After all of the debate over raising the debt ceiling, news breaks from Bloomberg that the Fed gave banks, domestic and foreign, $1.2 Trillion in Secret Bailouts.
Excuse me!?!? $1.2 Trillion lent without the public knowing. $1.2 Trillion- over 8% of the US national debt, almost three times the size of the U.S. federal budget deficit in 2008 and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010. Why do we pretend the debt ceiling means something?!?
But even more disturbing: through these loans, the Fed put the US economy at risk. Even if it suffered no losses as it claims, a loan is a loan. Companies and banks default. Plus, a sizable number of these loans went to foreign banks. What would have happened if these loans started to go bad? What was backing up these loans? Did the Fed get good collateral? I doubt it. I bet these loans would have gone a long way towards guaranteeing all of the mortgages in the country- at least we know real property backed these loans.
Plus, the enormity of these numbers is astounding. Morgan Stanley received $106 billion- that’s over 3 times its current market cap and 3 times its yearly revenue!
The amount Citigroup and Bank of America likewise dwarf their market cap. I haven’t run the numbers down the line, but I bet the findings will continue to be the same- the Fed saved Wall Street and the banks and didn’t tell anyone. Instead it pretended the minimal public funds were all it took.
The Fed made it possible for the banks to survive and yet the Fed has done nothing to stop the record number of foreclosures- 1.05 million in 2010- and have stood by why the banks refuse to modify mortgages- two million homeowners have been rejected from HAMP as of December: 1.3 million were denied even a trial modification and about 700,000 more had their trials cancelled.
Who’s really running the country?