Federal Reserve Provided $16 Trillion in Emergency Loans to U.S. and Foreign Banks

A table from page 144 of the GAO report, which clearly states the total value of transactions conducted in Broad-Based Emergency Programs from December 1, 2007 through July 21, 2010 as $16,115,000,000,000.

Statement issued by Bernie Sanders (sanders.house.gov):

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 non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse.  In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed.  Moreover, JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.  One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.

To Sanders, the conclusion is simple. “No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed’s board of directors or be employed by the Fed,” he said.

The investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans.

The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo.  The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.

A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18, but Sanders said one thing already is abundantly clear. “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”

2 comments for “Federal Reserve Provided $16 Trillion in Emergency Loans to U.S. and Foreign Banks

  1. GAO
    March 3, 2012 at 2:23 am

    Please take down this article, or correct it please!

    The table that you are looking at is from GAO audit table 8. If you did not read the table 8 information, then you would be left to believe that the Federal Reserve loaned out $16 trillion.

    Here is a direct quote from the audit that clarifies table 8 aggregate amount.

    “Table 8 aggregates 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.
    Page 131 GAO-11-696 Federal Reserve System
    days

    So, you can see that table 8 was not saying that the Federal Reserve loaned out 16 trillion. The actual amount the Federal Reserve loaned out was $1.139 trillion which can be found on table 9.

    Please take down this article, or change it to reflect the actual meaning. Articles like this cause misinformation among people, which harms the intelligence of the general population.

  2. October 8, 2013 at 2:42 pm

    Ha, ha, Americans are suckers, born every minute.

    This is just another form of US govt tax scam. All our income tax money is now being used to pay the interest only.

    The solution is to stop paying income taxes to foreign owned banks, by following the actual tax law:
    Here is a simple test for tax professionals, including IRS Agents, and taxpayers,
    1. Where is one and ONLY legal definition of Exempt income CODIFIED in tax law?

    2. Where is one and ONLY list of taxable income (which is not listed as gross income, but taxable)?

    3. Why haven’t you looked for these already? (Isn’t that why we hire you, as experts and professionals, to save us from paying more taxes than we should? Our Fair share, blah, blah?)

    ANSWER:
    1. Exempt income is codified in 26 CFR 1.861-8T(d)(2)(ii)

    2. Income not exempt (not exempt = taxable) is codified in 26 CFR 1.861-8T(d)(2)(iii).
    SOURCE: ECFR dot GOV

    3. Tax professionals (who live off our money/labor, like govt public servants, are tax parasites) love money so much, they’ll ignore facts and truth, even when they are digitally precise, written in code.

    According to US tax law, most Americans don’t owe any income tax. Of course, the perps in govt will say Sec. 861 is frivolous, yet there it is, definition of Exempt income IS CODIFIED in Sec. 861. And, the list of taxable income (income not exempt) IS CODIFIED in Sec. 861 and follows Exempt.

    It doesn’t take a computer scientist to figure it out … you all have computers and know how to use search function. And sadly, you all still pay taxes, like good little tax-slaves, without once reading your own law. Good slaves, happy slaves.
    You should know, according to the IRS, 67 million Americans don’t even file taxes. Some people bother to read their own laws.

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