"In a time of universal deceit telling the truth is a revolutionary act." -George Orwell

Posts Tagged ‘U.S. Federal Reserve’

Overdose: The Next Financial Crisis

In Uncategorized on December 20, 2012 at 6:09 pm

Oldspeak: ““Ultimately there is going to be a price all around the world to be paid for this and the longer it continues the bigger that price is going to be.” – Peter P. Schiff, President Euro Pacific CapitalWhen the world’s financial bubble blew, the solution was to lower interest rates and pump trillions of dollars into the sick banking system. “The solution is the problem, that’s why we had a problem in the first place”. For Economics Nobel laureate Vernon Smith, the Catch 22 is self-evident. But interest rates have been at rock bottom for years, and governments are running out of fuel to feed the economy. “The governments can save the banks, but who can save the governments?” Forecasts predict all countries’ debt will reach 100% of GDP by next year. Greece and Iceland have already crumbled, who will be next?” The bailout bubble will inevitably pop. It is many times larger than any other financial bubble yet seen and it is global. Corporations world wide are being bailed out by governments, but as we’ve seen in Greece, Iceland, Spain, Italy, Portugal, governments themselves are collapsing under weight of the bailouts. Now governments need bailouts, ceding control to technocrats who go about the business of privatizing public assets, cutting social services and increasing taxes to facilitate extraction of the government and nations resources. Conditions are very much similar to those that existed in 2008 before the last collapse.   When it pops this will be the mother of all bubbles.  Interest rates are at or near zero across much of the world. There is no more rate lowering to be done to make possible more “stimulus packages”. It will be very interesting to see how thing proceed past that point.  My guess is not well.

Overdose: The Next Financial Crisis

https://www.youtube.com/watch?feature=player_embedded&v=4ECi6WJpbzE

U.S. Federal Reserve “Emergency” Bank Bailout Totaled $29 TRILLION Over 3 Years, Most Went To Rescue ‘Shadow Banks’

In Uncategorized on December 19, 2011 at 11:11 am

Oldspeak:$29.616 trillion is the total ’emergency assistance’ provided by the Fed to foreign and domestic international banks, shadow banks, central banks, & some non-financial institutions during the Global Financial Crisis. Shadow banks are highly leveraged financial institutions (largely unregulated and unsupervised) that perform functions historically relegated to the commercial banking system. “They are the infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge fundsmoney market funds and Structured investment vehicles. Investment banks may conduct much of their business in the shadow banking system (SBS), but they are not SBS institutions themselves. The core activities of investment banks are subject to regulation and monitoring by central banks and other government institutions – but it has been common practice for investment banks to conduct many of their transactions in ways that don’t show up on their conventional balance sheet accounting and so are not visible to regulators.” So Twice the U.S. GDP was given to unregulated and unsupervised bankers who recklessly, irresponsibly and fraudulently gambled with trillions in food, homes, pensions, industries and jobs, after they wrecked the global financial system, and Bernie Madoff is the only guy in jail. And 1 in 2 Americans are poor. Financial oligarchy in action.”

Related Stories:

U.S. Federal Reserve Audit Reveals $16 TRILLION In Secret Loans To Bailout U.S. And Foreign Bankers

Government Accountability Office Federal Reserve Audit Reveals Numerous Intimate Ties To Financial Industry; Disturbing Conflicts Of Interest

Wall Street Aristocracy Got $1.2 Trillion In Secret Loans From Private “Federal” Reserve Bank

Federal Reserve Bank Plans “Social Listening Platform” To Identify “Key Bloggers”, Monitor Billions Of Conversations Online Via Social Media

By  J. Andrew Felkerson @ Alter Net:

Speculation about the Fed’s actions during the financial crisis has made headlines on and off again over the last several years.  The latest drama occurred on November 27 when Bloomberg published an article, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” which gives an account of the news agency’s struggle to bring to light the details of the Fed’s emergency programs. Bloomberg throws out some very large numbers, revealing that as of March 2009, the Fed lent, spent, or committed $7.77 trillion worth of aid to the financial system and that banks used the low-interest rates charged on these loans to make an estimated $13 billion in income.

On December 6, the Fed struck back, issuing a four page unsigned memo intended to correct recent “egregious errors and mistakes” found in various reports of its emergency lending facilities.  The Fed argues that the “total credit outstanding under liquidity programs was never more than about $1.5 trillion.”  While Bloomberg wasn’t mentioned explicitly in the Fed memo, it was fairly clear to whom the response was directed.  The following day Bloomberg defended its reporting, and the Wall Street Journal’s David Wessel came to the Fed’s defense, characterizing Bloomberg’s methodology as a “great story,” but ultimately not “true.”

All this may sound like controversy, but it’s little more than a tempest in a teacup.

Here’s the hurricane: In reality, no less than $29.616 trillion is the total emergency assistance provided by the Fed to foreign and domestic entities during the Global Financial Crisis. Let’s repeat that: $29 trillion. This astounding number is over twice U.S. gross domestic product, the nominal value of all goods and services produced for the year 2010.  This is the total of the bailout as calculated by Nicola Matthews and myself as part of the Ford Foundation project, A Research And Policy Dialogue Project On Improving Governance Of The Government Safety Net In Financial Crisis. We will be presenting the results of our analysis in a series of papers published by the Levy Economics Institute, the first of which, “29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient,” is already available here.

The results we have calculated are presented below, and it is important to note that the totals are cumulative and in billions of U.S. dollars. (The numbers in parentheses indicate amounts still outstanding as of November 10, 2011).

Facility Total Percent of Total
Term Auction Facility $3,818.41 12.89%
Central Bank Liquidity Swaps 10,057.4(1.96) 33.96
Single Tranche Open Market Operations 855 2.89
Term Securities Lending Facility and Term Options Program 2,005.7 6.77
Bear Stearns Bridge Loan 12.9 0.04
Maiden Lane I 28.82(12.98) 0.10
Primary Dealer Credit Facility 8,950.99 30.22
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility 217.45 0.73
Commercial Paper Funding Facility 737.07 2.49
Term Asset-Backed Securities Loan Facility 71.09(10.57) 0.24
Agency Mortgage-Backed Security Purchase Program 1,850.14(849.26) 6.25
AIG Revolving Credit Facility 140.316 0.47
AIG Securities Borrowing Facility 802.316 2.71
Maiden Lane II 19.5 (9.33) 0.07
Maiden Lane III 24.3(18.15) 0.08
AIA/ ALICO (AIG) 25 0.08
Totals $29,616.4 100.0%

 

I want to be clear. These are the totals of Fed lending and asset purchases actually undertaken since the bail-out began. There is no double-counting. And we do not include any credit facilities created by the Fed unless they were actually used. These figures accurately reflect the cumulative totals over the approximately three years actually used by the Fed to prop-up domestic and international banks, shadow banks, central banks, and even some non-financial institutions.

Banks in the Shadows

The programs above constitute the crisis prevention machinery rolled out by the Fed to combat the worst financial panic since 1929. All the programs above were designed and implemented to target domestic financial and nonfinancial corporations or foreign central banks or markets, or both. Only one of the facilities, the Term Auction Facility, can be viewed as being consistent with the Fed’s mandate to protect the commercial banking system from systemic failure. The rest are the result of the increasing relevance of the “shadow banking” to our economy—and of the Fed’s attempt to rescue the shadow banking sector.

Shadow banks are highly leveraged financial institutions that perform functions historically relegated to the commercial banking system. It is important to note that these financial concerns do not have access to the conventional means of Fed support. Nor were they ever really regulated or supervised by the Fed. They engaged in extremely risky behavior that in large part led to the global financial crisis. And when it hit, the Fed spent and lent $29 trillion, much of it devoted to rescuing the shadow banking system.

Thus, we see a host of unconventional programs designed to aid these institutions rather than the Fed’s traditional patrons. The information used to calculate the totals above is freely available (thanks in large part to the valiant efforts of a group of lawmakers led by Senator Bernie Sanders) as the result of an amendment inserted into the Dodd Frank bill. Moreover, this information has been freely available since December 10, 2010 on the Fed’s website.

So why didn’t someone else already put the data together in this way?

The Fed’s Secrets

Obviously, $29 trillion is much bigger than the previous estimates of $7.77 trillion (Bloomberg) or $1.5 trillion (the Fed and the Wall Street Journal). An in-depth account of each of the facilities above is a rather lengthy process as the Levy working paper attests. The main difference in our analysis is the variables we identify as essential in understanding the Fed’s response. In our paper we report three measures that we view as critical to capturing the size and magnitude of the bailout. Each of the three measures deals exclusively with programs put into place by the Fed that transcend its conventional “lender of last resort” (LOLR) function. That is, we only include the emergency facilities the Fed created. We agree with the Fed that only facilities which were actually made operational should be considered in any account of the Fed’s actions. But we take the side of Bloomberg regarding the general lack of transparency by the Fed—the Fed fought tooth and nail to keep the details of its programs secret.

At any given moment inspection of the amount owed to the Fed resulting from nonconventional lender of last resort actions provides a reasonable account of what the Fed was doing in the period leading up to that time. However, looking at this number over time and in the context of the weekly amount lent provides insight into how the Fed’s efforts evolved over the run of the crisis. These two approaches to measurement (a “stock” or outstanding balance and a “flow” or cumulated amount spent and lent weekly) only provide us with details regarding the scope of the Fed’s bailout. To get a clear picture we need some account of the magnitude. We believe that this is captured by looking at the cumulative totals of all programs.

Perhaps the largest difference in our analysis is that we learned our money and banking theory from the late Hyman Minsky. He taught us that the modern economy is essentially financial, and as such, is prone to systemic financial crises that if left unchecked can lead to “bone crunching depressions.” Therefore it is essential to have a LOLR. Thus, any transaction between the Fed and the markets which is not part of conventional monetary operations, such as lending from the discount window or open market operations, represents an instance in which private markets were not able to or were unwilling to engage in the normal financial intermediation process. If it any point in time the private markets were capable (or willing) to carry out business as usual, Fed intervention would not have been required. Thus, we need to account for each extraordinary event, and the best way that we know to do this is by summing each instance–which results in a cumulative total of over $29 trillion dollars.

Who does the Fed serve?

A figure as large as $29.616 trillion should not be taken lightly, but focus on the specific magnitude of the figure diverts our attention from a larger issue that is at stake: how should the LOLR responsibility to be discharged in the future? With unemployment remaining persistently high and millions continuing to lose their homes to foreclosure as the result of lost income from a poor economy or outright fraud in the mortgage lending and foreclosure process, it becomes increasingly difficult to justify the ability of a single institution staffed by unelected officials to carry out such a targeted commitment of the obligations of the United States citizenry. Thanks to the actions of Senator Sanders and other individuals possessing the temerity to question the authority of the Fed we now have access to much of the data regarding what the Fed did during the recent crisis.

But we still need to go through the data from the past three years of bail-outs to answer the following questions: Who got funds from the Fed? How much did they get? And why did they get them? The Fed has not adequately explained why its emergency lending and asset purchases went on for so long and accumulated to such a large number.

J. Andrew Felkerson is a Interdisciplinary PhD student at the University of Missouri- Kansas City

U.S. Federal Reserve Audit Reveals $16 TRILLION In Secret Loans To Bailout U.S. And Foreign Bankers

In Uncategorized on July 22, 2011 at 4:31 pm

Oldspeak:” Hmm.  Maybe this is why there’s no money for paying teachers, cops, nurses, sanitation, and government workers. Maybe this is why the U.S. Government is on the verge of default. Maybe this is why we’re pretending not to notice more and more homeless people. Tens of trillions of U.S. dollars have gone to bankers. An audit of the Fed reveals why the establishment resisted an audit for so long.  In “a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else “, the audit revealed widespread corruption, collusion, conflicts of interest, double dealing and profiteering among the individuals who facilitated this monumental transfer of wealth to the people responsible for crashing the global economic system with their reckless, unregulated speculative gambling with people’s savings, homes, jobs, food, health, and well being. Why is there money to bailout banks in South Korea and Scotland, but none for Main Street, the working poor, and homeless? The rich have the best government money can buy, that’s why. Socialism is here America! It’s just that’s it’s not for you. Just the unfathomably wealthy.”

By Newsroom @ Sen. Bernie Sanders

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study. “As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sanders. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

Among the investigation’s key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. “No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president,” Sanders said.

The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse.  In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed.  Moreover, JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.  One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.

To Sanders, the conclusion is simple. “No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed’s board of directors or be employed by the Fed,” he said.

The investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans.

The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo.  The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.

A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18, but Sanders said one thing already is abundantly clear. “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”

To read the GAO report, click here