers, Representative Grayson began a
crusade to follow the bailout money after taking
office in January 2009. As a member of the powerful
House Financial Services Committee, Representative
Grayson has been challenging bank executives and
members of the Federal Reserve to disclose the terms
of the massive hidden deals.
"The Federal Reserve likes to bill itself as an
independent agency but what it really is is an
agency that is entirely dependent on banks. When you
look and see how it is structured, you see that Wall
Street runs the show. This is something that people
on the political right have been complaining about
for decades. Everybody's worst nightmares are now
taking place because we are seeing the transfer of
literally trillions of dollars of wealth from the
taxpayer to the bad banks," Grayson said.
Regarded by many as the most powerful institution in
the world, the Federal Reserve operates in concert
with the
control. Set up to be free from political influence,
the seven-member Federal Reserve board of governors
are appointed by the president and confirmed by the
Senate for a single 14-year term. Because the
Federal Reserve system is a collaboration between
public and private entities, the actions the 12
regional banks take can be hidden from public view.
The Federal Reserve has stepped in as the "lender of
last resort," bailing out financial firms by lending
them billions of dollars, directly purchasing their
so-called "toxic assets" and guaranteeing or
insuring some of the piles of risky assets. These
actions have absorbed much of the risk for banks and
financial institutions on behalf of the
Institutions such as American International Group
(A.I.G.), Citigroup, Bear Sterns, Bank of
and others have been thrown a lifeline by the Federal Reserve.
The balance sheet of the Federal Reserve has more
than doubled as a result of its emergency lending
and buying, and currently stands at $2.06 trillion
as of May 6. But the transactions which do not
appear on the Federal Reserve's balance sheet are
deeply concerning to Representative Grayson.
In a February 11 hearing, Representative Grayson
grilled Vikram Pandit, the CEO of Citigroup, and
took the Federal Reserve to task for what he called
a "heads I win, tails you loose" deal, under which
the Federal Reserve agreed to absorb most of the
possible losses on a $300 billion pile of the Citi's
"toxic" mortgaged-backed securities. Citi's Pandit
called the deal "insurance."
"In the [Citigroup deal] there are billions upon
billions of dollars of income on these assets even
after they go bad because they [the underlying
mortgages] don't all go bad. So these assets produce
billions of dollars of income every year and
Citigroup gets to keep the income as well as the
appreciation on the assets and the government just
takes the losses," Representative Grayson told Truthout.
The Citigroup deal was made public because it
involved other government agencies including the
Treasury. According to Bloomberg and Representative
Grayson, the Federal Reserve has been engaging in
transactions which it has kept off of its publicly
available balance sheet.
"The strange thing about this is that only two
trillion of this activity has turned up on the
Federal Reserve's balance sheet. In the case of the
Citibank deal, it is on Citibank's balance sheet and
off the Federal Reserve's balance sheet, which makes
no sense whatsoever," Grayson said, adding "The
Federal Reserve has adopted Enron book-keeping
procedures at this point."
The off-balance sheet activities of the Federal
Reserve may have helped sick banks clear out their
books and pass the so-called bank "stress test,"
according to Grayson.
"Essentially what the Fed has done is to change
Uncle Sam into Uncle Sap. We have become the saps
for Wall Street," Grayson said.
Representative Grayson told Truthout that the
Federal Reserve has not been responsive to requests
for information from his office. He suggested that
Congress may need to use its subpoena power to pry
loose more information about where the money is
going and what the Federal Reserve is taking as
collateral to back up their loans.
Bloomberg News is suing the Federal Reserve for this
and other information under the Freedom of Information Act (FOIA).
In a May 6 hearing, Representative Grayson asked
Elizabeth Coleman, the Federal Reserve inspector
general - the institution's internal watchdog - if
she was monitoring the institution's bailout
activities. In her response, Coleman made clear that
she does not believe she has oversight authority
over the actions of the individual Federal Reserve
banks, instead she only has authority to inspect the
activities of the Federal Reserve board of
governors.
Under questioning, Coleman said that the Federal
Reserve office of the inspector general was not
aware of the Federal Reserve's specific bailout activities.
Representative Grayson: "Do you know who received
that $1 trillion plus that the Fed extended and put
on its balance sheet since last September [2008]?"
Elizabeth Coleman: "I do not know, we have not
looked at that specific area."
Later ...
Representative Grayson: "Have you done any
investigation or auditing of off-balance sheet
transactions conducted by the Federal Reserve?"
Elizabeth Coleman: "At this point, we are conducting
our lending facilities project at a fairly high
level and have not gotten to a specific level of
detail to be in a position to respond to your
question."
Federal Reserve officials have said that releasing
the names of the companies which have borrowed
billions of dollars would signal weakness to the
market and could cause a run on the banks.
Famed former Senate Foreign Relations Subcommittee
investigator and international finance expert Jack
Blum told Truthout that this fear has some merit.
"The Federal Reserve takes the attitude that their
job is to protect the banking system. You can't step
out and start telling people which banks are
troubled and where the crisis is because the
consequence of that will be to have everybody desert
the bank. That is the thorny problem that has led
the Federal Reserve to keep quiet what they are
doing. That has a degree of legitimacy," Blum said.
But this situation cannot last forever, according to Blum.
"The question is how far do you let them carry it.
At what point, when everybody now knows how screwed
up things are, once you've gotten past the point
where you've guaranteed everything, how much longer
do you have to maintain secrecy to protect the institution?"
(2)
Financial Rescue Nears GDP as Pledges Top $12.8 Trillion
By Mark Pittman and Bob Ivry
Bloomberg
March 31, 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4
The
lent or committed $12.8 trillion, an amount that
approaches the value of everything produced in the
country last year, to stem the longest recession since the 1930s.
New pledges from the Fed, the Treasury Department and
the Federal Deposit Insurance Corp. include $1 trillion
for the Public-Private Investment Program, designed to
help investors buy distressed loans and other assets
from
every man, woman and child in the
$899.8 billion of currency in circulation. The nation's
gross domestic product was $14.2 trillion in 2008.
President Barack Obama and Treasury Secretary Timothy
Geithner met with the chief executives of the nation's
12 biggest banks on March 27 at the White House to
enlist their support to thaw a 20-month freeze in bank lending.
"The president and Treasury Secretary Geithner have said
they will do what it takes," Goldman Sachs Group Inc.
Chief Executive Officer Lloyd Blankfein said after the
meeting. "If it is enough, that will be great. If it is
not enough, they will have to do more."
Commitments include a $500 billion line of credit to the
FDIC from the government's coffers that will enable the
agency to guarantee as much as $2 trillion worth of debt
for participants in the Term Asset-Backed Lending
Facility and the Public-Private Investment Program. FDIC
Chairman Sheila Bair warned that the insurance fund to
protect customer deposits at
because of bank failures.
`Within an Eyelash'
The combined commitment has increased by 73 percent
since November, when Bloomberg first estimated the
funding, loans and guarantees at $7.4 trillion.
"The comparison to GDP serves the useful purpose of
underscoring how extraordinary the efforts have been to
stabilize the credit markets," said Dana Johnson, chief
economist for Comerica Bank in
"Everything the Fed, the FDIC and the Treasury do
doesn't always work out right but back in October we
came within an eyelash of having a truly horrible
collapse of our financial system, said Johnson, a former
Fed senior economist. "They used their creativity to
help the worst-case scenario from unfolding and I'm
awfully glad they did it."
Federal Reserve officials project the economy will keep
shrinking until at least mid-year, which would mark the
longest
The following table details how the Fed and the
government have committed the money on behalf of
American taxpayers over the past 20 months, according to
data compiled by Bloomberg.
===========================================================
--- Amounts (Billions)---
Limit Current
===========================================================
Total $12,798.14 $4,169.71
-----------------------------------------------------------
Federal Reserve Total $7,765.64 $1,678.71
Primary Credit Discount $110.74 $61.31
Secondary Credit $0.19 $1.00
Primary dealer and others $147.00 $20.18
ABCP Liquidity $152.11 $6.85
AIG Credit $60.00 $43.19
Net Portfolio CP Funding $1,800.00 $241.31
Maiden Lane (Bear Stearns) $29.50 $28.82
Maiden Lane II (AIG) $22.50 $18.54
Maiden Lane III (AIG) $30.00 $24.04
Term Securities Lending $250.00 $88.55
Term Auction Facility $900.00 $468.59
Securities lending overnight $10.00 $4.41
Term Asset-Backed Loan Facility $900.00 $4.71
Currency Swaps/Other Assets $606.00 $377.87
MMIFF $540.00 $0.00
GSE Debt Purchases $600.00 $50.39
GSE Mortgage-Backed Securities $1,000.00 $236.16
Citigroup Bailout Fed Portion $220.40 $0.00
Bank of
Commitment to Buy Treasuries $300.00 $7.50
-----------------------------------------------------------
FDIC Total $2,038.50 $357.50
Public-Private Investment* $500.00 0.00
FDIC Liquidity Guarantees $1,400.00 $316.50
GE $126.00 $41.00
Citigroup Bailout FDIC $10.00 $0.00
Bank of
-----------------------------------------------------------
Treasury Total $2,694.00 $1,833.50
TARP $700.00 $599.50
Tax Break for Banks $29.00 $29.00
Stimulus Package (Bush) $168.00 $168.00
Stimulus II (Obama) $787.00 $787.00
Treasury Exchange Stabilization $50.00 $50.00
Student Loan Purchases $60.00 $0.00
Support for Fannie/Freddie $400.00 $200.00
Line of Credit for FDIC* $500.00 $0.00
-----------------------------------------------------------
HUD Total $300.00 $300.00
Hope for Homeowners FHA $300.00 $300.00
-----------------------------------------------------------
The FDIC's commitment to guarantee lending under the
Legacy Loan Program and the Legacy Asset Program includes a $500
billion line of credit from the
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