By Jutta Wolf
IDN-InDepth NewsReport
BERLIN (IDN) – While the world held its breath in the long drawn political tug-of-war between the White House and Republican Party leaders until beginning of August 2011, Senator Bernie Sanders posted on his website startling findings of a top-to-bottom audit of the Federal Reserve (Fed): The central bank of the United States had dished out a whopping $16 trillion between December 2007 and June 2010 in interest free secret loans to “bail out” American and foreign banks and businesses.
“The Fed prefers to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest,” says an article posted on ‘Other news’ on August 7, adding: “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.”
Placing $16 trillion into perspective, the article points out that GDP (Gross Domestic Product) – the market value of all final goods and services produced in the United States in a given period – is only $14.12 trillion, and the entire national debt of the United States government spanning its more that 200 year history is “only” $14.5 trillion. The budget that was being debated so heavily in Congress and the Senate was “only” $3.5 trillion.
“Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world,” says the article.
As a component of the government’s measures to address the subprime mortgage crisis, the then president George W. Bush signed into law on October 3, 2008 the TARP (Troubled Asset Relief Program). Subsequently, loans of $800 billion were given apparently to failing banks and companies.
“That was a blatant lie considering the fact that Goldman Sachs alone received $814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion,” says the article.
The first ever audit by the Government Accountability Office (GAO) in the history of the Federal Reserve, running into266 pages, was triggered by an amendment by Senator Sanders to the Wall Street reform law passed one year ago.
“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 in a posting on the web on July 21, 2011. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” he added.
Among the GAO report’s key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland. “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,” Sanders said.
He went on to say: “The non-partisan, investigative arm of the U.S. 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. One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.
To Sanders, the conclusion is simple. “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 investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans.
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. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.
A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18, but Sanders said one thing already is abundantly clear. “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”
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. (IDN-InDepthNews/08.08.2011)
2011 IDN-InDepthNews | Analysis That Matters
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