More details on the $16 trillion backdoor bank bailout

Today I received a mass emailing from Alan Grayson. I had previously heard about this backdoor bailout by reviewing an article by Bernie Sanders and see here. Nonetheless, I hadn't before seen the details of massive loans made by the Fed to banks and non-banks. These numbers are mind-boggling. Click on Grayson’s link to the Federal Reserve report (below) with the outrageously sterilized title: “FEDERAL RESERVE SYSTEM: Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance.” Then follow his road map in order to see the problems with your own eyes. I've printed Grayson's entire mass mailing below. Consider that the Fed created $16 TRILLION and distributed much of it to foreign banks. This amount is 20 times bigger than the publicly disclosed TARP, yet the American People were never given a chance to know about this or have their representatives vote on it. The banks tried to keep this backdoor bailout secret, but it took Senator Bernie Sanders of Vermont, neither Democrat nor a Republican (he is a democratic socialist), to raise hell in order to force the Federal Reserve to account for this backdoor bailout. And back then, it was believed that this backdoor bailout was "only" $2.2 trillion. One more thing: The total annual tax receipts of the United States are “only” $2 trillion. But, of course, based on the news media, you would think that the most important things going on concern Michael Jackson’s doctor and Herman Cain’s sex life. -- Dear Erich, I think it’s fair to say that Congressman Ron Paul and I are the parents of the GAO’s audit of the Federal Reserve. And I say that knowing full well that Dr. Paul has somewhat complicated views regarding gay marriage. Anyway, one of our love children is a massive 251-page GAO report technocratically entitled “Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance.” It is almost as weighty as that 13-lb. baby born in Germany last week, named Jihad. It also is the first independent audit of the Federal Reserve in the Fed’s 99-year history. Feel free to take a look at it yourself, it’s right here. It documents Wall Street bailouts by the Fed that dwarf the $700 billion TARP, and everything else you’ve heard about. I wouldn’t want anyone to think that I’m dramatizing or amplifying what this GAO report says, so I’m just going to list some of my favorite parts, by page number. Page 131 – The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank. Pages 133 & 137 – Some of these “broad-based emergency program” loans were long-term, and some were short-term. But the “term-adjusted borrowing” was equivalent to a total of $1,139,000,000,000 more than one year. That’s more than $1 trillion out the door. Lending for these programs in fact peaked at more than $1 trillion. [More . . . .]

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Bank of America’s latest assault on American taxpayers

At Common Dreams, former bank examiner Bill Black has written of a terrible (though anticipated) new development at the Bank of America. The bank has taken on enormous toxic debt from its holding company (BAC) in order to saddle American taxpayers with the bill, as the Federal Reserve winks and nods.

BAC continues to deteriorate and the credit rating agencies have been downgrading it because of its bad assets, particularly its derivatives. BAC’s answer is to “transfer” the bad derivatives to the insured bank – transforming (ala Ireland) a private debt into a public debt.
Bloomberg has been aggressively reporting the story. Here's a short description by Jonathan Weil:
The Federal Deposit Insurance Corp. is objecting to the transfers. That part is easy to understand: More risk for the retail lender means more risk for FDIC-insured deposits, which ultimately are backstopped by the U.S. government. The Fed, however, has signaled to the FDIC that it favors the transfers. Shifting the derivatives to the commercial lender may let Bank of America avoid collateral calls and termination fees stemming from the rating downgrade. Some Merrill clients may prefer having their contracts with the higher-rated unit. In short, the Fed’s priorities seem to lie with protecting the bank-holding company from losses at Merrill, even if that means greater risks for the FDIC’s insurance fund. . . . The entire story would be playing out in secret were it not for some unidentified whistleblowers who seem to have this crazy idea that the public should be informed about what the regulators and Bank of America are up to.
In his article, Weil makes it clear that all roads lead to American taxpayers picking of the tab, and it could run into the trillions. In fact, check the comments to Weil's article and you'll see the desperation, because the number being suggested is $75 TRILLION in derivatives, which Ben Bernacke has approved to be dumped on taxpayers, who don't have this money in any way shape or form (the U.S. only takes in $2 trillion in tax receipts each year). Thus, the Fed, a covey of criminal bankers, is in the process of attempting to destroy the FDIC and the American economic system in order to buy a bit more time for its big players (BAC is not alone; Morgan Chase is holding another $75 T in these fraudulent derivatives). What are "derivatives," the source of this immense debt? Bloomberg's Bob Ivry explains derivatives in his article that broke this scandalous decision to move Merrill derivatives to BAC's taxpayer insured banking unit:
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates. Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.
In these times, as the credit ratings of the big banks continue to slide, the objectives of the banks is always the same, but more intense than ever: Privatize the profit and socialize the losses.   The so-called banks have armies of corrupt accountants, lawyers and lobbyists working hard to find yet another way to make innocent taxpayers foot the bill for the the banks' immense amounts of debt that resulted from irresponsible gambling.  As William Black explains, the banks happily took on this gambling debt sharply, but now they want to dump in on people like you and me.  The Fed has given the nod because it is wholly corrupt in this adventure, contrary to the protests of the FDIC.  The bank management is giving the nod sharply contrary to fiduciary duties they owe to their shareholders and customers. This entire charade needs to be reported on the front page of every paper in America.  If Americans were better informed about the depth and scope of how they are being fleeced, we'd see hundreds of millions of Americans joining the #Occupy protests.

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How was public money used to prop up financial institutions?

The quick answer is that we don't know. This is unbelievable, given that public tax money was used. As reported by the NYT, lawsuits brought by Bloomberg and FOX, as well as an Congressional effort to audit the Federal Reserve seek answers to these questions:

Who got money from the Fed? How much did they get? In exchange for what collateral? And under what terms?

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William K. Black: It’s time for real economic reform

We are a nation in severe crisis. According to William K. Black, a white-collar criminologist, President Obama doesn't deserve any more of our patience:

The Obama administration promoted Bush's architects of the financial disaster and demands that we hail them as heroes. President Bush was ridiculed for saying: "Brownie, you're doing a heck of a job." FEMA administrator Michael Brown stood by while Hurricane Katrina reduced a single large city to ruin. Geithner and Bernanke stood by while scores of large cities were devastated.
Black offer much more than criticism. He offers ten opportunities for digging us out of this mess. It will be difficult to attain any of these while the banks own Congress, but we need to dig deeply an somehow find the political will. Here are two of Black's points that stand out to me:
Can the Wrecking Crew. Fire the senior leaders of Bush's and Clinton's financial Wrecking Crews and stopping treating them as financial experts. President Obama should not reappoint Bernanke as Fed Chairman. He should dismiss Geithner and Summers and cease to take any advise from Rubin. Replace them with the Reconstruction Crew -- people with a track record of getting things right and being effective economists, regulators, and prosecutors . . . End "too big to fail." These banks are "systemically dangerous institutions" (SDIs). They should not be allowed to grow. They should be shrunk to the point that they no longer pose systemic risk, and they should be subject to vigorous regulation while shrinking. They are too big to manage and too big to regulate. They are ticking time bombs that will cause recurrent global crises as long as they are SDIs.
Here are some of Black's other suggestions. I agree with all of them whole-heartedly: - We need to provide the FBI with 1,000 more specialized white-collar crime investigators. - No more executive compensation looting. - Kill TARP and PPIP. ("Use the funds to help honest homeowners that would otherwise lose their homes because of predatory loan terms.") - Make the Federal Reserve System public. - Defeat any proposal to make the Fed the "Uberregulator." - Create a robust "Consumer Financial Product Agency. - End the waste of long-term unemployment (Instead, of paying them to do nothing, pay them to do public works) Consider, also, Black's Five Fatal Flaws of Finance.

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We’re another step closer to auditing the Federal Reserve

This has been a long time coming. The Federal Reserve has never been audited. Ever. The House has now moved us a step closer to shedding real light on all of the secret deals:

The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.), authorizes the Government Accountability Office to conduct a wide-ranging audit of the Fed's opaque deals with foreign central banks and major U.S. financial institutions. The Fed has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal.

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