Showing posts with label Federal reserve System. Show all posts
Showing posts with label Federal reserve System. Show all posts

Wednesday, November 16, 2011

Federal Reserve Bank Secretly Lent 16 Trillion to US & Foreign Banks

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out foreign, as well as American banks since 2008. The audit of the Federal Reserve was carried out in the past few months largely due to the bipartisan efforts of libertarian Texas Republican Congressman Ron Paul and socialist Vermont Senator Bernie Sanders.

"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," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

Among the investigation's key findings is that the Fed unilaterally provided $16,000,000,000,000 dollars in financial assistance to foreign banks and corporations from South Korea to France and Scotland, according to the GAO report. From the period between December 2007 and June 2010, the Federal Reserve secretly bailed out these institutions, referring to them as loans, but virtually none of the money has been returned - it was loaned out at 0% interest.

Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious - the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

Make no mistake: The Federal Reserve System is the most powerful financial and economic institution in the world, with virtually no accountability to democratic processes.

As proof, the value of all good and service produced in the United States in the course of a year ("Real GDP") is 14 Trillion. The Fed gave away 16 trillion in Bailouts.

The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds. In other words, the Fed chose to use taxpayer money to grant funds to institutions in which the NY Fed President had personal investments and a vested interest.

The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts - they were just "appointed" by Fed bamkers to receive and process the bailouts funds. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.

The list of institutions that received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows..

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)

Tuesday, August 09, 2011

The Fed has been the Problem, not the Answer...

Investors, bankers, economists, politicians, and media sources around the world are looking to “The Fed” today for a response to the collapsing world economy. Like Munchkins running to see what The Wizard says about the evil in the sky, one wonders if they will be comforted for long by the grandiose display of smoke and mirrors to which they will be treated.

The Federal Reserve System (“The Fed”) is, inarguably, the single most powerful institution in the American economy. Almost completely removed from accountability to democratic processes, the Fed’s manipulation of the nation’s money supply is believed by many to have been a prime cause of the 1929 stock crash and depression…and here we have history repeating itself. Rather than being the economy’s savior, it has painted itself into a corner. It will make soothing announcements this afternoon as to how it is on the job, but the reality is that it is out of options.

The Federal Open Market Committee (or “FOMC”) of the Federal Reserve System is a committee comprised of the 7 Governors of the System, the President of the New York Federal Reserve Bank, and 4 other rotating Regional Fed Bank Presidents. Traditionally, they have authority in three areas:

1) The Discount Rate. This is the interest rate that the Fed charges member banks to borrow money. By lowering the Discount rate, local banks are able to borrow money cheaply, and then lend it out to consumers at fairly reasonable rates. By making loan money available, this stimulates borrowing, and spending, and it is hoped, begins to prop up the economy. However, the Discount Rate has already been lowered to one quarter of one percent...and banks are not lowering the rates they charge consumers, nor are they even making loans to consumers, and few businesses are borrowing in order to expand. The Fed is at the end of their rope with this tool, with nowhere to go.

2. The Reserve Ratio. This is the amount of money that the Fed requires banks to physically have on-hand, in each members vaults, in case of a bank run by the public (This is currently 10%). Lowering the Ratio means that banks have more to lend…but if no one’s borrowing, and banks aren’t willing to lend, it has no effect. And lowering the ratio only puts banks in a more precarious position if the public gets nervous and decided to withdraw cash. This could be an even larger problem in Europe, where the Eurozone Reserve Ratio is a paltry 2%. No option here.

3. And then there’s “Open Market Operations,” routinely paired of late with operations called “Quantitative Easing.” In 2008 the Fed engaged in large-scale purchases of bonds from their member banks, which amounted to printing money to replace the ‘paper’ that their own member banks held. This was the first round, called “QE 1,” which was quickly followed by a second round (“QE2.”) .

Neither effort helped the economy at large. Of course, that was not the point: The Fed was trying to bail out banks that had lost trillions due to their gambling on junk mortgage derivatives. In other words, the Fed created money to replace what the banks lost. None of this had any effect in funding business expansion or employment or consumption.

So what did happen to the money infused into the banks under QE1 and QE2? Businesses that can’t sell products can’t borrow. People who are out of work can’t borrow.

The US government has been cash-strapped as a result of a huge loss in revenues – tax revenues lost because of Republican demands to protect the wealthy from taxes, combined with 20% of the American workforce having no income, or less income, than before the recession began. So the US government decided it would borrow the money back from the banks, and pay them between 3 and 4 percent. Banks made a rational decision to make these loans. For the government and the banks, it was a win-win situation: the government raised the cash it needed, and banks had a profitable investment.

So, the banks received money printed by the Fed, and then used that money to lend it back to the US Government at 4%...paid for by the American taxpayer. In essence, you, my friends, are paying interest on the money you loaned your own government. Quite a racket, eh? How much money are we talking about here? 23 TRILLION dollars. Hence, a problem of having more debt than we can reasonably foresee paying back.

No, the Fed can not dig us out of the hole they dug us into. They will give reassuring comments this afternoon, but the man behind the curtain is a charlatan.

Politicians on the Left and the Right share blame in this mess. From the left, there has been a call to spend even more, while the right screams about cutting spending. And on that note, we are in a catch-22.

The first round of Stimulus Spending was a failure. Government can not pour money into an economy, cross its fingers, and “hope it all works out.” We have heard that the economy has been slowly improving, though some inthe last few days raised the fears of another recession. Well I have news for you: we never exited the first recession.

The amount of ‘growth’ in our nations GDP the last few quarters has been less than what is needed simply to keep up with deferred maintenance; we have not stopped falling behind since the 2008 crash.

Banks and Wall Street may be sighing a bit of relief because they got through the days when Lehman Brothers and Merrill Lynch and Countrywide and AIG were melting down – but their restructuring did little to affect the national employment situation. The glimmer of hope we thought we saw was merely a brief ‘blip’ when the stimulus money hit the banks – and now its gone. Gone to pay debt, gone to overseas markets, gone everywhere except American jobs.

But the right's answer of slashing spending at every turn is just as wreckless. Unwilling to cease spending trillions of dollars on overseas adventures, slashing domestic spending means people here at home get hurt. Unemployed, sick, hungry, homeless, and hurting people do not create a vibrant economy. In my home state of New Hampshire, we are watching as over 500 jobs are being cut from hospitals as a result of budget slashing…this, in an industry (health care) that has the best prospects for job growth in the years ahead as our population ages. In Wisconisin and New Hampshire, we see efforts to end union benefits: not to prop up the economy, but to impoverish and punish and reduce the compensation that workers get. That's not a way to instill consumer confidence and stimulate purchases from hurting businesses.

Has anyone else noticed the explosion of home auctions, homes for sale, and "Business Closed" signs around? I sure have, and here in NH we are told that our unemloyment rate is only half that of the rest of the nation!

There are no easy answers ahead. Unless and until corporate profits are required to be shared with the labor producing them rather than hoarded by 6- and 7-figure paycheck Executives....and unless and until banks are forced to engage in lending to consumers and businesses rather than the government...unless and until the government matches revenues with expenditures…we are in for a long period – perhaps an entire generation – of economic unrest.

Wednesday, May 05, 2010

Thank you, Sen. Shaheen!

For almost a Century, the Federal Reserve System has engaged in a 'mission creep' that has extended its power and authority way beyond its Congressional authorization. Originally established to insure a stable money supply and to prevent the hyper-inflation that less-developed countries chronically endure, the "Fed" has expanded to become the nations primary guardian of gold reserves, controller of the currency, auditor of all federally-chartered banks, and check clearinghouse. In the last two years, they have stepped front-and-center into the nation's financial crisis, allowing Lehman Brothers to go belly-up while 'arranging' for the saving of AIG and Merryl Lynch. Through their "Troubled Asset Relief Program" (TARP), the Fed has permitted banks to borrow American taxpayer funds anonymously, and had lowered the Federal Discount Rate so low that loose credit has enabled insolvent and arrogant banking corporations to plunder the nations funds in legalized gambling with taxpayer funds and fraudulent financial instruments. Tellingly, some Regional Federal Reserve branches (Dallas in particular) have strenuously and openly disagreed with the decisions of what is arguably the most powerful institution in America.

Through all this, the Fed has remained insulated from acountability: with 7 Governors having terms of 14 years each (more than any elected official in the nation other than some NY Judgeships), and no congressional approval needed for their decisions to create money, influence interest rates, or determine how much banks must - or should - lend, the Fed has conducted the nations banking without having ever being audited.

A coalition of Senators and Members of Congress from the Left (Bernie Sanders) and the Libertarian Right (Ron Paul) have called for accountability and an audit of the Federal Reserve System. Today, New Hampshire Democratic Senator Jeanne Shaheen has added her voice to sponsoring this legislation.

She stands in stark contrast to Republican NH Senator Judd Gregg, who has defended the Fed's insularity and has attempted to block any audit of this institution.

Today's press release:

"Sen. Jeanne Shaheen (D-NH) will co-sponsor an amendment that would require government auditors to open up the books at the Federal Reserve.

The "audit the Fed" measure, first introduced by Sen. Bernie Sanders (I-VT), is actually popular on both sides of the aisle, but is staunchly opposed by the White House, the Fed and the financial industry. Sanders is trying to round up the 60 votes it need to overcome a likely filibuster.

The Obama administration will most likely be under intense pressure to veto the entire financial reform bill if "audit the fed" survives.

Reporting by Brian Beutler

Now...which party is for accountability, transparency, and responsibility in government? Which party is being fiscally responsible?

Wednesday, April 02, 2008

New Powers for The Federal Reserve?

The Federal Reserve System is arguably one of the most powerful (and least understood) institutions in America. Treasury Secretary Paulson's recent suggestions that "The Fed" should be granted even more power is a dangerous step.

And what's even more scary is that so many editorial writers are saying that Paulson's plan does not go far the 'debate' so far has centered on whether we give the Fed "New Power," or "Lots of New Power."

I would suggest we give it NO new powers at all, and reign in some of the power it currently wields over our lives.

By way of background: There are many tools available to an administration to jump-start or safeguard an economy. Over the years, the federal government has tried direct government spending (FDR's Civilian Conservation Corps), borrowing (every adminstration since then), giving tax rebates and cuts to consumers, deregulating business, cutting business taxes, increasing direct aid to low-income people (Bush's extension of unemployment benefits, Social Security) and building transportation infrastructure. Some presidents have attmpted policies that were dismal failures (Nixon's gas rationing in the 1970s). And of course, it is certainly arguable that Government should *not* attempt to regulate the economy at all, but should get out of the way and stop messing it up natural markets.

What all of the above approaches have in common is that they are *highly* political. They require the chaos of Congressional, Presidential, and Bureaucratic action to happen. They involve log-rolling, and compromise, and committees and all sorts of political machinations. And if you're looking for results, that's not a very effective way to run an economy.

The Federal Reserve System was designed to function quite differently.

The philosophy behind the Fed is to masage the economy through a professional banking system. The Feds, rather than responding to voters, have historically responded to numbers, and made objective decisions. This is the body that sets the Discount Rate (the interest rate at which they lend money to member banks, thus influencing general interest rates). They determine the ratio of deposits that banks must keep on hand in case of a 'run' on the bank. And in New York, the Fed buys and sells government bonds in order to inject cash into the economy or withdraw it to slow down easy credit. By all accounts, The Fed is a conservative, staid, professional group of bankers that responds to bottom lines, not the whims of voters who want goodies for their district or the passion of politicians seeking reelection.

In fact, the Fed is very, very insulated from politics. Their 7 member Board of Governors is appointed by the President with the consent of the Senate, but they each serve 14 year terms. One is up for reappointment every 2 years, which effectvely means that even a two-term president can not realistically change the makeup of the majority of Governors. Even if he could, it wouldnt matter that much, because the Regulatory functions of the Fed reside in something called the "Open Market Committeee," which consists of the 7 Governors plus 5 regional, private Fed Bank presidents (there are 12 District Fed banks. Each is a private bank, with its own Board of Directors). By design, there is NO Federal Reserve Bank in Washington, DC. All in all, it is a very decentralized system, independent from most government oversight, which operates within the banking community. Unless there is a crisis, they only meet once every 6 weeks (which they did during the Great Depression, and right after 9/11)

Under Ben Bernanke, the Fed has taken some 'wild' steps. In one case, it called two meetings only 3 days apart from each other. It has dropped the discount rate precipitously. It has stepped in to private markets to arrrange a takeover of Bear Stearns by Citicorp at a price of $2/share, destroying shareholders values (and their pensions). Fortunately, that deal that is unravelling now that Morgan Stanley has offered $10 a share. Bear Stearns is a private investment house, not a bank, and the Fed had no direct authority in the matter. .

And now, Secretary Paulson has made some 'minor' suggestions to give the Fed more such authority. His proposal would give sweeping new authority to Fed to collect data and regulate private investment houses in prder to 'stabilize markets.'

But the Fed was designed to stabilize the value of *currency* by regualting member banks. It was never meant to make decisions about business practices of non-banks, or regulate private stock transactions or financing instruments.

And that's a big, big change, and a problem for a country that calls itself a democracy.

The Fed has always walked a fine line: It's greatest strength is that it is non-political, so it can be an effective and efficient institution in protecting the economy. But its greatest weakness is that it is undemocratic, and unresponsive to the voters. It exists on its own, high above the fray. Therefore, it was given very limited authority. Paulson's plans destroy that balance.

First, it takes an institution which is the nations *only* non-political approach to the economy and drops it squarely in the middle of the political arena by giving it regulatory authority over private businesses outside of its own banking system. The political pressure on the Fed to 'save' certain companies 'assets' at the expense of others will be enormous.

Second, it gives increased regulatory authority over private transactions to an institution that is essentially unanswerable to the political process. In other words, we are creating a new branch of government, with power and authority, that is not answerable to voters, or to congress, or to any democratic process whatsoever; the Fed would become Power without any check or balance, Authority without any accountability to the citizens.

If Investment houses need to be regulated, an agency (The Securities and Exchange Commisson) is already in place. If Predatory lenders need to be more tightly regulated, all 50 state legslatures have the authority to do that, and Fraud statutes exist that can be used or strengthened through the legislative process. If poor business decisions cause a business to go under, taxpayers should not be forced to prop it up (Why is it that failing businesses always want taxpayer money to help them when they fail, but they never feel that their profit should be distributed to taxpayers when theymake a profit? Hmmm........)

Paulson's plan is not a 'small step.' This is the continuing eviscerating of the Republic's Constitution.

But then, we should have come to expect that from this administration.