STOCK MARKET WATCH, Friday, December 16, 2011

[Demeter]

11. Pulling Back the Curtain on the Wall Street Money Machine

On November 27, Bloomberg News reported the results of its successful case to force the Federal Reserve to reveal the lending details of its 2008-09 bank bailout. Bloomberg reported that by March 2009, the Fed had committed $7.77 trillion in below-market loans and guarantees to rescuing the financial system, and that these nearly interest-free loans came without strings attached.

The Fed insisted that the loans were repaid and there have been no losses, but the Bloomberg report said the banks reaped a $13 billion windfall in profits; and "details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger."

The revelations provoked shock and outrage among commentators. But in a letter to the leaders of the House and Senate Committees focused on the financial services industry, Fed Chairman Ben Bernanke responded on December 6 that the figures were greatly exaggerated. He said the loans were being double-counted: short-term loans rolled over from day to day were counted as separate cumulative loans rather than as a single extended loan.

Bloomberg was quick to rebut, denying any exaggerated claims. But either way, the banks were clearly getting perks not available to the rest of us. As Alan Grayson observed in a December 5 editorial:

The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success....

During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn't borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can't find a full-time job?