Report Shows Bailout Gave Large Banks $13 Billion Profit
Apply for a Loan
Secured with SHA-256 Encryption
UPDATED: Nov 28, 2011
Due to the Freedom of Information Act, over 21,000 bank transactions revealed a combined total of $1.2 trillion was donated from the Federal Reserve (Fed) to failing banks on Dec. 5, 2008.
The largest six banks—JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—were the recipients, and received a total of $7.77 trillion in Federal Reserve loans throughout the bailout.
While the Fed claims most of the loans were repaid in full without any losses, Bloomberg Markets Magazine reports an estimated $13 billion of income was reaped by the nation’s largest banks.
These facts emerged as a result of a court case between Bloomberg LP and the Fed. Ben Bernanke, the chairman of the Fed, argued that these details would create a stigma against these banks that used the government as a source of emergency money. The case was fought all the way to the U.S. Supreme Court, where the Fed’s appeal was declined and it was finally decided the Fed’s lending practices would be disclosed to the public.
“This is an issue that can unite the Tea Party and Occupy Wall Street,” said Democratic Sen. Sherrod Brown.
If the disclosure of the Fed’s lending practices is powerful enough to unite the two extremes of our nation’s political spectrum then Bernanke may really have reason to fear.
The Fed defends itself by saying all loans administered were backed by proper collateral. “Supporting financial-market stability in times of extreme market stress is a core function of central banks, said William B. English, director of the Fed’s Division of Monetary Affairs, as reported by Bloomberg. “Our lending programs served to prevent the collapse of the financial system and to keep credit flowing to American families and businesses.”
Indeed, the Fed has been lending to banks since the early 20th century, and does so with the purpose of nurturing and bolstering the nation’s financial system. But does nurturing the economy really entail granting some of the nation’s largest businesses $13 billion of profit?
In the Bloomberg report, Anil Kashyap, a former Fed economist now teaching at the University of Chicago Booth School of Business, explained “The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out. They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.”
And the public does find this outrageous. After all, the Fed’s coffers are composed of taxpayers’ money.
The top Republican on the Senate Banking Committee, Sen. Richard Shelby, commented on behalf of the taxpayers, saying “the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” according to Bloomberg.