The Fed’s Dark Secrets

Nov 28 2011

When you combine a private central bank with the ability to create currency out of thin air with its corrupt bank owners, what do you get? The answer is you get trillions in dark loans made under the table in corrupt deals outside the auspices of the law. Bloomberg, in its Fed’s Secret Liquidity Lifelines, scoured through thousands of pages of Federal Reserve spreadsheets, which the Fed and banks fought for years to keep secret, to put together picture of what really happened during the huge bank bailouts between 2007 and 2009.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

 

The chart below shows Morgan Stanley’s market value (black line), the amount it borrowed from the Fed (orange), and the ratio of its borrowings to its market value (red line). At its peak, the red line hits over 750%, meaning that Morgan Stanley had borrowed more than 8.5 times its market value from the Fed—just to stay afloat. The banks, in aggregate, were able to borrow from the Fed at below-market rates—which enabled them to earn a Bloomberg-estimated $13 billion at the expense of mired taxpayers—bonuses anyone?

The best part is that lawmakers didn’t know anything about the loans. The Fed was able to make up to $1.2 trillion in loans without a shred of oversight. The amount lent to Morgan Stanley (see chart above) peaked at $107 billion—enough to pay off one-tenth of delinquent mortgages in the U.S. Ahh… democracy in action.

Of course, banks did what they do best—profit at the expense of depositors and taxpayers—using the Fed’s cash infusion to grow bigger and badder. Between 2006 and 2011, the six biggest banks grew their assets from $6.8 trillion to $9.5 trillion—or 63% of United States GDP.

And people are angry. Occupy Wall Street fervor has gripped many Americans, as unemployment is still at a biting 9% and people genuinely feel the economic pain. Sure, being angry is therapeutic, but the real culprit isn't just Wall Street—it's a system that has been broken since it was first designed. It’s nothing new or novel, just a fresh spin on the old idea of debasing your currency—the benefactors just happen to be banks this time around. 
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