2010-12-01 "Fed made $9 trillion in emergency overnight loans; Top recipients of overnight loans made by the Federal Reserve under special program that ran from March 2008 through May 2009" by Chris Isidore from "CNN" [http://money.cnn.com/2010/12/01/news/economy/fed_reserve_data_release/index.htm]:
Top recipients of overnight loans made by the Federal Reserve under special program that ran from March 2008 through May 2009.
NEW YORK (CNNMoney.com) -- The Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data released Wednesday.
The loans were made through a special loan program set up by the Fed in the wake of the Bear Stearns collapse in March 2008 to keep the nation's bond markets trading normally.
The amount of cash being pumped out to the financial giants was not previously disclosed. All the loans were backed by collateral and all were paid back with a very low interest rate to the Fed -- an annual rate of between 0.5% to 3.5%.
Still, the total amount was a surprise, even to some who had followed the Fed's rescue efforts closely.
"That's a real number, even for the Fed," said FusionIQ's Barry Ritholtz, author of the book "Bailout Nation." While the fact that the markets were in trouble was already well known, he said the amount of help they needed is still surprising.
"It makes it very clear this was a very serious, very unusual situation," he said.
Sen. Bernie Sanders, the Vermont independent who had authored the provision of the financial reform law that required Wednesday's disclosure, called the data that was released incredible and jaw-dropping.
"The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution," Sanders said.
He said that even if the Fed was right to make the loans to keep the economy from toppling into a depression, it should have made stronger demands that the banks help American consumers and small businesses.
"They may have repaid their loans, but that's not good enough," he said. "It's clear the demands the Fed made were not enough."
The Wall Street firm that received the most assistance was Merrill Lynch, which received $2.1 trillion, spread across 226 loans. The firm did not survive the crisis as an independent company, and was purchased by Bank of America (BAC, Fortune 500) just as Lehman Brothers was failing.
Citigroup (C, Fortune 500), which ended up with a majority of its shares owned by the Treasury Department due to a separate federal bailout, was No. 2 on the list with 279 loans totaling $2 trillion. Morgan Stanley (MS, Fortune 500) was third with $1.9 trillion coming from 212 loans.
"As we have previously disclosed, Morgan Stanley utilized some of the Federal Reserve's emergency lending facilities during a time of immense financial turmoil throughout the banking sector and the broader market," Morgan Stanley said in a statement Wednesday. "The Fed's actions were timely and critical, and we commend them for providing liquidity and stabilizing the financial system during that period.''
The largest single loan was by Barclays Capital, which borrowed $47.9 billion on Sept. 18, 2008, in the days after the Lehman bankruptcy. The loan financed Barclays' purchase of Lehman's remaining assets.
Some Wall Street firms disputed the way the Fed reported the numbers. An executive from one of the firms said that many of the overnight loans were rolled over for days at a time, and that each day it was counted as a new loan. "It's being double, triple, quadruple counted in some cases," said the executive.
Can our opinion of banks get any worse?
Not all the major banks needed much help from the Fed. JPMorgan Chase (JPM, Fortune 500) received only three loans from this program for a total of $3 billion.
The last loan was made under the program in May 2009, and the program, known as the primary dealer credit facility, was officially discontinued in February of this year.
The Federal Reserve revealed details of that program as part of a large scale release of data on all the steps it took to stabilize the nation's financial sector during the markets crisis of the last few years.
The central bank posted details of more than 21,000 transactions with major banks and Wall Street firms between December of 2007 and July of 2010.
In addition to the loan program for bond dealers, the data covered the Fed's purchases of more $1 trillion in mortgages, and spending to back consumer and small business loans, as well as commercial paper used to keep large corporations running.
The rescues of the investment bank Bear Stearns in March of 2008, and insurance behemoth AIG in September of that year, were also revealed in far greater detail, as were programs to make dollars available to foreign central banks in return for their currency, in order to keep international trade flowing.
The Fed's full data
Most of the special programs set up by the Fed in response to the crisis of 2008 have since expired, although it still holds close to $2 trillion in assets it purchased during that time.
The Fed said it did not lose money on any of the transactions that have been closed, and that it does not expect to lose money on the assets it still holds.
The details of which banks participated in the Fed's emergency programs, and how the banks benefited from the transactions, had never before been revealed.
The Fed argued that revealing the information could cause a run on the banks that needed to draw cash at the discount window. But under the financial regulatory reform act that was passed in July, the Fed will reveal future discount window transactions following a two-year lag.
"Federal Reserve Bank Admits They Lost 9 Trillion Dollars"
transcription from "Lybio.com" [http://lybio.net/elizabeth-a-coleman-shocking-federal-reserve-bank-admits-they-lost-9-trillion-dollars/news-politics/]:
[Alan Grayson]
Thank you very much, Mr. Chairman. Inspector Coleman, you’re the Inspector General for the Federal Reserve, right?
[Elizabeth A. Coleman]
That’s correct.
[Alan Grayson]
Okay. Have you done any investigation concerning the Federal Reserve’s role in deciding not to save Lehman Brothers, which led to shockwaves that went through the entire financial system?
[Elizabeth A. Coleman]
In that particular area, you know, I don’t feel like to comment on specific investigations, but we do not currently have an investigation in that particular area.
[Alan Grayson]
All right, what about the $1 trillion-plus expansion of the Federal Reserve’s balance sheet since last September? Have you conducted any investigations regarding that?
[Elizabeth A. Coleman]
Well, right now, we have a… it’s called.. we call it a review and with the term investigation, we have different connotations. We’re actually conducting a fairly high-level review of the various lending facilities collectively, which would include, you know, the TOWS, the variety of the different programs that are in process, so we’re looking at them at a fairly high level to identify risk.
[Alan Grayson]
Well, I understand that, but we’re talking about events that started unfolding eight months ago. Have you reached any conclusions about the Fed expanding its balance sheet by over a trillion dollars since last September?
[Elizabeth A. Coleman]
We have not yet reached any conclusions.
[Alan Grayson]
Do you know who received that money?
[Elizabeth A. Coleman]
For the… we are in the process right now of doing our review and…
[Alan Grayson]
Right, but you’re the Inspector General. My question specifically is do you know who received that $1 trillion-plus that the Fed extended and put on its balance sheet since last September. Do you know the identity of the recipients?
[Elizabeth A. Coleman]
I do not know. We have not looked at that specific area at this particular point on those reviews.
[Alan Grayson]
What about Bloomberg’s report that there are trillions of dollars in off-balance sheet transactions that the Federal Reserve has entered into since last September? Are you familiar with those off-balance sheet transactions?
[Elizabeth A. Coleman]
You know, I think it may be important at this point to, just to bring up a certain aspect related to our jurisdiction and just to clarify perhaps some of my earlier comments. We are the Inspector General for the Board of Governors and we have direct oversight over Board programs and operations and we’re also able to look at Board-delegated functions to the Reserve Banks, as well as the Board’s oversight and supervision of the Reserve Bank.
We do not have jurisdiction to directly go out and audit Reserve Bank activities specifically. Nevertheless, in our lending facility projects, for example, we are looking at the Board’s oversight over the programs and to the extent that it extends out to the Federal Reserve Bank of New York.
[Alan Grayson]
Well, I have a copy of the Inspector General Act here in front of me and it says among other things that if you’re responsible, you can conduct and supervise audits and investigations relating to the programs and operations of your agency.
[Elizabeth A. Coleman]
That’s correct.
[Alan Grayson]
So I’m asking you if your agency has in fact, according to Bloomberg, extended $9 trillion in credit, which by the way works out to $30,000 for every single men, women, and child in this country. I’d like to know if you’re not responsible for investigating that, who is?
[Elizabeth A. Coleman]
We, actually… we have responsibility for the Federal Reserve’s programs and operations, to conduct audits and investigations in that area. In terms of who is responsible for investigating… would you mind repeating the question one more time?
[Alan Grayson]
What have you done to investigate the off-balance sheet transactions conducted by the Federal Reserve, which according to Bloomberg now total $9 trillion in the last eight months.
[Elizabeth A. Coleman]
I’ll have to look specifically at that Bloomberg article. I’m not… I don’t know if I have actually seen that particular one.
[Alan Grayson]
That’s not the point. The question is have you done any investigation or auditing of off-balance sheet transactions conducted by the Federal Reserve?
[Elizabeth A. Coleman]
At this point, we’re conducting our lending facility project at a fairly high level and have not gotten to a specific level of detail to really be in a position to respond to your question.
[Alan Grayson]
Have you conducted any investigation or auditing of the losses that the Federal Reserve has experienced on its lending since last September?
[Elizabeth A. Coleman]
We are still in the process of conducting that review. Until we actually, you know, go out and gather the information, I’m not in a position to really respond to this specific question.
[Alan Grayson]
So are you telling me that nobody at the Federal Reserve is keeping track on a regular basis of the losses that it incurs on what is now a $2 trillion portfolio?
[Elizabeth A. Coleman]
I don’t know if… you’re telling me that there’s… you’re… missing… that there are losses. I’m just saying that we’re not… until we actually look at the program and have the information, we are not in a position to say whether there are losses or to respond in any other way to that question.
[Alan Grayson]
Mr. Chairman, my time is up, but I have to tell you honestly, I am shocked to find out that nobody at the Federal Reserve including the Inspector General is keeping track of this.
[Mr. Chairman]
All right. Thank you, gentleman and Ladies...
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