The Federal Reserve purse: Wall Street borrowed from Fed at 0.0078%

Written by Biloxi

Who would want any loan for a car, home, and so on with a very low interest rate at 0.0078%? I know I would. Unfortunately, Main Street is left out in the cold. This type of loan by the Federal Reserve to Wall Street is not given to Main Street. Remember the $700 billion TARP fund in 2008 that was given to banks to bail them out in the bad economic crisis? Well, we now know that the TARP funds as well as free money at a low interest rate certainly help the banks to live off the hog, have record breaking quarterly profits, and bonuses given out to the bank executives while the homeowners were losing their homes and not provided immediate help.

Federal Reserve disclosed this week, under orders from Congress, in details of trillions of dollars of loans lent to financial institutions, companies and foreign central banks during the economic crisis. These loans were given to these companies to ease a credit crisis. The financial crisis had caused companies' credit to dry up which companies was in need of short-term cash. From the Federal Reserve website:

The Federal Reserve Board on Wednesday posted detailed information on its public website about more than 21,000 individual credit and other transactions conducted to stabilize markets during the recent financial crisis, restore the flow of credit to American families and businesses, and support economic recovery and job creation in the aftermath of the crisis.




Many of the transactions, conducted through a variety of broad-based lending facilities, provided liquidity to financial institutions and markets through fully secured, mostly short-term loans. Purchases of agency mortgage-backed securities (MBS) supported mortgage and housing markets, lowered longer-term interest rates, and fostered economic growth. Dollar liquidity swap lines with foreign central banks helped stabilize dollar funding markets abroad, thus contributing to the restoration of stability in U.S. markets. Other transactions provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system.

Here are some of the breakdown of most aid over time giving to the banks according to the documents on the Federal Reserve website:
 
Citigroup borrowed $2.2 trillion It was followed by Merrill Lynch ($2.1 trillion), Morgan Stanley ($2 trillion), Bear Stearns ($960 billion), Bank of America ($887 billion), Goldman Sachs ($615 billion), JPMorgan Chase ($178 billion) and Wells Fargo ($154 billion). Foreign central banks that received the aid were Swiss bank UBS, which borrowed more than $165 billion. It was followed by Deutsche Bank ($97 billion) and the Royal Bank of Scotland ($92 billion).
 
What makes matter worse is that the banks tapped into the Federal Reserve Bank many times like a piggybank. For instance, Citigroup tapped into the FED more than 278 times during the financial crisis. And Merrill Lynch tapped into the FED 225 times and borrowed as much as $33.2 billion during the crisis.
Other companies that are not banks tapped into the Federal Reserve too: Caterpillar, General Electric, Harley Davidson, McDonald’s, Verizon and Toyota.

In addition, NY Times reported this nugget: Private investors with ties to the financial institutions benefitted from one of Federal Reserve programs. From NY Times:

Another Fed program, the Term Asset-Backed Securities Loan Facility, brought the Fed into the unprecedented position of supporting small business, auto, student, and credit card loans. Plentiful helpings of low-cost debt encouraged institutions to ramp up lending and lured back private investors.


Among prominent investors in that program were the businessmen H. Wayne Huizenga and Julian Robertson; Kendrick R. Wilson III, a former Goldman executive who had been a top aide to Henry M. Paulson Jr., the Treasury secretary during the crisis; and Christy K. Mack, the wife of John J. Mack, the former chief executive of Morgan Stanley.

Other surprises emerged from the data. Both the American International Group, the insurer bailed out by the government, and Lehman owned big stakes in funds that bought TALF securities. So did Jonathan S. Sobel, who ran the mortgage department at Goldman Sachs.

Expect more trips by FED Chairman Ben Bernanke to Congress to explain this bombshell since Congress and the public were left in the dark, hookwinked, and was under the assumption that banks needed the $700 TARP funds [taxpayers money] to stabilize their companies during the economic crisis. But, just when Mr. Bernanke is currently defending the Fed from the lawmakers of its asset purchases, the Federal Reserve's wounds from the financial crisis are reopened again and Mr. Bernanke's leadership role will be questioned.