[bailouts]Wait... 16 what?

Arkady

I am starting to think I am going crazy. I did a search for this and saw a few posts made about it in the old debt ceiling thread, but otherwise nobody seems to be talking about this.

The federal reserve was revealed in an audit to have given out 16 Trillion dollars in bailouts to a wide range of banks, including foreign ones, between 2007 and July of 2011. For example,

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)

The full GAO report can be found here http://www.scribd.com/doc/60553686/GAO-Fed-Investigation#outer_page_144 or here http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf

So like, what gives? Has this been debunked somewhere? Is this not as big a deal as it seems? Is there something I am missing that leads to people not completely flipping their shit over this, if for nothing else, the bailouts given to the foreign banks? Why is it that I didn't hear about this, which was published in July, until yesterday reading reddit? And I guess lastly, "A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18," Which should make for some interesting stuff.

And just to be clear, I am not in the "Abolish the reserve!" camp. I am honestly baffled that nobody is talking about this.

Caveman Paws

All your questions shall be answered, but first, please direct your attention to the red light.

tsmvengy

Here's the report:
http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf

Page 131 is where this number comes from. Read the page before it. The key sentence:

"For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days."

As far as I can tell the "$16 Trillion" number is misleading.

ronya

strictly speaking these were loans

the "bailout" part is over whether these organizations end up paying the Fed a fair market amount, instead of some lower-than-market interest rate

ronya

tsmvengy wrote:

"For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days."

As far as I can tell the "$16 Trillion" number is misleading.

I did not know this, although it would make sense

shouldn't there be a "highwater mark of liabilities" somewhere

Cantelope

tsmvengy wrote:

Here's the report:
http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf

Page 131 is where this number comes from. Read the page before it. The key sentence:

"For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days."

As far as I can tell the "$16 Trillion" number is misleading.

This seems even more baffling to me. Why would you kept track of anything this way, it seems to make things more difficult to understand. What is the purpose of it, I really am at a loss for how that is a useful metric.

adytum

C'mon guys, keep reading. Page 137 has a graph that details the amounts outstanding over time.

Arkady

tsmvengy wrote:

Here's the report:
http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf

Page 131 is where this number comes from. Read the page before it. The key sentence:

"For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days."

As far as I can tell the "$16 Trillion" number is misleading.

Adding your link to the report to the op since I like it more than the scribd one.

ronya

So about $1 trillion in loans at the peak

(it being made-up funny money throughout, more or less. Yay fiat currency.)

again the "fairness and justice" part to be raging about is just whether these banks paid some 'proper' price for said emergency lending, not that they got lent to. The Fed is supposed to be lender of last resort.

Septus

ronya wrote:

strictly speaking these were loans

the "bailout" part is over whether these organizations end up paying the Fed a fair market amount, instead of some lower-than-market interest rate

My assumption is: The bailouts that we all know about, were named as such because of the risk of those loans, and they weren't requiring a high rate that would normally accompany that risk. But, when the news says that the banks have repaid their loans early and the government has made money(unless this was only the auto company bailouts), the positive return there is presumably based on more reasonable rates that governments get for lending.

Yes?

Arkady

So unless I am misreading this terribly, the 16 trillion number is a measurement of total transactions and not an actual representation of money loaned out?

tsmvengy

Arkady wrote:

So unless I am misreading this terribly, the 16 trillion number is a measurement of total transactions and not an actual representation of money loaned out?

Basically.

Aioua

Cantelope wrote:

tsmvengy wrote:

Here's the report:
http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf

Page 131 is where this number comes from. Read the page before it. The key sentence:

"For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days."

As far as I can tell the "$16 Trillion" number is misleading.

This seems even more baffling to me. Why would you kept track of anything this way, it seems to make things more difficult to understand. What is the purpose of it, I really am at a loss for how that is a useful metric.

This is actually a normal thing banks do with each other. Most of these short term loans aren't even for a whole day, just overnight! The general thrust of how it started is banks don't use their money when they're closed, so why not lend it to some bank in another part of the world that's open and make a little interest when you get it back in the morning.
http://en.wikipedia.org/wiki/Interbank_lending_market

Yar

I do recall noting that the amount of lump-sum discretionary compensation AIG contractors got (i.e., bonuses) was virtually nothing at all compared to how much taxpayer money went to bail out European Banks that had been buying AIG insurance policies as a way to circumvent critically important cash-on-hand requirements.

Alistair Hutton

Yar wrote:

I do recall noting that the amount of lump-sum discretionary compensation AIG contractors got (i.e., bonuses) was virtually nothing at all compared to how much taxpayer money went to bail out European Banks that had been buying AIG insurance policies as a way to circumvent critically important cash-on-hand requirements.

Of the billions that AIG paid out Goldman Sachs was the single biggest recipient. Then Bank of America.

[Tycho?]

http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html

Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

They also made a handy interactive chart that show which banks took how much and when.
http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/

My bank is on that list, and its not even a US based bank. Plus these were largely secret loans, so the banks could continue to say "everything is fine" when they were taking billions from the Fed so they didn't collapse.

[Tycho?]

And no, you won't see this on major media outlets, I only saw it cause I follow these things closely. This thread is the first mention I've seen of this in some time.

Jephery

The loan amounts are secret because, if they were public, they would cause bank panics like during the Great Depression era. They need to be secret for the Fed to do its job properly, which is to keep the banking system healthy.

ronya

anybody who's looked at the matter closely know whether this is Fed funny money or Treasury tax money?

[Tycho?]

Jephery wrote:

The loan amounts are secret because, if they were public, they would cause bank panics like during the Great Depression era. They need to be secret for the Fed to do its job properly, which is to keep the banking system healthy.

It also conveniently means that there is no oversight or accountability. It grants literally world changing power to a private corporation whose directors are not elected. And if these banks that get bailed out suddenly reap massive profits and grant billion dollar bonuses to their CEOs? Well I guess the Fed did its job, because the banking system is very healthy at that point.

Until the next crisis. Which the banks will do everything they can to avoid, having learned their lesson previously.

adytum

This thread is based on the findings of a report mandated by a congressional act and conducted by the GAO. I'm not sure how you can say there's no oversight or accountability.

Jephery

It also conveniently means that there is no oversight or accountability. It grants literally world changing power to a private corporation whose directors are not elected. And if these banks that get bailed out suddenly reap massive profits and grant billion dollar bonuses to their CEOs? Well I guess the Fed did its job, because the banking system sure is healthy then.

They're loans, they all get paid back to the Fed eventually, assuming the bank doesn't completely fail in the meantime. Even TARP has been almost completely paid back.

Oh, and what adytum said.

Heartlash

I don't consider this as big a deal as many people do.

The fed loaned out ~1.2 trillion over a 3 year period behind our backs with the intention of maintaining a solvent banking system. For me, the real downsides are the abusive nature by which some of that money may have been exploited. Big picture, though, I think I understand the concept, and vastly prefer what happened to a "better safe than sorry" approach.

Of course, populist rhetoric will turn this into Ben Bernanke being some sort of fiscal vampire giving a billionaire a backrub while smoking a cigar made from the skin of a dead baby; but that's life.

Arkady

Heartlash wrote:

I don't consider this as big a deal as many people do.

The fed loaned out ~1.2 trillion over a 3 year period behind our backs with the intention of maintaining a solvent banking system. For me, the real downsides are the abusive nature by which some of that money may have been exploited. Big picture, though, I think I understand the concept, and vastly prefer what happened to a "better safe than sorry" approach.

Of course, populist rhetoric will turn this into Ben Bernanke being some sort of fiscal vampire giving a billionaire a backrub while smoking a cigar made from the skin of a dead baby; but that's life.

Maybe! I suppose we shall see on the 18th.

Boring7

tsmvengy wrote:

Here's the report:
http://sanders.senate.gov/imo/media/doc/GAO Fed Investigation.pdf

Page 131 is where this number comes from. Read the page before it. The key sentence:

"For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30 days."

As far as I can tell the "$16 Trillion" number is misleading.

I was wondering how 16 trillion could be loaned out considering the GDP is, I'm given to understand, substantially less.