According to reports:
The first-ever audit of the US Federal Reserve has revealed 16 trillion dollars in secret bank bailouts and has raised more questions about the quasi-private agency’s opaque operations.
“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” US Senator Bernie Sanders, an Independent from Vermont, said in a statement.
The majority of loans were issues by the Federal Reserve Bank of New York (FRBNY).
“From late 2007 through mid-2010, Reserve Banks provided more than a trillion dollars … in emergency loans to the financial sector to address strains in credit markets and to avert failures of individual institutions believed to be a threat to the stability of the financial system,” the audit report states.
“The scale and nature of this assistance amounted to an unprecedented expansion of the Federal Reserve System’s traditional role as lender-of-last-resort to depository institutions,” according to the report.
$16 trillion? $16 trillion!?! And that is over and above the trillions in other TARP monies.
Crony Corporatism and picking winners? Check!
Some of the financial institutions secretly receiving loans were meanwhile claiming in their public reports to have ample cash reserves, Bloomberg noted.
The Federal Reserve has neither explained how they legally justified several of the emergency loans, nor how they decided to provide assistance to certain firms but not others.
“The main problem is the lack of Congressional oversight, and the way the Fed seemed to pick winners who would be protected at any cost,” Randall Wray, professor of economics at University of Missouri-Kansas City, told IPS.
“If such lending is not illegal, it should be. Our nation really did go through a liquidity crisis – a run on the short-term liabilities of financial institutions. There is only one way to stop a run: lend reserves without limit to all qualifying institutions. The Fed bumbled around before it finally sort of did that,” Wray said.
“But then it turned to phase two, which was to try to resolve problems of insolvency by increasing Uncle Sam’s stake in the banksters’ fiasco. That never should have been done. You close down fraudsters, period. The Fed and FDIC (Federal Deposit Insurance Commission) should have gone into the biggest banks immediately, replaced all top management, and should have started to resolve them,” Wray said.
Congressional oversight? Does anyone think Congress would have done anything differently if they had more oversight? They would have rubber-stamped these loans as well. Remember the logic of Congressmen like Mike Rogers from Alabama:
Now, over and above the other insane spending, corporate welfare, and tax-cuts, Mike Rogers voted for the most radical initiative of my lifetime: a trillion-dollar Wall Street bailout. A week before this, no one ever mentioned such, but Congress approved the bill a week after its proposal. He tacitly approved the buyout of Bear Stearns in March ($29 billion), nationalization of an insurance conglomerate, AIG ($85 billion), and repossession of Freddie Mac/Fannie Mae ($200 billion).
The Congressman defends that “the Great Depression was the hard lesson of inaction.” On the contrary, following the excesses of the Roaring 20′s, then-president Hoover engaged in an aggressive “intervention” of artificial prices, credit expansion, propping up of weak firms, and increased governmental spending. Rogers’ and Hoover’s policies and rhetoric are eerily similar. Hoover said “we might have done nothing. . . .Instead we . . .put into action. . . the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic . . .” Hoover’s actions, not inaction, caused a necessary correction to spiral the economy into the Great Depression. Congressman Rogers should reconsider the lessons learned from Herbert Hoover.
Conflicts of Interest and self-dealing? Check!
The GAO also found existing Federal Reserve policies do not prevent significant conflicts of interest. For example, “the FRBNY’s existing restrictions on its employees’ financial interests did not specifically prohibit investments in certain non-bank institutions that received emergency assistance,” the report stated.
The GAO report noted on Sep. 19, 2008, William Dudley, who is now the President of the FRBNY, was granted a waiver to let him keep investments in AIG and General Electric, while at the same time the Federal Reserve granted bailout funds to the same two companies.
And we question why we have a zombie economy today. As I wrote in 2008:
Congress deformed not just authentic prosperity in the near future but for the next fifty years. The market will be plagued with higher unemployment, rising costs of goods: long-term stagflation.In addition, Congress has directed us toward domination by a few huge universal banks and a small number of gigantic corporations, all of them “too big to fail,” under the careful tutelage of a governmental Leviathon dominated by these same cartels.
Does Congress not recognize this vote penalizes prudence, care and thrift and encourages further greed, seduction, waste, and ruin by the palaces of crony capitalism? Or does it agree with John Maynard Keynes, the father of this type economics, when he stated: “in the long run, we are all dead.”
While intentions to protect Main Street are good, Congress has failed to be the defender for the little people: small businesses, family farms, and local communities. Instead it has only transferred wealth from low- and middle-classes to pockets of those who know how to work the system: corporate fat-cats, Wall Street executives , and D.C. bureaucrats.