This is kind of staggering:
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.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
I am correct in assuming that these were loans above and beyond TARP, correct? This was just fed action, right?
Baud
srv
Yes.
The banks will be standing, but you can stick a fork in your economy. Too bad KThug is on vacation, I’m sure Obama’s assurances that a double-dip is unlikely would cheer him up.
eastriver
yes, these loans were not connected to TARP. you are correct.
yeah, Rick Perry, let’s get Washington DC out of our lives so the free markets can collapse.
fucking cowbilly.
KXB
With all the numbers and department names tossed around, I believe TARP was carried out by the Treasury Department. The Fed actions do not need congressional approval. How an agency that was set up to ensure currency stability can lend trillions of dollars is a mystery that I can’t figure. Not at this time in the morning, anyway.
MikeBoyScout
Let that sink in.
JGabriel
Guillotines.
Now.
.
paradox
So many elements of this are a total screaming outrage, but one is that the Fed has a mandate for full employment, they committed $1.2 trillion for the banks but absolutely nothing for little people hiring.
So the money would not have come back, but people would have been working and the felons who caused this would have been out of their jobs. Now the Fed says they expect no losses. Holy shit I’m supposed to take that at face value?
No one authorized this but Bernanke and the President. Not only did they make loans, but they’ve spent god knows how much with their “easing” in the market. Joe Citizen has no clue.
TARP was a desperate Paulson brain fart, the banks hated it for the public accountability, tiny amount that there was. This so stinks, Jesus Christ, why should any little person play by the rules after this?
paradox
Pitchforks, guillotines, hand grenades, Jesus these motherfuckers are playing with fire!
J
Still, as a member of the public and taxpayer for just short of a quarter of a century, I’ve been heartened, as we all should be, by the touching display of gratitude from the bankers!
Social outcast
Obama already said mean things to them that hurt their feelings. Haven’t the banks been punished enough for bringing the country to the brink of catastrophe?
cleek
blahblahblah… The Aristocrats!
RoninJin
I believe Matt Taibbe wrote about this awhile ago, pointing out that TARP was dwarfed by what the Fed was paying out behind the scenes.
Larime the Gimp
I think we should just give those 6.5 million houses back to those people free and clear and call it good, since we’re rewarding failure and all. 6.5 million households not paying rent or mortgage anymore? Now that would stimulate the fucking economy.
terraformer
I, for one, am eagerly awaiting my place as a NeoSerf.
wilfred
Capitalism is dead – this is just another confession. We already have de facto socialism, but continue to pretend that bailouts, stimulus packages, etc. are anything other than pumping blood into a rotting corpse.
BOA just laid off another 3,500 people.
Original Lee
Oh, yeah, we were ready to go all Galt and everything, but those pesky bureaucrats decided that the best way to stay in power was to put a golden collar on the banks. /libtard
Methinks this is why McCain panicked and suspended his campaign.
NYT
Yes
And they all lied how they only took TARP money because they were forced to by the evil government. Meanwhile they were borrowing over a trillion by the back door.
It seems to be mostly forgotten now but when Lehman folded they had supposedly 613 billion of debt and $639 billion of assets. Last June it was reported that they had increased the forecasted recovery in bankruptcy to $65 billion.
So, for Lehman, $639 billion of “assets” actually turned out to be worth $65 billion.
All the banks needed this injection of cash in exchange for their paper, because their paper is in fact worth pennies on the dollar.
LosGatosCA
Accountability is for
Suckersthe little people. Free money and free markets forEveryonecronies.jonas
@KXB: “How an agency that was set up to ensure currency stability can lend trillions of dollars is a mystery that I can’t figure. Not at this time in the morning, anyway.”
The banking system ensures currency stability hence the Fed has to ensure the banks are working — banks are essentially the heart that pumps money through the economy. If they don’t got no money, we don’t got no money. Hence the Fed had to step in and provide enough liquidity for the banks to function at a time when they would have otherwise completely ceased to lend or move money.
What would be really nice is for the Fed and the Treasury to find a way to provide regular folks with enough liquidity to function. Unfortunately, no one seems to give a shit about that.
Ian
@paradox:
Yeah. The article says there were no losses. In fact, by all accounts this is the only new revenue in many a year.
Maude
@jonas:
We could change our last names to Bank. Maybe that would help.
sherparick
Yes. And really, although the exact figures were not completely known, the fact that this massive bailout to these Wall Street welfare queens was underway was well documented by Yves Smith and Dean Baker during the 2008-09 time perioed. And part of this was appropriate, the Fed acting as lender of last resort. But what galls is the unconditional terms under which lending was granted so that the plutocrats would not have to worry about any claw back and instead saw the prompt restoration of their “bonus” pay culture in late 2009 and 2010, while the rest of the economy suffered from a “double hangover.”
The unintended consequences of Bernanke, Geithner, and Obama in trying to preseve the bank’s right to “full repayment” of principle lend during the housing bubble is the continuation of flat or declining demand as millions of underwater homewowners, even those who can meet their payments, must divert money to paying off this debt on their devalued asset, their home, while saving as much as they can to meet unexpected expenses or unemployment since they no longer have any home equity to fall back on in emergencies.
Further, if entitlements are “reduced” (under Obama) or eliminated (Romney, Perry, Bachman), and social safety net eliminated (no more unemployment and food stamps), then demand from the lower 95% of society will flatten and decline further as incomes fall and desire to save to avoid the risks that could lead to immiseration will have to be the prime plan for all non-rich people who don’t retreat into full demoralization of alcohol, drugs, and the outlaw life style.
Willliam Hurley
The sum you are staggered by Mr Cole is less than 1/10th of the actual total of “back-door” bailout monies that were invented and distributed to financial services businesses – domestic and foreign – and select executives at those companies’ by the Fed.
The actual total, thus far uncovered by a variety of parties disturbed by this “largesse” (to include Sen Sanders), is – are you sitting down?:
$16,200,000,000,000.
The Treasury has been an active participant in facilitating the identification of “need” and distribution of the welfare.
Do you think the President is unaware of such massive welfare handouts – to his most crucial campaign donor class?
Jared
Is this part of the SIXTEEN TRILLION in loans that Sanders was talking about, which turned out to be an accounting gimmick worth a few billion? That guy seems shrill.
wrb
The Fed could end this right away without out it directly costing money, since they can print the stuff. Might cause some inflation, might not, but who really cares?
Problem is the board is independent and was almost entirely appointed by Republicans. Obama can’t make them do anything.
The QE they have been trying might not do anything and may make things worse. The reason being that the money doesn’t get into local US economies- it includes no injection mechanism. It may make things worse by raising commodity (oil) prices.
This analysis seems persuasive. It is from a MMT economist, which is a branch of Keynesism advanced by James Gailbraith (son of the architect of the post-war economy) that holds that deficits matter even less than Krugman does and the Fed should be printing and injecting cash, spending it on good projects, as fast as it can until unemployment is 0 or inflation takes off, but you don’t have to buy the whole MMT theory for this critique of QE to hold up.
Dennis SGMM
It’s heartening that no matter how many of us lose our jobs, homes, and eventually everything we’ve worked for, the banks will continue to be propped up via zero interest no-questions-asked loans from the Fed. The banks’ reciprocity, expressed through low fees, mortgage adjustments, and appropriate loans to small business are all wonderful examples of just how well the Fed policy works – for the banks. For the rest of us not so much.
wrb
@sherparick:
I’ve been trying to get some things done that requiring hiring some skilled manual labor of the sort that typically paid $15to $25. People who were once reliable seem to have all been spending their recession using, dealing and cooking meth or drinking. There seems to be no one left who can be counted on to show up even two days in a row.
catclub
@Dennis SGMM: I think it turns out to be negative interest loans. They take the zero interest loan money and buy T-bills which pay a modest interest rate. Zero risk, infinite return on investment.
If you happen to have access to the feds loan window.
Culture of Truth
I think they tried that first.
The tea party will no doubt be outraged until they find out the white guy was President.
Dennis SGMM
@catclub:
Thank you. I’ve heard about that revolving-door setup. It’s disgusting that the interest paid on those T-bills will come out of the pockets of the same people (Us) whom the banks have been screwing.
“Show business kids making movies of themselves and they don’t give a fuck about anybody else.”
catclub
@Culture of Truth: This is why we need the $1Tr coin. We can’t afford the olympic pools.
RareSanity
@MikeBoyScout:
Just think of where the economy would be if all of those homeowners were given 2% (or less) mortgages.
It would have been the proverbial “two birds with one stone”. Heaven forbid that the government and “quasi-government” entities actually intervene to help living, breathing people before corporate persons.
JGabriel
@paradox:
Because, unlike the top .5%, little people can lose everything and be sent to jail.
.
Dennis SGMM
@wrb:
When work hard and play by the rules now means that you can be proper fucked anyway it’s understandable that some people’s work ethic may have eroded. That’s not to excuse the behavior just to possibly explain it.
wrb
@Dennis SGMM:
It isn’t a lack of work ethic or anything easily under their control. Their minds have been destroyed. Crank is nasty stuff.
wrb
@RareSanity:
EXACTLY
Could still be done.
But clearly not with this Fed board
jonas
@Maude: Actually, there was a guy who tried that (almost). Didn’t work out so well.
Villago Delenda Est
@paradox:
Hang them, like the common criminals they are.
Sam Houston
“The first thing we do, let’s kill all the bankers.”
different church-lady
@jonas:
The fact that you need to explain this to people makes me despair.
Derf
Whatever it takes to distract from Libya eh Colonel Cole!
Don’t know what I am talking about? More of that selective memory loss perhaps? Let me remind you.
balloon-juice.com/2011/07/20/why-does-john-cole-hate-freedom/
balloon-juice.com/2011/07/13/so-who-do-we-start-bombing-to-stop-these-war-crimes/
balloon-juice.com/2011/06/20/not-all-bad-guys-are-hitler/
Captain Renault
TAF (Term Auction Facility) was created as a short term financing solution for banks to ashamed to borrow at the Fed “discount window.” As such it was used by both domestic and foreign banks for a practical revolving line of credit.
Shocked, I am shocked . . . .
jayackroyd
Friend of mine remarks that what’s wrong here isn’t the loans–that’s the Fed’s job, providing liquidity in a crisis. What’s wrong is that these insolvent banks weren’t nationalized.
If you think of it that way, the secrecy makes even more sense–they didn’t just want to avoid people losing confidence. They also (and you should remember this) wanted this to be a liquidity crisis, not a solvency crisis.
And so we have a still insolvent BofA, continuing to wreck the housing markets.
different church-lady
‘ixed.
Pamoya
Corporations are people, right? They are the government’s true constituents. If something is hurting them, government will do *anything it can* to fix it. They will take executive branch only, extra-constitutional measures to get around Congressional intransigence. No amount of money is too big.
But real, breathing, living people? They are disposable.
scav
@different church-lady: Well, first, I would assume there is a lot of rhetorical flourish going around so don’t expect people actually needed it explained to them so don’t jump off anything more than rhetorically high for a bit. Second, there does seem to be an underlying problem that all the efforts seem to go to the so-called heart and seemingly ignore the importance of the other organs. We may be just the tiniest little capillaries but in terms of total body functioning, they too serve who only exchange water, oxygen, carbon dioxide, etc, and waste chemical substances between blood and surrounding tissues. And a perfectly rescued heart being placed in a oxygen-starved, malnourished, withered body doesn’t seem to be the peak of medical science but, hey, what do I know, I’m at best barely a cell-wall thick.
Jinxtigr
Fine. Wait until the truth is out and popular opinion is breaking out the guillotines and THEN nationalize the banks.
Not like we could’ve gotten away with stuff like single payer or nationalizing the banks before. I’m afraid things have to get uglier than you can possibly imagine before any of the nice progressive stuff (much of which makes good sense) is palatable to the largely Fox-fed populace.
So basically things have, so I say watch for your teachable moments. Watch for every possible opportunity to seize and pounce on the cognitive dissonance, we’ll ride the ol’ pendulum from its crazily, unsustainably rightward swing to a crazily unsustainable LEFTward swing and get what we can out of that while it lasts.
Sounds like a plan?
First, stop calling it ‘free’ market. Call it ‘you get what you pay for’ market and we’ll take it from there. Free isn’t free, free is no-rules (for the rich) and actually damn costly. Free is Somalia. We can do better.
Grumpy Code Monkey
Instead of trickle-down, we need bubble-up. Inject money at the bottom levels of the economy either by raising the minimum taxable income or through tax credits, or hell just mail a check every week. Everybody has to eat, everybody has to buy clothes, everybody has shit they need fixed. Get the people at the bottom spending money, spurring demand for goods and services, which gets employment back up, which gets more money moving through the economy as a whole, getting us back to where we can create wealth instead of just hoarding it.
But God forbid the fucking proles get a break; that’s why they’re fucking proles. Economic prosperity for all at the expense of assholes like Trump having to save up for a new solid-gold crapper is a greater affront to freedom and the American way than the bastard child of Hitler, Stalin, and Mao (or for you 21st-century types, Putin, Kim Jong Il, and Hussein).
Karmakin
@wrb:
Politically nonviable. Like it or not. Not because that the Republican party would go all apeshit (although it would). But because too many individual people would go all apeshit on it. People don’t like to see people who are not them get “ahead”, when they don’t think they “deserve” it.
Imagine you have a mortgage, make all your payments, even though it’s more and more of a sacrifice, and your next door neighbor who isn’t as “responsible” in your eyes and is behind suddenly gets a lower mortgage payment as a “reward”. A lot of people would get seriously PISSED at those turn of events. What do you do to help renters? Is it just home mortgagers? What about those who have paid for their homes already?
Like it or not there’s a ton of social politics and twisted ideas about “fairness” that come into play here.
TL;DR version, a lot of the suggestions here are good, but don’t account for a rotten society.
wrb
@Karmakin:
Yea, I know. The fairness problem with that specific solution occurred to me as soon as I posted affirming the suggestion. However, there is a huge fairness problem with what has already been done. I think the Fed could inject money at the bottom, initiating trickle up, in ways that were acceptably fair, and which did not reward default.
Threadkiller
Late arrival here – this sounds like a spinoff of TALF that I saw back in 2009 (I worked for a bank that participated in the program). Essentially, the Fed made low-interest loans for capital and liquidity to the banks.
The collateral – loans at the bank level. For awhile, documentation consisted of a spreadsheet telling the fed that we in fact had certain loans, in certain amounts, on our books. We’d send updated spreadsheets monthly. These loans would serve as security for the Fed loans. Insanity.
Eventually in 2010, the local branch of the Fed got around to auditing our portfolio and confirming that these loans were actually on the books (the money having gone out in 2009).
Svensker
@Derf:
Yes because what’s really important to the U.S. is what’s going on in Libya, not whether the banks are solvent or not.
What do you get out of this, Fred? Seriously.
different church-lady
@scav: All good points you’ve made. Where my dismay comes in is not from any lack of perspective people might have, but from certain people’s seeming belief that we can just let the heart fail and the rest of the body will somehow be better off for it.
different church-lady
@scav: To further belabor the analogy: the middle of a cardiac event is not the time to be educating the victim about heart-healthy nutrition. You stabilize the patient any way you can.
However, once that stabilization has occurred and the patient is out of immediate danger, if you don’t do any dietary and lifestyle adjustments then the patient just ends up having another event later on down the line.
People just can’t seem to see this: you don’t “reform” a system in the middle of an emergency. The problem we have isn’t in the massive steps the various branches of government took to stabilize things in the heat of the crisis, or in the ICU. The problem is in that the system hasn’t changed sufficiently since then.
But it takes far less typing to look at the emergency measures in particular and just use it as another excuse to rant, “Money for fat cats but no money for main street!” So that’s what people do. Even smart people who ought to know better. It’s not that the statement is wrong in and of itself, it’s that it’s misapplied to many situations. The feds did what they had to do in the emergency room. But now they won’t do the lifestyle change stuff. We ought to be focusing on that instead of rants about how the emergency room doctors are corrupt.
buermann
Those are the numbers for the peak emergency lending through special Fed windows, from the GAO’s audit of the Federal Reserve, c.f. table 9 at around page 133:
sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf
It was “secret” in the sense of how much to whom, but all the special lending facilities were announced publicly and we had some general idea of the total amount of cash the fed was pushing out the window, so this doesn’t add to the wide range of estimates (seekingalpha.com/article/150110-federal-bailout-23-trillion-and-counting) that are already out there for the “size” of the bailouts.
Usually the trillions in asset guarantees and subsidized loans are mixed up with billions in handouts via AIG, the GSEs, the maiden lanes, and parts of the QEs (did I forget one?) when somebody is trying to estimate the “size” of the bailout. Asset guarantees have the effect of subsidizing banks’ interest rates, so its similar to a straight up subsidized loan. The latter bailouts and asset purchases made banks whole or partially whole on the maturity value of various worthless piles of shit.
If you’re looking at, say, Bloomberg’s estimate of a $12T bailout, that’s sort of like saying taxpayers stuck their necks out for that much, and wall street gave us a haircut for some fraction of that, easily in the hundreds of billions, but probably not in the trillions, and then gave themselves all a big pat on the back, whined about their mistreatment at the hands of the press and the public between blowjobs from the press and the politicians, and gave themselves huge fucking bonuses for a few years. 15 million jobs later, here we are, still trying to wrap our heads around it while the markets are behaving as though wall street is about to give us a clean shave with a straight razor.