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Back on July 21, 2011 – Senator Bernie Sanders [VT] published a
paper titled, The Fed Audit, where he made the claim that a GAO [Government
Accountability Office] report showed the real cost of the Federal Reserve
bailout was 16 Trillion.
A snippet from Bernie Sanders’ The Fed Audit:
The first
top-to-bottom audit of the Federal Reserve uncovered eye-popping new details
about how the U.S. provided a whopping $16 trillion in secret loans to bail
out American and foreign banks and businesses during the worst economic
crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the
Wall Street reform law passed one year ago this week directed the Government
Accountability Office to conduct the study. “As a result of this audit,
we now know that the Federal Reserve provided more than $16 trillion in total
financial assistance to some of the largest financial institutions and
corporations in the United States and throughout the world,” said
Sanders. “This is a clear case of socialism for the rich and rugged,
you’re-on-your-own individualism for everyone else.”
Among the
investigation’s key findings is that the Fed unilaterally provided
trillions of dollars in financial assistance to foreign banks and
corporations from South Korea to Scotland, according to the GAO report.
“No agency of the United States government should be allowed to bailout
a foreign bank or corporation without the direct approval of Congress and the
president,” Sanders said.
The entire GAO report can be read here: http://sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf
Here’s a few snippets directly from the GAO report:
“The
Reserve Banks’ and LLCs’ financial statements, which include the
emergency programs’ accounts and activities, and their related
financial reporting internal controls, are audited annually by an independent
auditing firm. These independent financial statement audits, as well as other
audits and reviews conducted by the Federal Reserve Board, its Inspector
General, and the Reserve Banks’ internal audit function, did not report
any significant accounting or financial reporting internal control issues
concerning the emergency programs.”
[pg. 23]
“The Federal Reserve Board is
a federal agency that is responsible for maintaining the stability of
financial markets; supervising financial and bank holding companies,
state-chartered banks that are members of the Federal Reserve System, and the
U.S. operations of foreign banking organizations; and supervising the
operations of the Reserve Banks.”
And at page 112:
“Emergency
Programs That Have Closed Have Not Incurred Losses and the Federal Reserve
Board Expects No Losses on Those With Outstanding Balances.”
So how could something that the GAO reportedly claimed cost 16
Trillion at the same time be showing no losses
anywhere?
At page 166 we finally begin to get a picture – albeit fuzzy -
of how much money [credit] was actually extended during the bailout –
with an aggregated breakdown of how much by each institution under broad based programs:
+++Table 8 [above] aggregates [AND AS SUCH IS MISLEADING] total dollar transaction
amounts by adding the total dollar amount of all loans but does not adjust
these amounts to reflect differences across programs in the term over which
loans were outstanding. 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. In contrast, a TAF loan of
$10 billion extended over a 1-month period would appear as $10 billion. As a
result, the total transaction amounts shown in table 8 for PDCF are not
directly comparable to the total transaction amounts shown for TAF and other
programs that made loans for periods longer than overnight.
Key to terms on chart:
TAF Term Auction
Facility
PDCF Primary Dealer Credit
Facility
TSLF Term Securities
Lending Facility
CPFF Commercial Paper
Funding Facility
AMLF Asset-Backed
Commercial Paper Money Market Mutual Fund Liquidity Facility
TALF Term Asset-Backed
Securities Loan Facility
When adjusted for term – a truer and clearer picture of the cost
of the bailout is as follows:
The following graphic shows how and when each broad based emergency
funding programme was ramped up – peaking at approximately 1.1 Trillion
- and subsequently wound down:
In addition to Broad Based
Programs – the Fed also engaged in other liqidity adds which fall under
Dollar Swap Lines with other Central Banks [14 of them], Assistance
to Individual Institutions and Open Market Operations. These 3
categories – at their peaks – potentially added an additional
2.056 Trillion – bringing the
PEAK TOTAL COST of the bailout to a theoretical 3.1 TRILLION.
Subsequently, 943 billion
of this “2.056 Trillion add” remains in place – mostly
resulting from a remaining balance of purchased Mortgage Backed Securities by
the Fed through Open Market Operations:
The unrecouped costs of
the bailout [to date] are believed to be:
· 13
billion outstanding on TALF
· 22
bilion outstanding Maiden Lane
· 12
bilion Maiden Lane III
· 909
billion worth of MBS – still held by the Fed
· An
undetermined amount of new Dollar Swap arrangements with Foreign Central Banks
So from the standpoint of
Bernie Sanders claiming the bailout cost 16 Trillion – this is rankish,
misleading hyperbole illustrating that a] the good Senator really
doesn’t have a grasp of the manner in which the numbers are being
presented, or b] he’s just another politician engaging in erroneous,
indulgent, political posturing . To say the cost of the bailout was 16
Trillion is akin to saying a 10 billion overnight loan rolled for thirty days
cost 300 billion dollars. This is asinine and blatantly misleading.
The
Bigger Picture
How is it that such an
erroneous report detailing the size of the bailout is written and published
by a sitting senator? Senators have serious budgets with professionally paid
researchers and staffs. How could they get something this important and
sensitive so ENORMOUSLY wrong – unless it was done with intent?
On the surface, this GAO report [the Fed Audit] appears like it was
purposely written to confuse, but a first year economics student would/should
have picked this up. Apparently, all of this was lost on Senator Sanders and
his paid staff???????
So what could it be? What possible reasons could there be for such an
erroneous fabrication – by professionals who should have known better?
Let’s answer this question by asking another related question:
namely, where is attention diverted from by focusing on this hyped,
manufactured distraction??
The Complete Undermining of Capitalism in the
Name of Perpetuating U.S. Dollar Hegemony
By keeping the “bailout” front-and-centre the Federal
Reserve / U.S. Treasury are cast in the role of saviours by our mainstream
“whore” press. This way, unthinkable acts being committed by Fed
and the Treasury’s Exchange Stabilization Fund [ESF] –
UNDERMINING CAPITALISM – are largely ignored or go un-noticed. Just
think about this: the GAO clearly stated that,
[pg. 23]
“The Federal Reserve Board is
a federal agency that is responsible for maintaining the stability of
financial markets; supervising financial and bank holding companies,
state-chartered banks that are members of the Federal Reserve System, and the
U.S. operations of foreign banking organizations; and supervising the
operations of the Reserve Banks.”
So how is it that Morgan Stanley – a BANK HOLDING COMPANY with a
31 billion dollar market cap – grew their derivatives book by 14
TRILLION in notional over the latest 6 month reporting period Dec. 31, 2010
– June 31, 2011 – and the Fed says NOTHING?
The instruments which Morgan Stanley “piled on” require
2-way-credit –checks” meaning counterparties need to have credit
for each other before these trades can be consummated.
WHO ON GOD’S GREEN EARTH HAS CREDIT LINES THIS LARGE FOR MORGAN
STANLEY – to enable them to grow their book by 14 TRILLION in 6
months??????
Anyone who believes this occurred “naturally” or in
“free markets” must also believe in Santa Claus, the Easter Bunny
and Keebler Elves.
Rob Kirby
KirbyAnalytics.com
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