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I’ve used the term outrage fatigue on
numerous occasions in this forum as a way of trying to explain why there has
been such a muted outcry from the general population as the tally of financial
atrocities committed against American citizens has exploded.
August 22 was just another average day with another
average headline that could easily have been ripped from some radical
economic watchdog website (liberal or conservative, either one): Wall
Street Aristocracy Got $1.2 Trillion from Fed.
But the line wasn’t the work of someone out there
on the anti-capitalist or anti-government fringe. It was attached to an
article from the very mainstream Bloomberg News.
Bloomberg has been engaged in a long, frustrating FOIA litigation battle with the
Federal Reserve over that entity’s reluctance publicly to reveal what
it has been doing with our money. Slowly, the stone wall has been coming
down. And looking at what’s behind it, it’s pretty obvious why
the Fed would have preferred to keep its deeds locked away from all prying
eyes.
Thus the above headline. And here’s an ugly truth
that goes along with it: It’s a near certainty that the vast majority
of those who saw it – probably not too many in number, since the story
got scant coverage on the network news – said to themselves, Yeah,
we already knew that. Ho hum.
Call it bailout fatigue.
Because, guess what? This is not a
recycled story from last year. This is news that we didn’t know before
the 22nd.
This money is not a part of the $16.1 trillion in
emergency loans the Fed handed to US and foreign financial institutions
between Dec. 1, 2007 and July 21, 2010, according to figures produced by the
first-ever, one-time-only GAO audit of the central bank ordered by
Dodd-Frank. Nor is it part of the $2 trillion quantitative easing program.
Nor is TARP’s $700 billion in there, either.
Read that again. This $1.2 trillion – and perhaps
we also have trillion fatigue, because that’s a lot of
money – is separate from all that other stuff. It’s another
hitherto secret funding program that we never would have heard of if Bloomberg
hadn’t torn it from the Fed’s mouth like a rotten tooth.
The list of who got the bucks is a basic guide to the
American banking industry. $107 billion to Morgan Stanley. $99 billion to
Citigroup. $91 billion to Bank of America. Over $75 billion to State Street
and just under that to Goldman Sachs and JPMorgan Chase. And the list goes
on. And on. And on. Even the disgraced Countrywide Financial got in on the
act, claiming about $12.5 billion.
In addition, as the Fed was bailing the leaky American
boat, it must have asked itself, Why stop here? There are
foreigners out there who need our help just as much.
So, almost half of the Fed’s top 30 borrowers
were European firms. They included the Royal Bank of Scotland, which was
propped up to the tune of $84.5 billion, the most of any non-US lender, and
Zurich-based UBS, which got $77.2 billion. The big foreign borrowers also
included Dexia, Belgium’s biggest bank by
assets, the French Société Générale, Deutsche Bank, Barclays, and Crédit Suisse.
“These are all whopping numbers,” says
Robert Litan, a former Justice Department official
who investigated the savings and loan crisis in the 1990s.
“You’re talking about the aristocracy of American finance going
down the tubes without the federal money.”
So much for the free market, where failed business
ventures … well, fail. But not to worry, the
Fed did it all for us.
“We designed our broad-based emergency programs
to both effectively stem the crisis and minimize the financial risks to the
US taxpayer,” says James Clouse, deputy director of the Fed’s
division of monetary affairs in Washington.
Furthermore, the Fed’s official line now is that
“nearly all of our emergency-lending programs have been closed. We have
incurred no losses and expect no losses.” In fact, $13 billion in
interest income was supposedly realized.
That works out to an average of, yes, one percent.
Now that’s a pretty nice loan rate if you can get
it. They could, and they did. Citigroup, for example, was the most frequent
US borrower, in hock to the Fed on seven out of every 10 days from August
2007 through April 2010. On average, the bank had a daily balance at the Fed
of almost $20 billion.
And the ability to raise truckloads of money for almost
no interest raises another disturbing question: Did the banks really need
this cash to stay afloat?
University of Pennsylvania finance professor Richard
Herring, an authority on financial crises, is suspicious, saying that some
banks may have used the program to maximize profits by borrowing “from
the cheapest source, because this was supposed to be secret and never
revealed.”
But regardless of whether banks needed the Fed’s
money for survival or used it because it offered the opportunity to turn a
quick, easy buck, the central bank’s lender-of-last-resort role amounts
to a free insurance policy for banks, Herring notes.
Access to Fed backup support “leads you to subject
yourself to greater risks,” Herring says. “If it’s not
there, you’re not going to take the risks that would put you in trouble
and require you to have access to that kind of funding.”
All of this might conceivably make citizens revolt
against an entity that uses their money to secretly fund the “Wall
Street aristocracy.” It might make them vote for a Gary Johnson or a
Ron Paul, someone who favors dismantling the Fed.
Or not. When a story as big as this one generates a
bare minimum of media coverage, you know it’s probably headed for that
huge waste bin in the corner of the parking lot. The one marked Bailout
Fatigue.
[No one can
afford bailout fatigue, since the question regarding US debt is no longer
“if,” but rather “when” the financial collapse will
come. Truth be told, the process is already under way… but
there’s still time to prepare. You can protect yourself, your family,
and your investments – and even profit. Learn how big the problem is
and how you can prepare by attending a free, online event. The
American Debt Crisis will be held on September 14 at 2 p.m.
EDT. Register today!]
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