Federal Reserve Releases Data on Multi-Trillion Dollar Special Bailout Programs

December 1, 2010 in News

WASHINGTON - NOVEMBER 23: Federal Reserve Bank Board of Governors Chairman Ben Bernanke leaves after a meeting of the Financial Stability Oversight Council at the Treasury Department November 23, 2010 in Washington, DC. Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the council is charged with identifying and responding to emerging risks and threats to the financial stability of the United States. (Photo by Chip Somodevilla/Getty Images)

Federal Reserve’s ‘astounding’ report: We loaned banks trillions (Christian Science Monitor):

The Federal Reserve has lifted its veil of secrecy regarding special lending programs during the financial crisis, responding to a mandate from Congress by revealing the specifics of transactions with firms like Goldman Sachs and Citigroup.

Critics of the Federal Reserve are poring over the data, seeking red flags regarding potential improprieties. And Congress has asked its Government Accountability Office to sift through the numbers and offer its own analysis.

At the same time, it’s possible that the release of details will end up largely vindicating the Fed for the massive financial support that it gave the economy at a time of severe stress. The emergency loans, in the view of many finance experts, helped to avert a much deeper economic slump. And those loans have now been largely paid back without losses to the central bank.

The numbers are staggering, encompassing more than a dozen emergency programs set up starting in 2007 or 2008. In one program alone the Fed doled out nearly $9 trillion in funds to borrowers such as Morgan Stanley and Merrill Lynch, largely at interest rates below 1 percent. (This program involved overnight loans, so the amount of Fed credit outstanding at any single point in time was much smaller.)

Other programs, with longer-term loans also measured in the trillions of dollars.

The Fed actions were just part of a larger array of government bailouts for the financial industry, which were deeply unpopular with most Americans. Rescue programs run outside the Fed included insurance-style backstops for bank debts and the investments from the Treasury’s $700 billion TARP (Troubled Asset Relief Program).

Despite the public outrage stirred by the actions to prop up firms like Citigroup and AIG, the Fed’s biggest mistakes may have come before the recession rather than in response to it.

“My view is that the Fed has done an excellent job since the crisis started, but they didn’t do a very good job before the crisis started,” says Pete Kyle, a finance expert at the University of Maryland. He says the central bank, as a key financial regulator, should have ensured that US banks had plenty of capital on hand to weather a storm.

Hedge Funds Got Fed Help, Too (New York Times):

Wall Street banks weren’t the only ones approaching the Federal Reserve for help.

When the credit markets nearly froze up in the fall of 2008, the Federal Reserve Bank of New York helped hedge funds, mutual funds and other big investors buy highly rated securities backed by car loans and student debt, among other assets.

The institutional investors, which collectively borrowed $71 billion through the program, included such market giants as Pimco, T.Rowe Price and BlackRock.

In a statement, BlackRock said that it borrowed the funds “on behalf of both institutional and mutual fund clients.”

The California Public Employees Retirement System, the nation’s largest pension fund, also borrowed through the program, known as the Term Asset-Backed Securities Loan Facility, or TALF. The Major League Baseball Players Pension Plan was another pension fund participant in the program.