Public Intelligence

Criminal complaint in the matter of United States of America against Quazi Mohammad Rezwanul Ahsan Nafis who is accused of attempting to detonate an explosive device in front of the Federal Reserve Bank of New York on October 16, 2012.

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing. The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

The makeup of the Federal Reserve’s board of directors poses a conflict of interest and there is concern that several financial firms and corporations could have reaped monetary benefits from their executives’ close ties to the Fed, according to a new report released today by the Government Accountability Office. In one case, the Federal Reserve consulted with General Electric on the creation of a commercial paper funding facility and then provided $16 billion in financing to the company while its chief executive, Jeffrey Immelt, served as a director on the board of the Federal Reserve Bank of New York. Immelt is now President Obama’s “jobs czar.” JP Morgan Chase could also have benefited from its chief executive Jamie Dimon’s position on the board of the Federal Reserve Bank of New York, according to the GAO. The bank received emergency loans from the Federal Reserve at the same time it served as the clearinghouse for the Fed’s emergency lending program. The Federal Reserve gave JP Morgan Chase an 18-month exemption from risk-based leverage and capital requirements in 2008, the same year that the Fed gave it $29 billion to acquire Bear Stearns, according to the GAO.

The Federal Reserve Act requires each Reserve Bank to be governed by a nine-member board—three Class A directors elected by member banks to represent their interests, three Class B directors elected by member banks to represent the public, and three Class C directors that are appointed by the Federal Reserve Board to represent the public. The diversity of Reserve Bank boards was limited from 2006 to 2010. For example, in 2006 minorities accounted for 13 of 108 director positions, and in 2010 they accounted for 15 of 108 director positions. Specifically, in 2010 Reserve Bank directors included 78 white men, 15 white women, 12 minority men, and 3 minority women. According to the Federal Reserve Act, Class B and C directors are to be elected with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumer representation.

Federal Reserve Bank of New York (“FRBNY”) is extending to suppliers an invitation to participate in an Sentiment Analysis And Social Media Monitoring Solution RFP bid process. The intent is to establish a fair and equitable partnership with a market leader who will who gather data from various social media outlets and news sources and provide applicable reporting to FRBNY. This Request for Proposal (“RFP”) was created in an effort to support FRBNY’s Social Media Listening Platforms initiative.

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.”

On numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008. The Federal Reserve Board directed the Federal Reserve Bank of New York (FRBNY) to implement most of these emergency actions. In a few cases, the Federal Reserve Board authorized a Reserve Bank to lend to a limited liability corporation (LLC) to finance the purchase of assets from a single institution. In 2009 and 2010, FRBNY also executed large-scale purchases of agency mortgage-backed securities to support the housing market. The table below provides an overview of all emergency actions covered by this report. The Reserve Banks’ and LLCs’ financial statements, which include the emergency programs’ accounts and activities, and their related financial reporting internal controls, are audited annually by an independent auditing firm. These independent financial statement audits, as well as other audits and reviews conducted by the Federal Reserve Board, its Inspector General, and the Reserve Banks’ internal audit function, did not report any significant accounting or financial reporting internal control issues concerning the emergency programs.

The Federal Reserve Bank of New York has begun an investigation into the mortgage-servicing arm of Goldman Sachs, looking at whether it systematically rejected borrowers’ efforts to lower their loan payments through government programs. The inquiry by the New York Fed arose from a letter sent by an anonymous employee, who accused the Goldman unit, Litton Loan, of denying loans without properly reviewing applications. The letter was brought to the Fed’s attention by The Financial Times after it received the tip. “We are in possession of the letter and are conducting an inquiry,” a spokesman for the New York Fed said in a statement.

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 rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, “shadow banks” are particularly important institutions. Shadow banks are financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees. Examples of shadow banks include finance companies, asset-backed commercial paper (ABCP) conduits, limited-purpose finance companies, structured investment vehicles, credit hedge funds, money market mutual funds, securities lenders, and government-sponsored enterprises. Shadow banks are interconnected along a vertically integrated, long intermediation chain, which intermediates credit through a wide range of securitization and secured funding techniques such as ABCP, asset-backed securities, collateralized debt obligations, and repo. This intermediation chain binds shadow banks into a network, which is the shadow banking system. The shadow banking system rivals the traditional banking system in the intermediation of credit to households and businesses. Over the past decade, the shadow banking system provided sources of inexpensive funding for credit by converting opaque, risky, long-term assets into money-like and seemingly riskless short-term liabilities. Maturity and credit transformation in the shadow banking system thus contributed significantly to asset bubbles in residential and commercial real estate markets prior to the financial crisis.

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

We have asked to meet with you in order to give you an opportunity to substantially reduce your counterparty exposure to AIG and assist in promoting the long-term viability of the company as an ongoing concern. As evidenced by recent government actions, the viability of AIG is an important policy objective given the firm’s systemic importance. As we are sure you can appreciate, a collapse of AIG over the weekend of September 13th and 14th following so closely after the collapse of Lehman Brothers would have jeopardized the financial system in general, and your financial institution in particular, given your firm’s exposure to AIG at the time. Indeed, notwithstanding unprecedented governmental action, there has been a dramatic increase in AIG’s CDS spreads, which highlights the significant economic costs that would have been bourn by AIG’s counterparties had the government not intervened and the sizable counterparty exposure that your firm continues to retain with AIG. For these reasons, it is clear to us that we have a common objective in ensuring the firm’s long-term viability. With these points in mind, we would propose that you make us a compelling offer to unwind all your outstanding CDS contracts with AIG referencing ABS CDOs in exchange for the purchase of the underlying CDOs (where the assets are available) at a percentage of the notional amount for the CDS. Of course, we are open to other proposals you might have that would lead to a final resolution of this complex portfolio and therefore satisfy our common objectives.

BlackRock was originally the Financial Management portion of Peter G. Peterson and Stephen A. Schwarzman’s Blackstone Group. The Blackstone Group and BlackRock Financial Management both derive their name from their co-founders’ surnames; schwarz means “black” in German and Peter is derived from the Greek word πετρος meaning “stone”. Laurence Fink, who ran the Financial Management division of the Blackstone Group, was heavily involved with the initial creation of mortgage-backed securities, the same type of financial products that would later lead to the Global Financial Crisis of 2008-2009.

Previously Confidential BlackRock Solutions Maiden Lane III Counterparty Brief from November 5, 2008.

The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said. Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs. The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

Maiden Lane LLC, Maiden Lane II LLC, Maiden Lane III LLC Balance Sheets from the Federal Reserve Bank of New York as of January 29, 2010.

The Federal Reserve Bank of New York lifted a veil of secrecy on the troubled mortgage assets it purchased as part of the 2008 rescues of Bear Stearns Cos. and American International Group Inc. The disclosures listed scores of subprime residential mortgage securities and pieces of commercial loans made to dozens of properties across the country, such as the Crossroads Mall in Oklahoma City—featuring the city’s only indoor full-size carousel—and the Hilton Garden Inn in Panama City, Fla.

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout ofAmerican International Group Inc., you have to wonder if those folks are crazy after all. Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

By itself, the Troubled Asset Relief Program (“TARP”) is a huge program at $700 billion. As discussed in SIGTARP’s April Quarterly Report, the total financial exposure of TARP and TARP-related programs may reach approximately $3 trillion. Although large in its own right, TARP is only a part of the combined efforts of the Federal Government to address the financial crisis.

Maiden Lane LLC is a limited liability company established by the Federal Reserve Bank of New York following the collapse of Bear Stearns. The company was incorporated on April 29, 2008 in the state of Delaware under the authority of section 13(3) of the Federal Reserve Act. A 2009 report from the Federal Reserve Bank of New York describes the company as a “special purpose vehicle” which was created for the purpose of facilitating “the merger of the Bear Stearns Companies, Inc. and JPMorgan Chase & Co.”

We have audited the accompanying consolidated statement of financial condition of Maiden Lane LLC (a Special Purpose Vehicle consolidated by the Federal Reserve Bank of New York) and subsidiaries (the “LLC”) as of December 31, 2008, and the related consolidated statements of income and cash flows for the period from March 14, 2008 to December 31, 2008. These financial statements are the responsibility of the LLC’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

This agreement, made as of the 25th day of November, 2008, by and among the Federal Reserve Bank of New York (“FRB-NY”), BlackRock Financial Management, Inc. (the “Manager”) and Maiden Lane III LLC (the “Borrower”), sets forth the terms under which the Manager shall provide investment management services to FRB-NY (the “Agreement”).

James L. “Jamie” Dimon was born in New York City, where he would attend Browning School, to Theodore and Themis Dimon. His grandfather, a Greek immigrant from Turkey, was a broker and passed on his knowledge of the business to his son and partner, Theodore. They worked together for 19 years, and Jamie held summer jobs at their New York office. Mr. Dimon majored in psychology and economics at Tufts University, before earning an M.B.A. degree from Harvard Business School. Upon his graduation in 1982, Sandy Weill convinced him to turn down offers from Goldman Sachs and Morgan Stanley to join him as an assistant at American Express.

Peter G. Peterson, Co-Founder of Blackstone, retired in 2008 as its Senior Chairman. He is Chairman Emeritus of the Council on Foreign Relations and Chairman of the Council on Foreign Relation’s International Advisory Board. He is also founding Chairman of the Peterson Institute for International Economics (Washington, D.C.) and founding President of The Concord Coalition. [...]

Mr. Whitehead began his professional career in 1947 at Goldman, Sachs & Co., where he worked for 38 years. He rose quickly within the company and was named Partner in 1956, and Co-Chairman and Senior Partner in 1976. He has served on the board of numerous companies, and as a Director of the New York [...]