During a 2½ year period starting at the end of 2007, the Federal Reserve provided more than $16 trillion in secret bailouts to banks and other companies around the world, according to a government audit of some of the U.S. central bank’s operations.
Much of the Fed’s largesse was lavished on banks in Europe (such as Barclays, left) and Asia, the audit revealed. More than $3 trillion, for example, went to financial institutions in just five European countries. Trillions more flowed toward some of the biggest banks in America. Institutions from Brazil and Mexico to South Korea and Canada also benefited.
The 266-page report, produced by Congress’s non-partisan investigative service known as the Government Accountability Office (GAO), has already sparked intense outrage since its release on July 21. Fed apologists, however, have been quick to defend the actions, saying they were “necessary” to “save” the economy and justified under the Federal Reserve Act.
“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,” the report stated.
Beyond the secret bailouts — to put the figure in perspective, consider that the output of the entire U.S. economy last year was well under $15 trillion — problems with conflicts of interest and no-bid contracts also featured prominently in the audit report.
One example highlighted by Sen. Bernie Sanders (I – Vt.) was the CEO of JP Morgan Chase serving on the board of the New York Fed even as his firm scooped up almost $500 billion from the central bank. The bank was simultaneously helping to administer the Fed’s secret bailouts.
But JP Morgan Chase was hardly the only example. According to the analysis, more than 80 percent of the Fed’s largest contracts to manage the programs were awarded without bidding.
Many of the companies that received the contracts were also being showered with central-bank bailouts at the same time. And more than a few insiders were granted “waivers” to hold investments in companies that were being rescued by the Fed.
“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,” Sen. Sanders, a self-described socialist, said in a statement about the report. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”
The congressional investigation was triggered as part of the financial “reform” bill passed last year despite strong Fed opposition. After the original “audit the Fed” bill by Rep. Ron Paul (R-Texas) passed in the House and became extraordinarily popular with Americans, Sen. Sanders helped ensure that only a watered-down version made it out of the Senate.
But even with what is known so far, critics are on the attack. Another report about the Fed is also due to be released in October of this year. And in recent months, other previously secret information about the Fed and its operations has come out following years of litigation.
All of the disclosures have fueled a growing anti-Fed movement aiming to eventually abolish the central bank – essentially a sort of banking cartel with private shareholders but some veneer of government oversight. Sen. Sanders suggested in his public statement, however, that the institution should merely be “reformed” to serve “working families” and not just Wall Street CEOs.
“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,” he noted in the statement, perhaps not realizing that the Fed, by its own admission, is not an agency of the government. “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.”
The biggest single beneficiary of the Fed’s bailouts was Citigroup, which received about $2.5 trillion in assistance. Several other top banks in the United States, including Bank of America and Morgan Stanley also benefited to the tune of trillions of dollars. British bank Barclays PLC took close to $1 trillion.
The GAO report suggested that the Fed should implement better policies to deal with conflicts of interest. Its policies on awarding contracts, record keeping and risk management should also be revised, the agency recommended.
The Fed’s chief lawyer responded by saying that the central bank would “strongly consider” the advice. But for now — following bailouts to a bank owned by Libyan dictator Muammar Gaddafi, blatant and widespread market manipulation, wild money printing, and secret bailouts larger than the U.S. economy — analysts expect outrage to continue growing.
source: The New American
Fed Audited: $16 Trillion Loaned to Banks
If that $16 Trillion had been divided equally among every man, woman and child in the US (310 million of us) each of us would have received over $50,000. Our economy would be humming, banks & corporations would have gotten their share. On the other hand, if that $16 Trillion had been divided equally among all the people on this planet (not quite 7 billion) every person would have received more than $2200. That’s the scale of this crime against humanity.
The Fed loaned out trillions both internationally and domestically.
With 12 days left until the US reaches their borrowing limit and looks towards default, economists are trying to figure out how to avoid running into the $14.3 trillion debt ceiling. Here’s one answer: stop giving away money.
Results published today of the first-ever audit of the US Federal Reserve reveal that, between December 1 2008 and July 21, 2010, the Fed loaned out over $16 trillion to US and foreign financial institutes. That is nearly $2 trillion more than the entire GDP for the States last year, which topped out at around $14.5 trillion.
During that two year span that the audit takes into consideration, over $4 trillion was lent to banks in the UK, Germany, Switzerland, France and Belgium. Domestically, Citigroup was awarded with $2.5 trillion, Morgan Stanley with $2.04 trillion and Merrill Lunch with $1.9 trillion.
Additionally, the analysis carried out by the Government Accountability Office shows that the Fed outsourced many of its lending operations to the banks that served as a catalyst for the debt crisis.
Fittingly, the actual title of the GAO’s report to congressional addressees released today is “Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance.” In the introduction to the audit, the document explicitly calls out the Fed, noting that Ben Bernanke and company have several options to strengthen risk management practices for future crisis lending.
Sen. Bernie Sanders (I-Vt.) pushed for the audit, in a statement to The Hill today, writes that the data exposed in the findings shows “a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”
Sanders adds that the Fed abused its powers by making unauthorized emergency loans and writes, “No agency of the United States government should be allowed to bail out a foreign bank or corporation without the direct approval of Congress and the president.”
Yesterday, Philadelphia Federal Reserve Bank President Charles Plosser told Reuters that the Fed was working along with the Treasury in order to find out how to handle a default, should the US default on its debt next month. The New York Times responded by calling the discussions “doomsday plans.”
GAO Audit Finds Fed Loaned Trillions Secretly to Banks
An audit on the Federal Reserve conducted by the Government Accountability Office (GAO) found secret loans made to large banks and companies around the world and conflicts of interest within the central banking system.
The GAO report says the Federal Reserve issued $16 trillion worth of loans to large private institutions such as JP Morgan Chase, Wells Fargo, and General Electric during the financial crisis.
The mandatory evaluation was part of the Dodd-Frank Wall Street Reform and Consumer ProtectionAct, which was passed one year ago. The report said that all federal emergency bailout money went to large banks and companies around the world instead of to smaller local banks and businesses. Notably, it loaned tax dollars to foreign banks and to large companies outside theUnited States ”from South Korea to Scotland, “according to the GAO report.
The Fed made its 2008 emergency loan decisions without input from Congress and citizens.
“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” said Sanders in his statement. The senator proposed an amendment to the Dodd-Frank Act that required an audit of the Federal Reserve. Sanders, who is an Independent and strong critic of policies favoring corporations at the expense of ordinary citizens, said “the Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”
A significant example of conflict of interest applied to the current head of the Federal Reserve. The GAO found that William Dudley was issued a waiver in 2008 to keep his shares in companies including those that received federal assistance, such as American International Group Inc. (AIG), while he was still the executive vice president of the New York Fed Markets Group.
Although New York Fed spokesman Jack Gutt said Dudley gave up his AIG shares shortly after succeeding Timothy Geithner as president of the New York Fed, the Fed has not made rules to eliminate potential conflicts of interest.
“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,” said Sanders regarding the issue.
The GAO recommends that theinstitution should “strengthen policies for managing noncompetitive vendor selections, conflicts of interest, risks related to emergency lending, and documentation of emergency program decisions.”
Scott Alvarez, general counsel of the New York Fed, responded in a letter to GAO saying that the Fed will “give each recommendation serious attention” and that he believes “the process will further enhance the Federal Reserve’s capability to respond effectively in future crises.”
The GAO will conduct another investigation centering on conflicts of interest in the Fed on Oct 18.
source: Epoch Times
Federal Reserve audit highlights possible conflicts of interest
When the Federal Reserve launched an unprecedented series of interventions in the financial system in 2008, it often moved so quickly that the usual practices for preventing conflicts of interest couldn’t keep up, according to a new report.
An audit of the Fed’s emergency lending programs by the Government Accountability Office, ordered by the financial reform law passed last year and released Thursday, reports generally sound financial management by the central bank as it undertook programs that deployed trillions of dollars to backstop a faltering financial system. But it brings to light difficult issues that arose when the Fed undertook actions that its rules never envisioned.
For instance, William C. Dudley, the president of the Federal Reserve Bank of New York who was a senior official there in 2008, owned stock of American International Group before the Fed bailed out the giant insurance firm. The GAO report did not mention him by name, but Sen. Bernie Sanders (I-Vt.), who spearheaded the audit, identified Dudley as the unnamed official described in the report.
Lawyers at the New York Fed allowed Dudley to continue owning the shares while working on issues relating to the bailout. They concluded that for him to sell the shares immediately after the central bank bailed out the firm would be more ethically problematic than simply holding onto them and selling at a later date.
Dudley “held shares in these companies as part of his personal portfolio that predated his service at the New York Fed,” a spokesman for the central bank said. “A waiver was granted allowing him to hold these shares based in part on the judgement that had he sold these shares immediately after the interventions it would have the appearance of a conflict.”
The GAO report did not condemn the Fed’s actions, it simply illuminated them. Dudley has subsequently sold all the shares on dates agreed to with the bank’s ethics officers, the spokesman said.
The GAO also recommended that the Fed make clearer and more rigorous its policies for hiring independent contractors to manage investment programs. During the crisis, the New York Fed hired outside firms to manage many of its special lending programs, such as one designed to backstop the market for short-term corporate loans, without holding a normal bidding process for the contracts.
The report also found that lines of authority between the Fed’s Board of Governors in Washington and the 12 regional Fed banks around the country were sometimes muddled during the crisis. For example, it was not always clear where authority resided on questions of what collateral would be adequate for an emergency loan.
The report was the latest to detail aspects of the Fed’s actions during the financial crisis that were shrouded in mystery at the time. Another provision in last year’s Dodd-Frank Wall Street regulatory overhaul, also instigated by Sanders, required the disclosure of what individual banks and other entities received loans from the Fed.
“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,” Sanders said in a statement. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”
The Fed’s general counsel, Scott Alvarez, said in a letter responding to the GAO’s audit that officials will “strongly consider” the recommendations.
source: Washington Post Business