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First Federal Reserve Audit Reveals Trillions in Secret Bailouts
The first-ever audit of the U.S. Federal Reserve has revealed 16 trillion dollars in secret bank bailouts and has raised more questions about the quasi-private agency’s opaque operations.
7000 metric tons of gold bars sit in the gold vault inside the Federal Reserve Bank of New York "This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else," U.S. Senator Bernie Sanders, an Independent from Vermont, said in a statement.
The majority of loans were issues by the Federal Reserve Bank of New York (FRBNY).
"From late 2007 through mid-2010, Reserve Banks provided more than a trillion dollars… in emergency loans to the financial sector to address strains in credit markets and to avert failures of individual institutions believed to be a threat to the stability of the financial system," the audit report states.
"The scale and nature of this assistance amounted to an unprecedented expansion of the Federal Reserve System’s traditional role as lender-of-last-resort to depository institutions," according to the report.
The report notes that all the short-term, emergency loans were repaid, or are expected to be repaid.
The emergency loans included eight broad-based programs, and also provided assistance for certain individual financial institutions. The Fed provided loans to JP Morgan Chase bank to acquire Bear Stearns, a failed investment firm; provided loans to keep American International Group (AIG), a multinational insurance corporation, afloat; extended lending commitments to Bank of America and Citigroup; and purchased risky mortgage-backed securities to get them off private banks’ books.
Overall, the greatest borrowing was done by a small number of institutions. Over the three years, Citigroup borrowed a total of 2.5 trillion dollars, Morgan Stanley borrowed two trillion; Merrill Lynch, which was acquired by Bank of America, borrowed 1.9 trillion; and Bank of America borrowed 1.3 trillion.
Banks based in counties other than the U.S. also received money from the Fed, including Barclays of the United Kingdom, the Royal Bank of Scotland Group (UK), Deutsche Bank (Germany), UBS (Switzerland), Credit Suisse Group (Switzerland), Bank of Scotland (UK), BNP Paribas (France), Dexia (Belgium), Dresdner Bank (Germany), and Societe General (France).
"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 wrote.
In recent days, ‘Bloomberg News’ obtained 29,346 pages of documentation from the Federal Reserve about some of these secret loans, after months of fighting in court for access to the records under the Freedom of Information Act.
Some of the financial institutions secretly receiving loans were meanwhile claiming in their public reports to have ample cash reserves, Bloomberg noted.
The Federal Reserve has neither explained how they legally justified several of the emergency loans, nor how they decided to provide assistance to certain firms but not others.
"The main problem is the lack of Congressional oversight, and the way the Fed seemed to pick winners who would be protected at any cost," Randall Wray, professor of economics at University of Missouri- Kansas City, told IPS.
"If such lending is not illegal, it should be. Our nation really did go through a liquidity crisis - a run on the short-term liabilities of financial institutions. There is only one way to stop a run: lend reserves without limit to all qualifying institutions. The Fed bumbled around before it finally sort of did that," Wray said.
"But then it turned to phase two, which was to try to resolve problems of insolvency by increasing Uncle Sam’s stake in the banksters’ fiasco. That never should have been done. You close down fraudsters, period. The Fed and FDIC (Federal Deposit Insurance Commission) should have gone into the biggest banks immediately, replaced all top management, and should have started to resolve them," Wray said.
Renewed questions about the Federal Reserve have inspired some young activists to organize grassroots protests across the U.S.
"Since its creation by the U.S. Government in 1913, the Federal Reserve has created so much new money out of thin air that it has destroyed 95 percent of the dollar’s value," Joseph Brown, a college student and one of the organizers of a recent protest of the Federal Reserve Bank of Atlanta, said.
"This hidden inflation tax benefits Wall Street and the government, but hurts the poor and those living on fixed incomes, such as senior citizens, the most," Brown said.
The U.S. Government Accountability Office (GAO) audit itself was the result of at least two years of grassroots lobbying. IPS reported in June 2009 a wide bi-partisan coalition of Members of Congress had co-sponsored legislation to audit the Federal Reserve.
The audit was ordered as an amendment by Sanders as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act - a major banking overhaul passed by President Barack Obama and the U.S. Congress in 2010.
"I think this (the first ever GAO audit) was a good start to uncovering what the Fed did so that we can begin to determine whether similar actions should ever be permitted again," Wray wrote, adding, "my preliminary answer is a resounding no."
The GAO also found existing Federal Reserve policies do not prevent significant conflicts of interest. For example, "the FRBNY’s existing restrictions on its employees’ financial interests did not specifically prohibit investments in certain non-bank institutions that received emergency assistance," the report stated.
The GAO report noted on Sep. 19, 2008, William Dudley, who is now the President of the FRBNY, was granted a waiver to let him keep investments in AIG and General Electric, while at the same time the Federal Reserve granted bailout funds to the same two companies.
"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," Sanders said.
The GAO is currently working on a more detailed report regarding Federal Reserve conflicts of interest, which is due on Oct. 18, 2011.
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78 Comments so far
Show All7000 metric tons of gold bars sit in the gold vault inside the Federal Reserve Bank of New York... please check my math, because the result is simply astounding... I must be in error here somewhere... unless the "7000" figure is a misprint... okay here we go...
1 metric ton is equal to 1000 kilogrms
1 kilogram is equal to 32.15 troy ounces (1000/31.1)
For easier math round that to 32 troy ounces
1 metric ton is equal to 32,000 troy ounces
7000 metric tons is equal to 224,000,000 troy ounces (7000 X 32,000)
224,000,000 troy ounces X $1800/ounce = $403 TRILLION DOLLARS
There must be a glaring error in my math. Either that or the caption under the photo contains a misprint. $403 Trillion Dollars in gold? Where and how did the FED get the gold in the first place? Is it the former Ft. Knox cache of gold? Is there no gold left at Ft. Knox? If it did come from Ft. Knox, why was it given to the FED? Is this cache of gold at the FED being used to back all of the loans issued by the FED? Is this why the government feels comfortable in continuing to borrow a trillion and a half dollars a year? What the hell is going on here?
I always wanted to know what happenned to the gold of Solomon's temple. I think we now know.
the amount it comes to is 400 billion and not trillion.
You are correct. I did the calculation again using a slightly different approach. Thanks.
If there were $400 trillion in gold, we might as well all go back onto the gold standard!
Since the US went off the gold standard in 1971, US currency has not been tied to gold or ay other tangible thing or commodity. The Fed is free to create as many dollars as it thinks it needs simply by making changes in the spreadsheet that is the Federal Reserve. It increases the number of dollars it has by changing up the numbers in its reserve accounts. The value of the dollar vis a vis other currencies has nothing to do with the price of gold. The author of this article probably doesn't understand this (otherwise he would not have quoted the college student about the Fed's creation of money causing the dollar to lose 95% of its value over the past century) and the editor who chose the photo of all the gold bars obviously doesn't either, since this photo only muddies the issue. Gold has increased in value because of the current gold buying spree, which is typical of times when the stock market is queasy.
Well, what did you expect? Ron Paul has been exposing this crimminal enterprise for decades.
""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," Sanders said."
No shit!
And we are supposed to buy into the premise that our deficit is all our fault by demanding that we get our 'entitlements.' Our so-called 'entitlements' which by the way we have paid into over our entire working careers, are the only monies that these crooks have not gotten their sticky fingers on. They are screaming that over fifty percent of the people pay no taxes at all. Hey! You have to have a job to make some money to begin with in order to Pay Taxes! It was the greedy ones who eliminated manufacturing in this country so they could reward their stockholders with higher dividends and now they want it all. They want our 'entitlements' so they can come up with new ways to screw us. How about eliminating off shore tax havens for the corporations for a start? If fifty percent of the people don't pay any taxes how does it measure up to fifty percent of the corporations that to not pay any taxes? Which is more?
Those screaming that 50% pay no taxes are correct but they are being rather disingenuous when they do that. Some of that 50% are newborns. Some are students, in primary school, high school and college. Soime have NO JOBS but would like to have some of those "millions of jobs" supposedly being created by the tax cuts received by the filthy rich "job creators". Some are fortunate enough to be living quite comfortably in single-earner households. Some are living quite UNCOMFORTABLY in single-earner households because, again, they cannot find JOBS. I scrape by on less than $20K/year and I PAY FEDERAL INCOME TAXES.
They play fast and loose with that "50% don't pay taxes" They don't count Social Security taxes for this purpose. Taxes, which, by the way, have been spent and they don't want to pay it back.
Right. We must curtail or eliminate social security because it would increase federal spending, which simply must be cut, after literally STEALING social security funds to finance their damned wars, which is just a reiteration of what you just wrote.
Oh, and according to Mike Malloy, amongst those 50% who do not pay taxes there are 1400 (not a misprint, one-thousand-four-hundred) with incomes of a million dollars or more yearly.
annabelle--I'm afraid you are mistaken when you say "...entitlements...are the only monies that these crooks have not gotten their sticky finger on."
They have taken it all and purchased US Treasuries, i.e., converted it to debt, so they could pretend that we could have a strong social safety net as well as a war machine from Hell. But, for Social Security to remain solvent they will have to take money from the General Revenues and pay it out as SS payments--i.e., repay the debt..
Repay the debt? Cut senseless wars? no--cut SS benefits. So they have gotten their filthy hands on it and spent it on battleships and bombers. They have also recently burned through all the federal pension money in the same way.
War-making winning out over society's obligation to care for the poor and helpless. This is the kind of thing Dr. King described as an action of a nation "approaching spiritual death."
On the other hand, the fact that part of the SS Trust Fund is in US Treasuries is not a problem at all. The Secretary of the Treasury is the managing trustee of the SS Trust Fund; he or she decides how much of the fund will be in Treasuries and how much in other kinds of securities. The trust fund's only existence is the equivalent of a checking account at the Federal Reserve, from which moneys are withdrawn to pay out benefits. When the Treasury Sec decides to put SS funds into Treasury securities, say $2 million, what happens is that the SS checking account at the Fed gets debited for $2 million and the funds are reflected in SS’s savings account at Treasury by crediting it for $2 million. When those Treasury bills come due, the opposite process occurs and the SS checking account is credited for $2 million plus interest.
I read in Wikipedia that in the Johnson admin, a “unitary” federal budget was created whereby all funds held by the federal gov’t were put into one large pot, so to speak. Since the SS trust fund is large and since it continually runs surpluses, this was used politically to make the federal deficit look smaller. It was all sleight of hand because the federal deficit or debt is not debt which has to be paid back. The federal deficit consists simply of Treasury securities (Tsys); the checking accounts of the buyers of those securities in the Fed have been debited as mentioned above and their savings accounts at Treasury accordingly credited. When their Tsys come due, as they do continually all the time, the funds are simply moved from Treasury to the Fed.
All these funds are under the same umbrella and under complete control by Fed and Treasury. The gov’t is not like a household that has to get dollars to pay back its debts. The gov’t is the creator of dollars, of the currency, and can at will create as many as it needs at any time.
The bottom line is that this whole debt ceiling debacle was a giant con job, a shell game whereby the public has been tricked into focusing on the shell that is NOT covering the pea. Using this shell game, congress and Obama have tried to make the public think they are being forced into cutting SS, and other social programs because of the big bad deficit. The deficit is a non-issue. The federal gov’t cannot default. It cannot go bankrupt. The full faith and credit of the US is not at stake here. What is at stake is democracy in the US.
Holy crap. Bout damn time the Fed took a fall. Snarky comments about the authors ability to discuss this aside, y'all seem to recognize the seriousness of the situation. Got your rice?
The Fed can create Trillions of dollars, outside of the federal debt ceiling limit and without congressional approval or knowledge. Corporations can only dream of this level of "off balance sheet" financial engineering.
The Fed can create money at no cost and artificially boost the real American economy or support the wars and buy up federal debt. The Fed effectively owns Congress and encouraged the entire economy to "live on credit" by increased federal expenditures while reducing corporate taxes and outsourcing jobs.
With low interest rates, home equity lines of credit, no income verification and high bank leveraging, it created the stock market bubble that peaked in 2000 and also the housing bubble that peaked in 2007.
The Fed then reduced the money supply for the real economy by spiking up interest rates and created a consumer "credit crunch". It then created $14 Trillion to lend to the banks and hedge funds for the purpose of increasing capital (i.e. reducing leverage) using subprime and likely illegal "toxic" MBS as collateral.
The Fed essentially creates major economic boom and bust cycles.
Too much power given to an undemocratic agency.
Don't believe in nasty irrelevant rumors about him. Vote Ron Paul for the Republican Presidential nominee in 2012:
http://www.cafepress.com/+ron_paul_2012_bumper_sticker,542921780
The only way to get Paul on the Republicant ticket is to register as a repug and vote in their primary. Do IT PLEASE
What you’re saying about the Fed applies mostly to the Fed under Republican Alan Greenspan and his protégé Bernanke. The Fed has been in existence for about a century and how it has acted has depended on who’s “driving” it. You don’t blame the accident on the Ford Mustang, do you (unless its brakes failed)? Greenspan has a huge responsibility in what has happened to the economy.
“The Fed essentially creates major economic boom and bust cycles.” If it’s mishandled it does. But its intended purpose is to ward them off by increasing or decreasing the spending power of the private sector by decreasing or increasing the federal deficit, using a combination of taxation and government spending. The gov’t usually runs a deficit in order to stimulate the economy by buying up goods and services so that workers are needed to make more. It decreases spending and raises taxes to reduce private sector buying power to ward off inflation.
The Fed is democratic to the extent that Congress oversees its workings; the president appoints the Fed chairman and the Treasury Secretary. If the Fed is acting in an undemocratic manner, it’s because Congress and the president are, too.
"and purchased risky mortgage-backed securities to get them off private banks’ books."
Now WHY would a private company willingly do the above?
Some shady PRIVATE company can buy up all mortgages that are at risk of default due to the rules put in place by the supply-siders. Interesting.
Eerily similiar: http://video.google.com/videoplay?docid=-515319560256183936
Hmmm. Bernie Sanders says...
Nothing about Ron Paul, who was responsible for forcing the audit.
After obtaining the charter of the Bank of England in 1694 (from his privateering money), William Paterson said, "The Bank hath benefit of interest on all moneys which it creates out of nothing."
And our federal reserve created $16 billion out of nothing, gave it to their closest friends and relatives, and stuck us with the bill.
trillion. 16 trillion.
The only thing I question about the article is that phot of the gold bars.
The gold bars or "bricks" we see being loaded on heavy carts in Fort Knox are squared and about the size of a brick, weigh forty pounds and are a much deeper color gold... That is standard for gold bars world wide.
These pictured bars are far larger, rounded and the shelve support posts appears to be made of heavy fiberglas or plastic and the shelves a sheet of 3/4 inch plywood ... If so, they could not support 18 or more tons of weight on each shelf.
Maybe those are "generic" gold bars, plastic, and made in China? .... Maybe I'm wrong?
I don't know what the picture is of or what it implies but the Fed does not have gold bullion it has only gold certificates:
http://patriot-americans.org/?p=547
To get a better idea of the Shenanigans have a read:
http://oathkeepers.org/oath/2011/06/06/fed-lawyer-alvarez-%E2%80%9Cthe-federal-reserve-does-not-own-any-gold-at-all%E2%80%9D/
meantime from Wikipedia:
The United States Bullion Depository, often known as Fort Knox, is a fortified vault building located adjacent to Fort Knox, Kentucky, used to store a large portion of United States official gold reserves and occasionally other precious items belonging or entrusted to the federal government.
The United States Bullion Depository holds 4,578 metric tons (5046 tons) of gold bullion (147.2 million oz. troy). This is roughly 2.5% of all the gold ever refined throughout human history. Even so, the depository is second in the United States to the Federal Reserve Bank of New York's underground vault in Manhattan, which holds 7,000 metric tons (7716 tons) of gold bullion (225.1 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations......
but hey, fake gold out of official US reserves, there is plenty of that, just ask the Clintons:
http://www.americanfreepress.net/html/gold_bar_scam_215.html
and
http://www.marketwatch.com/Community/groups/us-politics/topics/fake-gold-bars-bank-england
that's a scary thought...it's bad enough that wall street is built of combustible paper, now our gold is meltable plastic....hahahahhahahahahahahahaha
Got rice?
Perhaps the elite's bodyguards should have all this information forwarded to them. Just to make sure that when the continuous elite 'push' comes to an outbreak of citizenry 'shove' that the bodyguards are already clear whose side they are on.
Theodore Roosevelt faced the same problem. He took it head on and provided direction that got the anti-monopoly laws."You are going to jail Mr JP Morgan")
Will the present incumbent of the White House stand up and provide direction and reverse the tide of arrogance and greed that is sinking the nation into poverty?
SOOOOOOO What are they going to do about it?