Wall Street Bailout: Tax-Payers' Tab is a Cool $9 Trillion

[Octafish]

Didn't We the People make a profit bailing out the banksters?



Not, according to Pam Martens:

Fed Finally Forks Up Documents Showing It Funded Wall Street's Off-Balance Sheet Vehicle

The Tax-Payers' Tab: a Cool $9 Trillion and Then Some

By PAM MARTENS
CounterPunch
December 20, 2010

On December 1, the Fed was forced to release details of 21,000 funding transactions it made during the financial crisis, naming names and dollar amounts. Disclosure was due to a provision sparked by Senator Bernie Sanders of Vermont. The voluminous data dump from the notoriously secret Fed shows just how deeply the Federal Reserve stepped into the shoes of Wall Street and, as the crisis grew and the normal channels of lending froze, the Fed effectively replaced Wall Street and money centers banks in terms of financing.

The Fed has thus far reported, without even disclosing specifics of its lending from its discount window, which it continues to draw a dark curtain around, that it supplied, in total, more than $9 trillion to Wall Street firms, commercial banks, foreign banks, corporations and some highly questionable off balance sheet entities. (Much smaller amounts were outstanding at any one time.)

A careful review of these data makes it highly likely the GAO will be releasing some startling findings come next July 2011. That’s when the American people will have a much clearer picture of how the Federal Reserve shoveled taxpayer money to Wall Street by the trillions. As a result of Senator Sanders’ legislative efforts, the Government Accountability Office (GAO) is to complete an audit by next summer of the Fed’s lending programs during the financial crisis.

SNIP...

In other words, the leverage in the system was not coming just from mortgage securitizations and esoteric derivatives but from off-balance-sheet debt parking schemes quite similar to that used by Enron.

SNIP...

Whether it was Credit Default Swaps or Collateralized Debt Obligations squared or conduits or SIVs, two words emerge from the hubris: leverage and greed. By leveraging the balance sheet, upper management could lay claim to massive compensation and bonuses.

CONTINUED...

http://counterpunch.org/martens12202010.html

After getting $9 Trill, I'd put up a big flag, too.

[Donnachaidh]

1. kick and Rec! n/t

[Octafish]

43. Thanks, Donnachaidh! Here's How It Works: ''The Bernank Who Stole Christmas''

From the Market Oracle (UK and I hope it doesn't sound too "foreign"):

Wall Street Wealth Bailout

The Bernank Who Stole Christmas

Market Oracle
Politics / Credit Crisis 2010
Dec 20, 2010 - 09:36 AM

By: James_Quinn

Ben Bernanke is a highly educated PhD from Princeton who has never worked a day in the real world since he graduated from college in 1975. His entire life has been spent in the ivory tower of academia surrounded by models and theories that work perfectly in the comfort of his office. After building his reputation as an "expert" on the Great Depression by studying it and reaching the wrong conclusions, he came down from his ivory tower in 2002 to join an organization that has systematically destroyed the value of the US currency, thereby undermining the well being of the once vibrant middle class.

He became a member of the Federal Reserve and has served his masters (Wall Street Banks, Mega-corporations, Washington politicians) unswervingly since. When he makes his now regular appearances on 60 Minutes, he tries to give the appearance of being someone concerned about the average American. The facts in the real world completely obliterate the lies he nervously mouths while answering softball questions underhanded to him by corporate media mouthpieces. His quivering lip and nervous ticks reveal his true nature. How could Bernanke blatantly take measures that destroy the lives of millions of Americans? Maybe Dr. Seuss had the answer:

SNIP...

If the Grinch had been pimping for a small pack of Grinchsters who impoverished the honest people of Whoville, then the Dr. Seuss poem would have perfectly described Ben Bernanke, the Federal Reserve and the banksters that run the show here in the USA. The actions taken by Ben Bernanke, Alan Greenspan and their brethren on the Federal Reserve over the last quarter century have destroyed the middle class and left senior citizens impoverished, while enriching its Wall Street masters. Now he is stealing Christmas from the hard working middle class of this country.

Bernanke's latest theoretical venture into manipulating the puppet strings of the economy began with his speech at Jackson Hole in August and concluded with his Op-Ed on November 4. His master plan to buy an additional $600 billion of Long-term Treasuries is being implemented on a daily basis. This QE2 follows his previous QE1, which consisted of buying $1.4 trillion of toxic mortgage securities from his masters, the insolvent Wall Street banks. What follows are Ben Bernanke's own words:

CONTINUED...

http://www.marketoracle.co.uk/Article25140.html

Those guys know foreign from way back when.

Thanks, Everybody! Especially Sen. Bernie Sanders, who got us this interesting peek inside the Federal Reserve. It's clear the Fed has favored a few at the expense of the many. And certain private companies profited from public funds. That's unfair competitive advantage for a few connected cronies.

PS: I wonder what a full audit of the Fed would reveal?

[truedelphi]

55. yet another argument to promote the notion that a public starved for real news really

Needs Wikileaks.

While the Fed was pumping out the nine to eleven trillion bucks, the "legit" media of ABC, NBC, CBS and any newspaper you can think of focused solely on the 700 billion dollar loan called TARP.

Some of us have been saying since Day One that TARP was almost insignificant compared to what was really going on.

But we were told we were angry over not having corralled some little ol' pony.

[fascisthunter]

2. $9 Trillion... but let's blame the poor people using social services

because they aren't suffering enough while the wealthy treat us like shit and take our tax money to gamble with.

[Cant trust em]

3. Nice work, Mr. Sanders. nt

[Octafish]

69. Fed report lifts lid on Great Bank Heist of 2008-2009

You got it. Weren't for Bernie, we'd never know.

Fed report lifts lid on Great Bank Heist of 2008-2009

Barry Grey
World Socialist Web Site
4 December 2010

The US Federal Reserve Board on Wednesday released documents on emergency measures it took between 2007 and 2010, using taxpayer funds, to bail out major financial firms in the US and around the world. The sums involved are staggering.

Fed bailout loans outstanding reached a high of $3.3 trillion, but the cumulative amount of cash funneled by the US central bank to banks, hedge funds and major industrial corporations reached the tens of trillions of dollars.

Every major Wall Street bank was on the Fed dole, as were giant companies including General Electric and Verizon Communications. The Fed ran nearly a dozen separate bailout programs which together eclipsed by far the Treasury Department's $700 billion Troubled Asset Relief Program―the program that handed over billions in public funds to the banks in 2008 and 2009. In comparison to the amounts funneled by the Fed to US financial institutions, the Obama administration's $787 billion stimulus package was a drop in the bucket.

These vast sums were loaned out at rock-bottom interest without any strings attached. The banks and corporations that benefited were not even obliged to provide an account of what they did with the money. The entire purpose of the operation was to use public funds to cover the gambling losses of the American financial aristocracy, and create the conditions for the financiers and speculators to make even more money.

All of the 21,000 transactions cited in the Fed documents―released under a provision included, over the Fed's objections, in this year's financial regulatory overhaul bill―were carried out in secret. The unelected central bank operated without any congressional mandate or oversight.

SNIP...

Fully exposed as well is the sham of democracy under capitalism. As the Fed documents underscore, all major decisions are dictated by the financial elite. The government, the official parties, Congress, the courts are all at root instruments of its class dictatorship. The interests and desires of the working class find no expression within the existing political system.

CONTINUED...

http://www.wsws.org/articles/2010/dec2010/pers-d04.shtml

Thank Moon for Bernie. When the Executive, Congress and the Supreme Court say money talks, We the People are on the short end of the stick.

[Poboy]

4. recommended

[TheWraith]

5. Apparently, some people need to look up the word LENDING.

Even by this accounting, which I don't really trust, two thirds of that number was OVERNIGHT loans. To equate that with an actual charge to taxpayers of $9 trillion dollars shows only a complete failure of either basic math or basic honesty.

[BeFree]

7. You have the answers

Please, tell us the answers to all the accounting so that we may know the truth, oh wise one!!

[PBS Poll-435]

8. He is a start...

If you take a dollar out of your pocket, hand it to a friend, and your friend hands your dollar back to you...



You didn't lose a dollar.

[BeFree]

9. Bankers are friends?

Who knew?

Clue: The bankers are broke. Oh, individually they are beyond rich, but as a whole - BROKE.

[PBS Poll-435]

12. It was a simple analogy to explain the dramatic accounting going on here...

Fine, give your dollar to a coworker and get it back...


Did you lose your dollar?

[BeFree]

13. Gimme a dollar

And I'll teach you how bankers do it. Bwahahaha!

[Recursion]

17. Well, no: the bankers paid it back

And the Fed doesn't use taxpayer money.

Basically, the factual content of the OP is hovering around 0.

[lonestarnot]

22. Bullfuckingshit they don't use tax payers money! Whose money is it then grand wizard?

Some they just printed up to throw out later?

[Recursion]

24. Yes, exactly

Some they just printed up to throw out later?

Yes. Precisely. That's exactly what central banks do.

Where did you get the idea that they take taxpayer money? That's completely not true.

[SOS]

48. The bankers paid it back?

When will they repurchase the $1.1 trillion in MBS purchased by the Fed?
The Fed has demanded that the crooks buy their trash back, but they are steadfastly refusing.
Bank of America is going to court to avoid buying back their own MBS.

There is $1.93 trillion outstanding in combined Fed and Treasury bank welfare programs.
TARP is still owed $150 billion.

The article is very clear on the $9 trillion figure: "Much smaller amounts were outstanding at any one time."

Figures as of September 2010:

http://www.sourcewatch.org/index.php?title=Total_Wall_Street_Bailout_Cost

[Recursion]

51. You're talking about TARP and QE1. The OP isn't.

When will they repurchase the $1.1 trillion in MBS purchased by the Fed?

Probably never; that was always the risk of TARP. The Fed is happy to make money off of our mortgages if the banks don't want to.

The article is very clear on the $9 trillion figure: "Much smaller amounts were outstanding at any one time."

Then why stop at $9 trillion? Why not say $9 quintillion? Much smaller amounts than that were outstanding at any one time, too.

[Go2Peace]

56. Yes, and how much is QE2, which is going on now? 2 Trillion total. Not chump change

And we are going to pay for QE2 in inflation.

[Recursion]

62. Good! The dollar is too high as it is.

Let the dollar fall some and we can actually start exporting again. And for those of us with student loans or mortgages, inflation is great.

[SOS]

66. The OP is talking about the Fed

The Sourcewatch link details Fed and treasury bank welfare programs as of September 2010.
TARP is treasury and $150 billion is outstanding.
The OP is about the Fed programs of which about $1.6-$1.7 trillion is outstanding.
If the Fed is making such great profits off MBS, why won't Bank of America buy them back?
Why would BoA turn down an opportunity to "make money off of our mortgages"?

Why stop at $9 trillion?
Because that was the max at risk in Fed programs.
The total max at risk was $13.86 trillion (Fed and treasury).

The total outstanding is $1.9 trillion, mostly Fed.

[Octafish]

52. That deserves its own thread.

That's a lot of, eh, risk for the U.S. taxpayer to assume.

Thank you, SOS, for an outstanding summation and the info at Source Watch.

[jmowreader]

58. Not quite...

If you take a $5 bill out of your pocket, hand it to your friend, and he hands $5.01 back to you, you actually GAINED.

This is what happens in overnight loans, which are a very common and legitimate transaction in the banking business. The current overnight rate is 0.20%, so if we're looking at a massive amount of overnight loans we're going to skew the figures a hell of a lot.

[leveymg]

65. 0.02% of $9 trillion is $18 billion in use value that the NY Fed handed out.

A nice token of our appreciation for doing business at the NY Fed. Come back, real soon.

[SidDithers]

61. Do it every day for a year...

and it's recorded as $365 in loans, even though it's still only 1 dollar going back and forth.

And that's how the $9 Trillion amount in the OP was arrived at, thousands of transactions, occurring daily. These are overnight loans.

Another analogy would be if your $100,000 mortgage was reported the same way, it would show as $36,500,000 worth of loans last year.

There's still a shitload of money being loaned, but the story in the OP is more complicated than just saying that $9 Trillion was loaned.

Sid

[girl gone mad]

25. Apparently, some people here need to learn how to read a balance sheet.

Where did these insolvent banks get the money to pay back the Fed, genius?

[Recursion]

29. They weren't insolvent; they were illiquid

Even Bear and Lehman were never close to insolvency. Offering the Fed window to investment banks (even the "loans" weren't actually loans in the usual sense, just money set aside to guarantee private party loans mostly on the daily commercial paper market) let them stay liquid.

[girl gone mad]

37. They were and still are insolvent.

http://dailybail.com/home/wikileaks-cable-systemic-insolvency-is-now-the-problem-globa.html

[sendero]

53. The very fact..

... that interest rates are zero is RIPPING OFF EVERYONE WHO HAS SAVINGS FOR THE BENEFIT OF THE BANKS.

When the Fed creates money out of thin air it DILUTES THE VALUE OF ALL EXISTING DOLLARS.

You can convince yourself that the Fed is your friend but you'd be quite wrong.

[SOS]

68. Lehman insolvent says examiner

(Reuters) - Lehman Brothers Holdings Inc (LEHMQ.PK) used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy.

http://www.reuters.com/article/idUSTRE62A50320100311

[PBS Poll-435]

6. I hate it when I "fork-up" documents!

Usually means I am having a bad typing day.




But I am glad that they finally "forked over" said documents.

;)

[notesdev]

10. And that means your share is $30,000

that's divided among every man woman and child in this country

But of course only half the people in this country actually work and earn a paycheck.

So if you're employed, congrats - Wall St. took about $60k from your past and future earnings.

Ready to do something about it yet?

[Recursion]

19. How much taxpayer money did the Federal reserve receive in 2010?

Hint: the Mayans and Hindus discovered this number independently.

[notesdev]

21. Are you a Fed employee?

I can't imagine anyone who is not vested in the system coming up with such pedantic objections.

There is no free lunch. The Fed cannot create $9T to no consequence - that money comes from somewhere. It comes from the value of everything you have and everything you earn - an equivalent value to what the Fed creates out of thin air is removed by the act from the wallets of ordinary Americans through higher prices, higher taxes, and heavier debt burdens.

But if you know enough to object in such an manner you surely know this as well, and are here to intentionally obfuscate the issue.

[Recursion]

26. Right, clearly only a Fed employee would care about basing complaints on facts

rather than complete fabrications.

There is no free lunch. The Fed cannot create $9T to no consequence - that money comes from somewhere.

No, actually a central bank really can create it out of nowhere.

The money didn't even impact the M2. Inflation and money supply aren't nearly as simple as you seem to be describing.

But if you know enough to object in such an manner you surely know this as well, and are here to intentionally obfuscate the issue.

Oh come on! The OP calls the Fed's funds "taxpayer money", I call him out on that, and I'm the one obfuscating? Get real.

[notesdev]

30. You're denying the consequences of raw money printing

And you can deny it all you want, but that's not going to stop the rising of food prices and fuel prices and the price of everything else that hasn't already been asset-stripped.

If it didn't make it into the money supply, why is every commodity higher-priced in its wake? Just because the game is played through intermediate mechanisms doesn't mean the net result isn't exactly the same as if they held you up at gunpoint and took the money out of your pocket.

Of course it made it into the money supply. If you look at the differences in M2 vs. M3 you can see very clearly what is going on, and what has been going on. The Fed has been acting to hide massive losses from bad debt held by the banking system (the same losses that need to be recognized in order for our economy to return to a healthy state). Well, money is fungible, and money not lost by the banks in eating their own bad loans is money they have to bid up the price of stocks and commodities or each other's toxic securities.

You can't pour $9T into a monetary system and expect that system is going to be unaffected. You'd need to be brainwashed to think that there is anything sterile about these operations.

[Recursion]

33. The "9 trillion" (*ahem*) didn't show up in M2 or MB

In theory it would have had to have shown up in M3, but the amount of dollar-denominated liquid assets in the world makes M3 pretty useless.

You can't pour $9T into a monetary system and expect that system is going to be unaffected.

And, had 9 trillion been poured into the monetary system, I would be worried.

[girl gone mad]

34. Yes, you are definitely obfuscating.

It's the taxpayer's money that the Federal Reserve put on the line.

[Recursion]

36. How did it get it?

Seriously, how do you think it got "taxpayer money"?

[girl gone mad]

39. Tell us the tale of Maiden Lane.

Who will ultimately be on the hook for those losses?

[Recursion]

40. The Treasury bought AIG. The NY Fed extended the new holding company credit

This isn't even part of the $9 trillion the OP is making up.

[girl gone mad]

42. and who funds the treasury?

[Recursion]

44. I've already said AIG was an exceptional case and involved taxpayer money

But the AIG bailout is not part of the credit window the OP is talking about. The Fed was also pretty meticulous about keeping clear of Treasury's exposure and simply offered a credit window to the holding company.

[lonestarnot]

23. We have no idea how much they printed that will contribute to hyperinflation. They quit printing

that number.

[Recursion]

28. Actually we have a pretty good idea: about $50 billion total

Some of it was loaned out daily (not even loaned out, really; the "window" was just broadened and the money stood as guarantees for the commercial paper market every day). Some of that was even removed from the supply when the warrants were liquidated. The remainder ($30 billion or so) went into asset purchases. Chump change compared to the two QEs the Fed has done.

[leftstreet]

11. K&R THANK GOD IT PASSED !!!111

[Kolesar]

14. The "Federal Reserve" is not "the taxpayers" and we did not pay $9 Trillion

or whatever those writers-without-editors at counterpunch are saying

[girl gone mad]

31. The gullibility of the bankster apologists is astounding.

Who backstops the Federal Reserve?

What are the risks involved with printing trillions of dollars worth of notes to swap for garbage collateral? Who bears those risks?

Where did these insolvent institutions come up with the funds to "pay back" these "loans"?

[Recursion]

38. They did not print trillions of dollars

And it's dishonest to say they did. They added billions in liquidity daily and deliquisced it daily. If I loan you a dollar a day for a year, and you pay me back every day, I haven't loaned you $365.

[girl gone mad]

41. They did print trillions.

And they have admitted as much.

http://www.correntewire.com/fed_money_spreadsheet

NPR has a fluff piece from "All Thing Considered" on how two Flunkies For The Masters Of The Universe saved the world ZOMG!!! which includes this gem, hidden in plain sight:

In the face of the financial crisis, the Federal Reserve decided to buy $1.25 trillion of mortgage-backed bonds as part of its effort to prop up the economy. ....

and her team worked in a plain room with four small cubicles, spent six weeks coming up with a plan of attack, and 15 months actually buying mortgage-backed bonds, all of which came with a government guarantee that they’d be paid back even if the borrowers defaulted.

The program’s intent was to keep interest rates low, and slow the decline in housing prices. The team ended up buying more than a fifth of all of the government-backed bonds on the market. ...

In the end, they came very, very close to their target: They told us they were just 61 cents short. (In other words, they bought $1,249,999,999,999.39 worth of mortgage-backed bonds.)

The Fed was able to spend so much money so quickly because it has a unique* power: It can create money out of thin air, whenever it decides to do so. So, Dzina explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — "and voila, money is created."

"Voilà, money is created." Savor that. Not knowing what they said, they said it. Because you just saw the Fed validate one of MMT's (Modern Monetary Theory's) central claims: That, for a government that is sovereign in its own currency, spending is not operationally constrained by revenues.* When Julie Remache pushed the button on her computer, did a red light go on because money was going to run out? Did an alert pop up, saying "This transaction will cause the country to run out of money. Please OK or Cancel"? How about "Insufficient $$$: Abort, Retry, Fail"? Of course not!

http://blogs.wsj.com/economics/2010/08/03/a-look-inside-the-feds-balance-sheet-3/tab/interactive/

[Recursion]

45. Now you're mixing in the QE rounds, which is a different animal

That had nothing to do with the OP, that was a direct purchase of mortgages in the first round and T-bills in the second.

[girl gone mad]

50. Money is fungible.

The money these insolvent banks used to "pay back" the "loans" had to come from somewhere.

[Kolesar]

67. Did you just call me a "bankster apologist"? eom

[unblock]

15. not this crap again. for those who missed it the first time, they counted the same dollar 250 times

they counted every single origination, even though these were overnight loans that were repaid the next day.
so every dollar that goldman sachs borrowed and repayed 250 times, and they counted that as $250.

that's an idiotic way of counting, and serves no purpose other than to sensationalize the program and make it look like VASTLY more than it was. the fed never had anything remotely approaching $9 trillion at risk, it was far closer to $40 billion or so, at least from the overnight program.

now, you can certainly argue for or against any of the fed programs, and sure, maybe $40 billion was inappropriate or unwise, but at least use accurate numbers.


here's one link explaining the exaggeration:
http://www.cnbc.com/id/40454964/Did_Fed_Really_Lend_9_Trillion_Under_Its_Primary_Dealer_Credit_Facility

[madinmaryland]

20. Thanks. I was going to reply with nearly the same reply. This magically

pops up on DU every couple of days like clockwork, though they normally use $13 trillion and not $9 trillion.

[Go2Peace]

59. So the Fed has "only" printed 2 Trillion of so (QE1 and QE2)

Now I know that is not the OP, but it is still a hell of a lot of money. They are blaming QE1 for the last bout of (underreported) food inflation, and more inflation is on the horizen.

I am more concerned though that we are treading a very thin line. 20 years ago you could get away with this kind of thing without the potential of destroying the reputation of the dollar. This time the world is paying attention and they are catching on.

[Octafish]

70. John Carney's the guy who foisted the meme the poor are responsible for the home loan crisis.

John Carney’s bizarre crusade against the CRA

He does know one thing: Who signs his paycheck.

[Recursion]

16. What do taxpayers have to do with that?

When did taxpayers start funding the Fed?

And when did repaid loans start getting marked up as losses?

[girl gone mad]

27. Come on. Really?

http://www.zerohedge.com/article/federal-reserve-loses-24-billion-taxpayer-money-most-recent-qe2-pomo-interval">Federal Reserve Loses $2.4 Billion In Taxpayer Money In Most Recent QE2 POMO Interval

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7T5HaOgYHpE">New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers

http://www.businessinsider.com/hilarious-line-from-dick-fulds-testimony-the-fed-should-not-use-taxpayer-money-next-time-2010-9">Dick Fuld: The Fed Should "Not" Use Taxpayer Money Next Time

Not to mention opportunity costs, time value of money, blah, blah, blah..

If you understand how money functions in a fiat system, you should understand first and foremost that taxpayers will be asked to shoulder the burden of inflation. There is simply no alternative.

[Recursion]

32. Oh God... the "fiat currency" wars again

You linked one blog noted for its hysteria, a story about the bailout of AIG (which was the one time the Treasury funneled through the Fed, and got a lot of criticism for that reason, and isn't part of the alleged 9 trillion), and a self-serving apologia from the guy that ran Lehman into the ground.

What you didn't do was show how, other than the extraordinary AIG window, taxpayer money is supposed to get to the Fed in the first place for the Fed to then allegedly misuse. They do hold a lot of our debt, sure, thanks to QE2, but that's the opposite of taking our money.

If you understand how money functions in a fiat system, you should understand first and foremost that taxpayers will be asked to shoulder the burden of inflation.

Actually it's the Chinese that would have to shoulder the burden if there were significantly more easing.

[girl gone mad]

35. Clearly you're a lost cause.

The only way to increase demand for American currency in an inflationary scenario would be to raise taxes on Americans. China has nothing to do with it.

[defendandprotect]

18. Well, we had nothing better to do with the money except bailout out criminal capitalists...!!!

No MEDICARE FOR ALL --

No HELPING THE HOMELESS --

No INVESTING IN OUR CITIES/INFRASTRUCTURE --

ONLY need was to make sure that the corporate criminal class could go on -- !!!

[Nye Bevan]

46. Why not claim that it's $9 Googol?

Even more attention-grabbing, and just as accurate.

[Cetacea]

47. K&R

Thx

[A HERETIC I AM]

49. Threads like this are so much fun to read. n/t

[chill_wind]

54. K & R. FWIW The Federal Reserve has a copy of Pam Martens' testimony to the Fed in 1998

on their website. It was a pretty good delivery.

http://www.counterpunch.org/martens11242008.html

I just love the commentary of some of our apparent DU Wall Street Professionals and Experts here so very willing to call her a liar.

[Starry Messenger]

57. k&r

[Name removed]

60. Deleted message

Message removed by moderator. Click here to review the message board rules.

[WinkyDink]

63. Cut Social Security! End Medicaid!

[jtown1123]

71. Yes, because those are so costly and unaffordable. Wait...

[SpiralHawk]

64. The k

..and the r