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Getbig Main Boards => Politics and Political Issues Board => Topic started by: Soul Crusher on December 02, 2010, 07:33:25 AM
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Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms
By Jia Lynn Yang, Neil Irwin and David S. Hilzenrath
Washington Post Staff Writers
Thursday, December 2, 2010; 12:15 AM
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The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.
The Fed's efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household-name companies such as Verizon, Harley-Davidson and Toyota. The central bank's aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.
The biggest users of the Fed lending programs were some of the world's largest banks, including Citigroup, Bank of America, Goldman Sachs, Swiss-based UBS and Britain's Barclays, according to more than 21,000 loan records released Wednesday under new financial regulatory legislation.
The data reveal banks turning to the Fed for help almost daily in the fall of 2008 as the central bank lowered lending standards and extended relief to all kinds of institutions it had never assisted before.
Fed officials emphasize that their actions were meant to stabilize a financial system that was on the verge of collapse in late 2008. They note that the actions worked to prevent a complete financial meltdown and that none of the special lending programs has lost money. (Some have recorded healthy profits for taxpayers.)
But the extent of the lending to major banks - and the generous terms of some of those deals - heighten the political peril for a central bank that is already under the gun for a wide range of actions, including a recent decision to try to stimulate the economy by buying $600 billion in U.S. bonds.
"The American people are finally learning the incredible and jaw-dropping details of the Fed's multitrillion-dollar bailout of Wall Street and corporate America," said Sen. Bernard Sanders (I-Vt.), a longtime Fed critic whose provision in the Wall Street regulatory overhaul required the new disclosures. "Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions."
The Fed launched emergency programs totaling $3.3 trillion in aid, a figure reached by adding up the peak amount of lending in each program.
Companies that few people would associate with Wall Street benefited through the Fed's program to ease the market for commercial paper, a form of short-term debt used by major corporations to fund their daily activities.
By the fall of 2008, credit had frozen across the financial system, including the commercial paper market. The Fed then purchased commercial paper issued by GE 12 times for a total of $16 billion. It bought paper from Harley-Davidson 33 times, for a total of $2.3 billion. It picked up debt issued by Verizon twice, totaling $1.5 billion.
"It is hard to say what would have happened without the facility, and how its absence might have affected GE, but overall the program was extremely effective in helping stabilize the market," GE spokesman Russell Wilkerson said by e-mail.
Verizon spokesman Robert A. Varettoni said that it was "an extraordinary time," adding that there was no credit available otherwise at the time.
The data revealed that the Fed continued making purchases into the summer of 2009 - after the official end of the recession - showing that it was still concerned about a fundamental part of the financial system even as economic growth was returning.
The disclosure shows "how really profound the financial crisis was in the fall of 2008 and the firepower the Fed mustered in response," said analyst Karen Shaw Petrou of Federal Financial Analytics.
Foreign-owned banks also benefited from the Fed's commercial-paper facility. The Korean Development Bank, owned by the South Korean government, used the program to the tune of billions of dollars, including a $407 million short-term loan on a single day. Many foreign banks, including the French BNP Paribas, the Swiss UBS and the German Deutsche Bank, took extensive advantage of various programs. Even a major bank in Bavaria benefited, as well as another one headquartered in Bahrain, a tiny island country in the Middle East.
Another Fed program allowed investment banks for the first time to borrow directly from the Fed as officials sought to stem the panic that had taken down Wall Street titan Bear Stearns. The central bank assisted 18 companies through this program. Among the biggest beneficiaries was Citigroup, which in a single day in November 2008 borrowed $18.6 billion from the Fed.
The data also demonstrate how the Fed, in its scramble to keep the financial system afloat, eventually lowered its standards for the kind of collateral it allowed participating banks to post. From Citigroup, for instance, it accepted $156 million in triple-C collateral or lower - grades that indicate that the assets carried the greatest risk of default.
Dallas Federal Reserve President Richard Fisher defended the Fed's actions during the financial crisis, saying the central bank "stepped into the breach" in its role as a lender of last resort.
"That's what we are paid to do," he said. "We took an enormous amount of risk with the people's money," he acknowledged. But the crisis lending programs are now all closed, he said, "and we didn't lose a dime, and in fact we made money on every one of them."
The banks universally hailed the Fed on Wednesday.
"In late 2008, many of the US funding markets were clearly broken," Goldman Sachs said in a statement, echoing similar comments made by Bank of America and Citigroup. "The Federal Reserve took essential steps to fix these markets and its actions were very successful."
By 2009, Goldman and other Wall Street firms were reporting their best profits ever. That allowed these banks to pay out huge salaries again, but it also drew the ire of lawmakers and ordinary Americans.
Sanders, for one, said these banks got off easy while receiving extraordinary aid. In rescuing these firms, the Fed never required them to lend to small businesses, modify the mortgages of homeowners or invest in a way that would create jobs.
"We bailed these guys out, but the requirements placed upon them had very little positive impact on the needs of ordinary Americans," Sanders said.
yangjl@washpost.com irwinn@washpost.com hilzenrath@washpost.com
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OMG. Speechless.
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By the fall of 2008, credit had frozen across the financial system, including the commercial paper market. The Fed then purchased commercial paper issued by GE 12 times for a total of $16 billion. It bought paper from Harley-Davidson 33 times, for a total of $2.3 billion. It picked up debt issued by Verizon twice, totaling $1.5 billion.
"It is hard to say what would have happened without the facility, and how its absence might have affected GE, but overall the program was extremely effective in helping stabilize the market," GE spokesman Russell Wilkerson said by e-mail.
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Unreal. WTF?
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Ryan Grim ryan@huffingtonpost.com | HuffPost Reporting Become a Fan Get Email Alerts from this Reporter Fed Directors Banks Lavished With Billions From Fed
First Posted: 12- 1-10 04:25 PM | Updated: 12- 1-10 06:10 PM
Read More: Bernie Sanders, Fed Bailout, Federal Reserve, Federal Reserve Bank Of Atlanta, Federal Reserve Documents, Fifth Third Bank, James M. Wells, James Wells, Jim Wells, Suntrust, Tarp, Term Auction Facility, Business News
The Federal Reserve Bank of Atlanta made six major loans to SunTrust Banks at the height of the financial crisis totaling at least $7.5 billion. James M. Wells, the Chairman and CEO of SunTrust, sits on the Board of Directors at the same Atlanta Fed that lent his company the money.
SunTrust also received $4.85 billion in bailout funds from TARP, a separate program run by the Treasury, on November 14th and December 31st of 2008.
According to data released Wednesday by the Federal Reserve, SunTrust's first billion dollars came on November 6, lent through the Fed's Term Auction Facility, a week before it received TARP money, A week after it took the TARP money, it took another billion dollars from the Atlanta Fed. On December 4, it took another $1.5 billion from the Atlanta Fed. The bank received two more billion dollar loans in January from the Atlanta Fed, followed by a May loan of $2.5 billion from the same bank.
The interest rates charged by the Atlanta Fed became more generous over time. The first loan was made with a 0.6 percent rate; the final three were made at 0.2, 0.25 and 0.25 percent. SunTrust, as collateral, put up mostly commercial real estate loans and other commercial loans.
The SunTrust loan is far from anomalous. On October 23, 2008, Fifth Third Bank received a $500 million loan through the Atlanta Fed as part of the Term Auction Facility. Dan Hogan is the CEO of Fifth Third Bank and also sits on the board of the Nashville branch of the Atlanta Fed. Fifth Third Bank also received billions of dollars through the Cleveland and Chicago Fed banks.
Banco Popular, based in Puerto Rico, scored nine loans from the Federal Reserve Bank of New York, through the Term Auction Facility, for between a hundred and 200 million dollars each between January of 2008 and July of 2009. Richard Carrion is the head of Banco Popular and sits on the board of the New York Fed, which was led at the time by Tim Geithner, who is now Treasury Secretary. Popular received $935 million in TARP money.
Sen. Bernie Sanders (I-Vt.), the Senate's lead author of the Fed audit language that led to Wednesday's disclosure, said that one aim of the transparency was to uncover conflicts of interest. Sanders and other advocated of Fed reform insist that bankers should not sit on boards with direct responsibility over the banks they lead.
A SunTrust spokesman didn't immediately return a call, nor did an Atlanta Fed spokesman.
UPDATE: "We'll refer you to the Atlanta Fed to discuss the role of its directors in the process," said Mike McCoy, a spokesman for SunTrust. "That said, I can note that we participated in the program --- and the borrowings were repaid on time and with interest."
UPDATE II: A spokeswoman for the Atlanta Fed said that the bank's credit and risk department evaluated applicants for TAF money, but that the final decisions were made by the New York Fed. "None of these decisions went before our board of directors," said Jean Tate.
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By the fall of 2008, credit had frozen across the financial system, including the commercial paper market. The Fed then purchased commercial paper issued by GE 12 times for a total of $16 billion. It bought paper from Harley-Davidson 33 times, for a total of $2.3 billion. It picked up debt issued by Verizon twice, totaling $1.5 billion.
"It is hard to say what would have happened without the facility, and how its absence might have affected GE, but overall the program was extremely effective in helping stabilize the market," GE spokesman Russell Wilkerson said by e-mail.
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Unreal. WTF?
If the fed hadn't done this ..It's safe to say that GE and many other companies would have failed..All the major zombie banks would have failed...The commercial paper (money markets) were completely frozen because the 66 Billion dollar Reserve Money market fund broke the buck...The reserve fund was the largest money market fund in the world. It held plenty of lehman bros paper.
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If the fed hadn't done this ..It's safe to say that GE and many other companies would have failed..All the major zombie banks would have failed...The commercial paper (money markets) were completely frozen because the 66 Billion dollar Reserve Money market fund broke the buck...The reserve fund was the largest money market fund in the world. It held plenty of lehman bros paper.
So basically we are a fascist state?
Bankruptcy and poverty for ost - bailouts for the select few?
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If all these companies had gone down where would that have left us?
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If all these companies had gone down where would that have left us?
I don't know - but I know we are going as a result of all of this. and guess what - you, your kids, their kids, and their kids are going to have a third world standard of living as a result.
Too big too fail is a scare tactic used to justify all sorts of bullshit while impoverishng you the sucker taxayer they know is too ignorant to realize te ffect f all of this.
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I don't know - but I know we are going as a result of all of this. and guess what - you, your kids, their kids, and their kids are going to have a third world standard of living as a result.
Too big too fail is a scare tactic used to justify all sorts of bullshit while impoverishng you the sucker taxayer they know is too ignorant to realize te ffect f all of this.
So you don't think these companies wouldn't have gone bankrupt?
If the go BK what does that do to unemployment?
Seems to me, we are fucked either way based on what you may be saying.
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So you don't think these companies wouldn't have gone bankrupt?
If the go BK what does that do to unemployment?
Seems to me, we are fucked either way based on what you may be saying.
Who the hell cares? Why should we even have bankruptcy laws in the first place if we dont allow companies who fail to go through it and reorganize?
And where do you think the money is coming from to do all of ths? Seriously? Tell me where the money comes from to bail all these companies out.
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Who the hell cares? Why should we even have bankruptcy laws in the first place if we dont allow companies who fail to go through it and reorganize?
And where do you think the money is coming from to do all of ths? Seriously? Tell me where the money comes from to bail all these companies out.
It doesn't matter who does or who does not care.
They don't bail these companies out then they go bankrupt, and UE is what then? And how many large companies are left?
Everyone knows where the money comes from. No need for that rhetoric with me. lol
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It doesn't matter who does or who does not care.
They don't bail these companies out then they go bankrupt, and UE is what then? And how many large companies are left?
Everyone knows where the money comes from. No need for that rhetoric with me. lol
Just because someone files bankruptcy does not mean they are going out of business - it means that creditors take a hit and the company reorganizes.
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If all these companies had gone down where would that have left us?
In the short run it would have been catastrophic...In the long run it would have been a better solution that the bail out. I' sure the Gov would have had to start some sort of fund to hand out cash to people and businesses until things got sorted out
We have been a fascist state for some time now..When corporations and there henchmen write or influence laws it's called fascism...
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Amazing how the EU was created to rival the US in terms of economic power yet it seems we're the ones propping that failed organization up.
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Just because someone files bankruptcy does not mean they are going out of business - it means that creditors take a hit and the company reorganizes.
And when that happens doesn't it usually mean tons of lay offs?
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And when that happens doesn't it usually mean tons of lay offs?
Maybe - but if they are a failed corporation - they have n o ight whatsoever to take from mean to prop up their business
What the hell is going on with this? This is bizarre ad who determines what companies get bailed out and which ones do not?
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December 1, 2010
Too Big to Succeed
By THOMAS M. HOENIG
www.nyt.com
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Kansas City, Mo.
THE world has experienced a severe financial crisis and economic recession. The Treasury and the Federal Reserve took actions that saved businesses and jobs and may very well have saved the economy itself from ruin. Still, the public seems ungrateful, expressing anger at these institutions that saved the day. Why?
Americans are angry in part because they sense that the government was as much a cause of the crisis as its cure. They realize that more must be done to address a threat that remains increasingly a part of our economy: financial institutions that are “too big to fail.”
During the 1990s, Congress, with encouragement from academics and regulators, repealed the Glass-Steagall Act, the Depression-era law that had barred commercial banks from undertaking the riskier activities of investment banks. Following this action, the regulatory authority significantly reduced capital requirements for the largest investment banks.
Less than a decade after these changes, the investment firm Bear Stearns failed. Bear was the smallest of the “big five” American investment banks. Yet to avoid the damage its failure might cause, billions of dollars in public assistance was provided to support its acquisition by JPMorgan Chase. Soon other large financial institutions were found to also be at risk. These firms were required to accept billions of dollars in capital from the Treasury and were provided hundreds of billions in loans from the Federal Reserve.
In spite of the public assistance required to sustain the industry, little has changed on Wall Street. Two years later, the largest firms are again operating with bonus and compensation schemes that reflect success, not the reality of recent failures. Contrast this with the hundreds of smaller banks and businesses that failed and the millions of people who lost their jobs during the Wall Street-fueled recession.
There is an old saying: lend a business $1,000 and you own it; lend it $1 million and it owns you. This latest crisis confirms that the economic influence of the largest financial institutions is so great that their chief executives cannot manage them, nor can their regulators provide adequate oversight.
Last summer, Congress passed a law to reform our financial system. It offers the promise that in the future there will be no taxpayer-financed bailouts of investors or creditors. However, after this round of bailouts, the five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.
How is it possible that post-crisis legislation leaves large financial institutions still in control of our country’s economic destiny? One answer is that they have even greater political influence than they had before the crisis. During the past decade, the four largest financial firms spent tens of millions of dollars on lobbying. A member of Congress from the Midwest reluctantly confirmed for me that any candidate who runs for national office must go to New York City, home of the big banks, to raise money.
What can be done to remedy the situation? After the Great Depression and the passage of Glass-Steagall, the largest banks had to spin off certain risky activities, and this created smaller, safer banks. Taking similar actions today to reduce the scope and size of banks, combined with legislatively mandated debt-to-equity requirements, would restore the integrity of the financial system and enhance equity of access to credit for consumers and businesses. Studies show that most operational efficiencies are captured when financial firms are substantially smaller than the largest ones are today.
These firms reached their present size through the subsidies they received because they were too big to fail. Therefore, diminishing their size and scope, thereby reducing or removing this subsidy and the competitive advantage it provides, would restore competitive balance to our economic system.
To do this will require real political will. Those who control the largest banks will argue that such action would undermine financial firms’ ability to compete globally.
I am not persuaded by this argument. History suggests that financial strength follows economic strength. A competitive, accountable and successful domestic economic system, supported by many innovative financial firms, would restore the United States’ economic strength.
More financial firms — with none too big to fail — would mean less concentrated financial power, less concentrated risk and better access and service for American businesses and the public. Even if they were substantially smaller, the largest firms could continue to meet any global financial demand either directly or through syndication.
Crises will always be a part of our capitalist system. But an absence of accountability and blatant inequities in treatment are why Americans remain angry. Without accountability, we cannot hope to build a national consensus around the sacrifices needed to eliminate our fiscal deficits and rebuild our economy.
Thomas M. Hoenig is the president of the Federal Reserve Bank of Kansas City.
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Maybe - but if they are a failed corporation - they have n o ight whatsoever to take from mean to prop up their business
What the hell is going on with this? This is bizarre ad who determines what companies get bailed out and which ones do not?
If UE was reported at 40% and a bunch of our largest companies were BK we'd still be paying for it anyway.
I am not exactly disagreeing with you, its just that it seems that our politicians ar just there to make us feel better and that they a going to do what's best for money.
Whether we bail em out or let them die it seems we fucked either way. By bailing them out it keeps more people working, paying taxes etc..
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Fed Opens Books, Revealing European Megabanks Were Biggest Beneficiaries (Details you should see)
InsuranceMaking ^ | 12/1/2010 | Marcus Baram
NEW YORK -- The Federal Reserve on Wednesday reluctantly opened the books on its monumental campaign to save the financial system in the midst of the recent crisis, revealing how it distributed some $3.3 trillion in relief.
The data revealed that the Fed's aid was scattered much more widely than previously understood. Two European megabanks -- Deutsche Bank and Credit Suisse -- were the largest beneficiaries of the Fed's purchase of mortgage-backed securities. The Fed's dollars also flowed to major American companies that are not financial players, including McDonald's and Harley-Davidson, through unsecured short-term loans.
The measure, initiated in Jan. 2009 to stimulate the flow of credit and keep household borrowing costs low, led the nation's central bank to purchase more than $1.1 trillion in mortgages packaged into the form of securities. The mortgage bonds are backed by Fannie Mae and Freddie Mac, the twin mortgage giants now owned by taxpayers.
Deutsche Bank, a German lender, has sold the Fed more than $290 billion worth of mortgage securities, Fed data through July shows. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.
The data had previously been secret. It was released Wednesday per the recently-enacted law overhauling the federal financial regulation. The Fed, ferociously backed by the Obama administration, fought lawmakers' desire for full disclosure throughout the financial reform debate.
The mortgage purchase program has come under withering criticism by economists and financial experts who believe the Fed's initiative has unnecessarily inflated the housing market, and prevented the cleansing that pretty much all experts believe is necessary for a full economic rebound. However, the program has also been heavily praised for preventing an Armegedon-type situation in which mortgage costs could have skyrocketed, collapsing the housing market and leading to even more foreclosures.
Data released Wednesday shows which Wall Street firms have been the biggest beneficiaries of the Fed's bond buying program. The fact that foreign lenders benefited the most is sure to irk lawmakers.
The Fed effectively telegraphed its intentions to the Street before buying the bonds. Legendary money manager Bill Gross, who oversees more than $1.2 trillion at Pacific Investment Management Co. said last month during a television interview that part of his success over the last 18 months was due to buying securities in front of the Fed, and selling them to the Fed at a premium, allowing him to profit handsomely. Gross runs PIMCO's $252.2 billion Total Return Fund.
Morgan Stanley sold the Fed more than $205 billion in mortgage securities from January 2009 to July 2010, while it's much bigger rival, Goldman Sachs, sold $159 billion. Citigroup, the nation's third-largest bank by assets, sold the Fed nearly $185 billion in mortgage bonds. Merrill Lynch/Bank of America sold about $174 billion.
It's not clear how much these firms profited by engaging in the kind of activity that allowed Gross to profit so well, known as "front running." However, it's abundantly clear that they did turn a profit.
JPMorgan Chase, the nation's second-largest bank by assets, sold the Fed about $153 billion worth of mortgage securities.
Other foreign banks with extensive Wall Street operations also profited from the program.
Barclays, the British firm that took over failed investment bank Lehman Brothers, sold about $123 billion in mortgage bonds. UBS, a Swiss lender, sold about $94 billion. BNP Paribas, a French bank, sold about $67 billion.
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We traded short ter chaos and armageddon for long term poverty.
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Nassim Taleb: Bernanke Is Beyond Unwise; His Actions Are Immoral
Joe Weisenthal | Dec. 2, 2010, 1:13 PM | 383 | 7
We just asked where the QE2 haters were, and CNBC delivered!
Nassim Taleb is on CNBC, talking QE and Bernanke, and says the actions are "beyond unwise," they're immoral, because he's taking risks with other people's money.
Other points he's making:
Wall Streeters are still taking risks with your money.
The intelegencia in the US still doesn't get the ned for austerity.
People will accept austerity just like they did under Reagan.
Tags: Nassim Taleb, Quantitative Easing | Get Alerts for these topics »
Read more: http://www.businessinsider.com/nassim-taleb-beon-cnbc-2010-12#ixzz16ysu0maO
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Great clip. Bernie Sanders is 100% correct
http://www.huffingtonpost.com/2010/12/01/bernie-sanders-wall-street-federal-reserve_n_790825.html
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BofA Drags Balance Sheet Confidence Backward: Jonathan Weil
http://finance.yahoo.com/news/BofA-Drags-Balance-Sheet-bloomberg-3438655334.html?x=0&sec=topStories&pos=9&asset=&ccode= ^
The more we learn about the mortgage industry’s documentation snafus, the more troubling hints we get that the financial statements of some of our biggest banks may be less reliable than anyone imagined.
Here’s the latest: Thanks to a Nov. 16 court ruling in Camden, New Jersey, we now know that a Bank of America Corp. employee, Linda DeMartini, testified last year that the lender routinely retained possession of mortgage promissory notes and related documents, even after loans were packaged into bonds that were sold to investors. If we’re to believe what she said, it raises the prospect that some of those loans still should be on Bank of America’s balance sheet today.
(Excerpt) Read more at finance.yahoo.com ...
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Meet The 35 Foreign Banks That Got Bailed Out By The Fed (And This Is Just The CPFF Banks)
ZeroHedge ^ | ZeroHedge
One may be forgiven to believe that via its FX liquidity swap lines the Fed only bailed out foreign Central Banks, which in turn took the money and funded their own banks.
It turns out that is only half the story: we now know the Fed also acted in a secondary bail out capacity, providing over $350 billion in short term funding exclusively to 35 foreign banks, of which the biggest beneficiaries were UBS, Dexia and BNP.
Since the funding provided was in the form of ultra-short maturity commercial paper it was essentially equivalent to cash funding. In other words, between October 27, 2008 and August 6, 2009, the Fed spent $350 billion in taxpayer funds to save 35 foreign banks. And here people are wondering if the Fed will ever allow stocks to drop: it is now more than obvious that with all banks leveraging the equity exposure to the point where a market decline would likely start a Lehman-type domino, there is no way that the Brian Sack-led team of traders will allow stocks to drop ever... Until such time nature reasserts itself, the market collapses without GETCO or the PPT being able to catch it, and the Fed is finally wiped out in one way or another.
Chart: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/gono/CPFF%20Foreign%20Banks.jpg
(Excerpt) Read more at zerohedge.com
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Wonder how many of these people will get auditdted.
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It's amazing that the Europeans have the gall to come to us with their hands out and then badmouth us as soon as the trillions of dollars we give them hits their pockets.
Opportunist douche bags.
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Those europeeons lecture us while now this is the third time we have had to bail them out.
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Those europeeons lecture us while now this is the third time we have had to bail them out.
Yup. Europe is the beacon of success and accomplishment. Spain, Italy, Portugal, Greece and Ireland can confirm that. ::)
(http://demotivationalblog.com/demotivational/2009/03/europe-were-all-beautiful-thin-and-intelligent.jpg)
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In the short run it would have been catastrophic...In the long run it would have been a better solution that the bail out.
100% agree. There would have been other well run companies around to take over the black hole left by the companies that fail. We need to return to a realistic standard of growth that keeps things in check and makes reccessions much more tolerable when they do occur other than the giant tumble that takes place when things are artificially pumped up.
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I keep saying, reading creature from jekyll island was one of the worst things I have done.
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I keep saying, reading creature from jekyll island was one of the worst things I have done.
Ignorance is bliss....
To bad we can't turn the page back now...
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December 2, 2010
Cross Section of Rich Invested With the Fed
By SEWELL CHAN and BEN PROTESS
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WASHINGTON — One investor, Kenneth H. Dahlberg, is a World War II flying ace who, as a volunteer in President Richard M. Nixon’s re-election campaign, was a minor figure in the Watergate scandal.
Another investor, Magalen O. Bryant, runs a horse farm in Virginia and is active in steeplechase racing circles. A third, Ward W. Woods, is the chairman of the nonprofit organization that runs the Bronx Zoo.
They were among scores of wealthy but lesser-known investors in an emergency lending program the Federal Reserve announced in November 2008, three weeks after President Obama’s election, to support the market for student, auto, credit card and small-business loans.
The investors, whose identities were disclosed as part of a trove of 21,000 records released on Wednesday at the direction of Congress, are a cross-section of America’s wealthy — investors who, in the midst of the worst financial crisis since the Great Depression, heard about an opportunity and weighed the risk.
The list, not surprisingly, includes famous Wall Street financiers like J. Christopher Flowers, John A. Paulson and Julian Robertson, demonstrating the extent to which the Fed relied on fast-moving hedge funds to keep credit flowing through the markets.
There were also institutional investors like the Ford Foundation and the pension plan for Major League Baseball. And there were wealthy businessmen like the computer executive Michael S. Dell and the home builder Bruce E. Toll.
Investors like Mr. Dell are identified in the Fed’s data because they owned or were part of a group that owned a “material” stake in a company or a fund that received funding from the Fed. They may not have been involved in the decision to borrow from the Fed. Through the program, known as the Term Asset-Backed Securities Loan Facility, or TALF, the investors helped keep markets for consumer loans from seizing up by steadily buying securities. About $71 billion was lent by the Fed out of the $200 billion available. The program, which began in March 2009, ended June 30, 2010; two-thirds of the loans have been repaid early. The remaining ones come due as late as 2015. The Fed has said it does not expect to lose any money in the program.
The investors put up their own money in return for Fed financing that was then plowed into the markets for securitized loans — bundles of credit card or auto dealership debt and student loans. The investors shouldered the risk that the loan packages could lose value and be worth less than the amount they had borrowed from the Fed.
Ordinarily, bundles of loans of this type are not difficult to sell, but after Lehman went bankrupt in September 2008, the market for such debt suddenly froze. The point of the program was to keep money moving through the markets while having investors, not the Fed, bear the risk.
Mr. Dahlberg was one such investor. The newly disclosed records show he was an investor in Broad Creek Partners, which borrowed $28.1 million from the Fed, through TALF, to purchase a portion of a security issued by GE Capital, the financing arm of General Electric. The security was backed by subprime credit card loans. To obtain the loan, Broad Creek pledged as collateral the market value of the security, $30.5 million.
Nearly all of some two dozen TALF investors contacted on Thursday declined to comment or did not respond to messages.
One who did agree to talk was Dov C. Schlein, a former president of the Republic Bank of New York, who estimated that he made a healthy profit, but not a killing.
“Realistically, if you were an early investor you could net 10 percent,” he said. “If you came in much later when the program looked to be successful, then the return dropped to 8, 7, 6, 5 percent.”
Mr. Schlein said he told fellow investors that they should be prepared for their names to become public at some point.
“I told anyone who invested in it at the time that if you’re not prepared for that information to be disclosed, you should not invest,” he said.
Mr. Schlein said he was by no means certain of making money; if unemployment had skyrocketed to 12 percent, for example, he would have expected to lose from huge defaults.
Indeed, when Mr. Schlein told students in his finance class at Baruch College, his alma mater, about the Fed program, some deemed it too risky. A year later, a new group of students said it was a shrewd gamble.
“They said, ‘You got a gift from the Fed,’ ” Mr. Schlein recalled.
Mr. Schlein was an investor in a fund that received 19 loans, totaling $260.9 million, to purchase securities backed by credit card, auto and student loans.
Another investor, Jeffrey R. Krinsk, estimated that he made a profit of about 13 percent, or more than $300,000 on his investment of roughly $2 million, in less than 18 months. “The risk being assumed by investors was generally far less than the risk that was perceived by commentators who hadn’t taken the time to look through the extensive documentation associated with the program,” said Mr. Krinsk, a plaintiffs’ lawyer in San Diego. “It was actually less esoteric, less risky, than other investments I’ve made.”
Many of the investors in the program had backgrounds in finance, including Stephen Partridge-Hicks, who is credited with creating the market for structured investment vehicles, and Robert F. Corvino, who is a director of the CME Group, a major options and futures marketplace.
Many of the financiers, the records show, teamed up, like Jay M. Twery, Walt K. Weissman and M. Blair Wellensiek, who work at Tradelink Holdings, a Chicago trading firm.
Some financiers show up in the Fed data because of their ownership in companies that sought funds from the Fed. In one instance, Mr. Paulson and Mr. Flowers, the financiers, formed OneWest Bank, the successor to the collapsed lender IndyMac, which borrowed from the Fed. Mr. Dell’s investment firm, MSD Capital, is an investor in the bank as well.
Records show that Ms. Bryant, the steeplechase enthusiast, was an investor in Belstar Credit Fund, which obtained 22 loans in amounts ranging from $2.5 million to $75.2 million. Belstar used the loans to purchase securities backed by credit card and auto loans, mortgages and small-business loans. When reached by phone, she declined to comment.
Mr. Woods, who is chairman of the Wildlife Conservation Society, which runs the Bronx Zoo, and a former chief executive of Bessemer Securities, was an investor in the Nebris Corporation, which borrowed $10.2 million to purchase a security backed by student loans. He did not respond to messages left with his associates.
Mr. Dahlberg, a decorated aviator, became prominent early in the Watergate scandal because his name was on a check deposited in an account controlled by one of the burglars. Mr. Dahlberg, who was not accused of any wrongdoing in the scandal and is now a venture capitalist, did not return phone calls Thursday.
Mr. Schlein, the New York investor, said he felt he was helping out the Fed at a critical moment. “The program was well thought-out,” he said. “I thought it was an exceptional program.”
But he also said there was a downside potential. “The risk was that the economy was going to fall off a cliff,” he said.
Sewell Chan reported from Washington and Ben Protess from New York. Jo Craven McGinty contributed reporting from New York.
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Unreal. Truly sick.
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So much for the truth.
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Wake up!
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Trillions In Secret Fed Bailouts For Global Corporations And Foreign Banks (Fed is Unaccountable)
The Economic Collapse ^ | 12/03/2010 | Michael Snyder
Has the Federal Reserve become the Central Bank of the World? That is what some members of Congress are asking after the Federal Reserve revealed the details of 21,000 transactions stretching from December 2007 to July 2010 that totaled more than $3 trillion on Wednesday. Most of these transactions involved giant loans that were nearly interest-free from the Federal Reserve to some of the largest banks, financial institutions and corporations all over the world. In fact, it turns out that foreign banks and foreign corporations received a very large share of these bailouts. So has the Federal Reserve now become a completely unaccountable global bailout machine? Sadly, the truth is that we would have never learned the details of these bailouts if Congress had not forced this information out of the Fed. So what other kinds of jaw-dropping details would be revealed by a full audit of the Federal Reserve?
It is important to try to understand exactly what went on here. Banks and corporations from all over the globe were allowed to borrow gigantic piles of money essentially for free. Yes, when you are getting interest rates such as 0.25 percent, the money is essentially free. These loans were not available to everyone. You or I could not have run over to the Federal Reserve and walked away with tens of billions of dollars in loans that were nearly interest-free. Rather, it was only the megabanks and megacorporations that are friendly with the Federal Reserve that were able to take advantage of these bailouts.
In this way, the Federal Reserve is now essentially acting like some kind of financial god. They decide who survives and who fails. Dozens and dozens and dozens of small to mid-size U.S. banks are failing, but the Federal Reserve does not seem to have much compassion for them. It is only when the "too big to fail" establishment banks are in trouble that the Federal Reserve starts handing out gigantic sacks of nearly interest-free cash.
Just think about it. Which financial institution do you think is in a better competitive position - one that must survive on its own, or one that has a "safety net" of nearly unlimited free loans from the Federal Reserve?
Now that is oversimplifying the situation, certainly, but the truth is that the Federal Reserve had fundamentally altered the financial marketplace and is significantly influencing who wins and who loses.
But even more disturbing is what the Federal Reserve is turning into. This is an institution that is "independent" of the U.S. government, that does not answer to the American people, that controls our money supply and that is just tossing tens of billions of dollars to foreign banks and to foreign corporations whenever it wants to.
In fact, if Congress had not forced the Fed to tell us what was going on with these bailouts we would have never even found out.
The truth is that the Fed is taking incredible risks with "our money" and yet they want to continue to exist in a cloak of almost total secrecy.
In a recent article in the Washington Post, Dallas Federal Reserve President Richard Fisher acknowledged that the Federal Reserve played fast and loose with trillions of dollars of our money....
"We took an enormous amount of risk with the people's money."
Are you deeply disturbed by that quote?
Well, if not, you should be.
The American people became so infuriated about the bailouts and stimulus packages passed by Congress, but it turns out that they were nothing compared to these Federal Reserve bailouts.
U.S. Senator Bernie Sanders is one of the members of Congress that is now expressing extreme outrage about what the Federal Reserve has done....
"The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution."
In fact, Senator Sanders was so disgusted by how much of the money went overseas that he was led to make the following remark....
“Has the Federal Reserve become the central bank of the world? I think that is a question that needs to be examined.”
Advocates for the Federal Reserve insist that if all of these foreign banks and foreign corporations were not bailed out the financial crisis would have been much worse. In fact, they say we should be thankful that the Federal Reserve prevented a total financial collapse.
Well boo-hoo!
If our financial institutions are so fragile that a stiff wind will knock half of them over maybe they need to just fail.
You know what, life is tough. Nobody is going to cry most of us a river of tears if we lose our jobs. Most of us have learned to scratch and claw to survive with no safety net underneath us.
So maybe it is time for these big financial institutions to start playing by the same rules the rest of us are playing by.
No, when these "too big to fail" financial institutions get into a little trouble they start whining like a bunch of little babies.
"Give us some big sacks of cash!"
"Waaaaaaah!"
Well guess what? Most of the rest of us are just not going to have too much sympathy for these big banks from now on.
The following is a list of just a few of the banks, financial institutions and global corporations that received nearly interest-free loans from the Federal Reserve during the financial crisis.....
Big U.S. Banks And Financial Institutions
Goldman Sachs
Citibank
JP Morgan Chase
Morgan Stanley
Merrill Lynch
Bank of America
Bear Stearns
Pacific Investment Management Co. (PIMCO)
Big Global Corporations
General Electric
Caterpillar
Harley-Davidson
Verizon
McDonald's
BMW
Toyota
Canadian Banks
Royal Bank of Canada
Toronto-Dominion Bank
Scotiabank
European And Asian Banks
Barclays Capital
Bank of Scotland
Deutsche Bank
Credit Suisse
BNP Paribas
Societe Generale
UBS
Dexia
Bayerische Landesbank
Dresdner Bank
Commerzbank
The Korean Development Bank (South Korea)
But those defending the Federal Reserve will insist that the financial world as we know it would have ended if the Fed had done nothing.
That may well be true.
The entire financial system might have gone down in flames.
But that just proves the main point that this column has been trying to make for months.
An economic collapse is coming.
The Federal Reserve can desperately try to keep all of the balls in the air for as long as it can, but eventually it is inevitable that this entire thing is going to come crashing down.
The fact that the Federal Reserve had to resort to such extreme measures to "save" the financial system just shows how desperate things really are.
We really have reached a "tipping point" for the world financial system. There is going to be crisis after crisis after crisis and even bigger bailouts are going to be required in the future.
The world financial system is a house of cards built on a foundation of sand. The Federal Reserve can keep throwing around gigantic sacks of "our money" as much as it wants, but in the end there is nothing that can be done to prevent the inevitable collapse that is coming.
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Ford, BMW, Toyota Took Secret Government Money
Jalopnik ^ | 12/5/10 | Justin Hyde
In the depths of the financial collapse, the U.S. Federal Reserve pumped $3.3 trillion into keeping credit moving through the economy. It eventually lent $57.9 billion to the auto industry — including $26.8 billion to Ford, Toyota and BMW.
The Fed on Wednesday was forced to reveal the identity of the companies it aided during the crisis, after contending to Congress that keeping their identities and the details of such lending secret was essential. Much of Wall Street, and corporate giants such as General Electric, Harley Davidson and McDonald's, took advantage of the Fed's help. We've done the math on how the Fed propped up the auto industry.
While Chrysler and General Motors had to go to Congress to beg for cash in 2008, every other automaker's finance arm was having trouble as well. Typically, once they lend money to a buyer, they sell the loan, get the cash upfront, then pump the proceeds back into the business. They also take out short-term loans called commercial paper that keeps the day-to-day business afloat. The crash cut the circuit, raising the chances the automakers couldn't make loans to buyers and keep selling new vehicles.
That's where the Fed stepped in. In normal circumstances, the Fed only lends money to banks, leaving the decisions about who should get credit to them. But when the financial markets started to collapse in late 2008, the Fed set up several programs to lend money directly to corporations, a highly unusual step.
According to the data, from October 2008 through June 2009 the fed bought $45.1 billion in commercial paper from the credit arms of four automakers - Ford, BMW, Chrysler and Toyota - along with GMAC (the former General Motors credit arm). Of those, Ford sold the most, with $15.9 billion.
The Fed also lent $13 billion to investors who bought bonds backed by loans to new car buyers from automakers and banks. The Fed made clear that while investors got the loans, the move was meant to keep the lenders in business; the credit arms of Ford, Chrysler, Nissan, Volkswagen, Honda and Hyundai all benefited directly.
Ford spokeswoman Christin Baker said the two programs "addressed systemic failure in the credit markets, and that neither program was designed for a particular company, or even a particular industry." Ford Credit has disclosed through SEC filings and conference calls with media and investors that it was taking part in both programs.
BMW told Bloomberg that the Fed lending "supported our financial profile and offered us an additional funding source, especially at times when the money markets and capital markets did not function properly and efficiently."
According to the Fed, the commercial paper loans have been paid in full, while some $2 billion remains outstanding on loans for bond investors.
The secrecy surrounding the details of the loans only masked how much aid corporate America and Wall Street needed. While General Motors and Chrysler took the brunt of the blowback for relying on government handouts, the reveal of the Fed numbers show that a far bigger slice of the U.S. auto industry needed help.