Your tax dollars atWho Got Secret Fed Bailouts?
The Big Winners
- Goldman Sachs received nearly $600 billion
- Morgan Stanley received nearly $2 trillion
- Citigroup received $1.8 trillion
- Bear Stearns received nearly $1 trillion
- Merrill Lynch received some $1.5 trillion
- Deutsche Bank, a German lender, sold the Fed more than $290 billion worth of mortgage securities
- Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds
Also receiving secret Fed bailouts
- General Electric
- McDonald’s
- Caterpillar
- Harley Davidson
- Toyota
- Verizon
AFTERTHOUGHT: can anyone explain to me why ANY of this money went to foreign-based institutions? Even in theory, what stimulative effect was THAT supposed to have for the US economy?
CORRECTION: although the post appeared on Turley's blog, it was written by guest blogger Elaine Magliaro.
UPDATE: BadTux, who knows far more about economics than I do, has the following to say in comments. I reproduce his comment in its entirety because all of it seems relevant:
- The mortgage bonds held by the foreign banks were sold to the Fed as part of the AIG bailout. They were U.S. mortgage-backed securities guaranteed by AIG, and AIG would have been on the hook if they'd stayed in foreign hands.The top 5 there doesn't surprise me at all. The entire banking system was insolvent.Regarding the "secret" Fed bailouts of companies, no. Those were bond purchases by the Fed, and occurred exactly because the banks were insolvent and could not meet their daily obligations to the companies involved. Usually those businesses would have met their needs in the bond markets run by the top 5 on your list, but those companies were insolvent and the markets non-functional. The money was paid back when the bond market revived and the Fed currently doesn't own any bonds from those companies.All of this is actually what the Fed is *supposed* to do, by design, when the banking system becomes insolvent -- inject massive liquidity into it via purchasing bonds and other assets from banks and companies. The goal is to prevent a repeat of the Panic of 1908 or the collapse of 1932 where the entire banking system was on the verge of collapse because banks couldn't sell the assets they had (the loans on their books) to anybody when depositors came a'callin' for their funds. The Fed was designed to be the purchaser of last resort in that case.The problem is that the insolvency is due to a combination of a bad economy and massive fraud, and the Fed isn't set up to deal with either. Congress is supposed to deal with a bad economy by passing a massive jobs program to get Americans back to work. Seen that lately? And the Justice Department is supposed to prosecute fraud. Seen that lately? From my perspective, the Fed has done exactly what it was designed to do. Unfortunately, what the Fed did isn't enough -- the rest of the system has to step up and do what it's supposed to be doing too to make this whole system work the way it's supposed to work, and that hasn't happened.- Badtux the Economics Penguin
The mortgage bonds held by the foreign banks were sold to the Fed as part of the AIG bailout. They were U.S. mortgage-backed securities guaranteed by AIG, and AIG would have been on the hook if they'd stayed in foreign hands.
ReplyDeleteThe top 5 there doesn't surprise me at all. The entire banking system was insolvent.
Regarding the "secret" Fed bailouts of companies, no. Those were bond purchases by the Fed, and occurred exactly because the banks were insolvent and could not meet their daily obligations to the companies involved. Usually those businesses would have met their needs in the bond markets run by the top 5 on your list, but those companies were insolvent and the markets non-functional. The money was paid back when the bond market revived and the Fed currently doesn't own any bonds from those companies.
All of this is actually what the Fed is *supposed* to do, by design, when the banking system becomes insolvent -- inject massive liquidity into it via purchasing bonds and other assets from banks and companies. The goal is to prevent a repeat of the Panic of 1908 or the collapse of 1932 where the entire banking system was on the verge of collapse because banks couldn't sell the assets they had (the loans on their books) to anybody when depositors came a'callin' for their funds. The Fed was designed to be the purchaser of last resort in that case.
The problem is that the insolvency is due to a combination of a bad economy and massive fraud, and the Fed isn't set up to deal with either. Congress is supposed to deal with a bad economy by passing a massive jobs program to get Americans back to work. Seen that lately? And the Justice Department is supposed to prosecute fraud. Seen that lately? From my perspective, the Fed has done exactly what it was designed to do. Unfortunately, what the Fed did isn't enough -- the rest of the system has to step up and do what it's supposed to be doing too to make this whole system work the way it's supposed to work, and that hasn't happened.
- Badtux the Economics Penguin