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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 of American 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.
We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system — apart from the matter of AIG’s bailout — deserves further congressional scrutiny.
The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others.
Tag Archives | Federal Reserve
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Embattled Federal Reserve Chairman Ben Bernanke won confirmation for a second term Thursday, but only by the closest vote ever for the crucial post and after withering criticism from lawmakers for bailing out Wall Street while other Americans suffered in recession.
The Senate confirmed Bernanke for a new four-year term by a 70–30 vote, a seemingly solid majority but 14 votes worse than the closest previous vote for a Fed chairman.
The battle over Bernanke’s confirmation has been a test of central bank independence, a crucial element if the Fed is to carry out unpopular but economically essential policies. Its decisions on interest rates can have immense consequences, from the success or failure of the largest companies to the typical home-buyer’s ability to get an affordable loan to the price of cereal at the grocery or gas at the corner station.
A key question at the heart of the controversial bailout of AIG is just how much money the government lost. The Federal Reserve and Treasury Department have worked to keep that number secret and to conceal who was on the winning end. An unredacted document obtained by the Huffington Post list the damage in detail. Goldman Sachs alone, for instance, got $14 billion in government money for assets worth $6 billion at the time — a de facto $8 billion subsidy, courtesy of taxpayers. The list was produced as part of a congressional investigation led by the House Oversight and Government Reform Committee into the federal bailout of AIG...
David Glovin and Thom Weidlich writes on Bloomberg:
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The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.
The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News.
“This case is about the identity of the borrower,” said Matthew Collette, a lawyer for the government, in oral arguments today. “This is the equivalent of saying ‘I want all the loan applications that were submitted.’”
Bloomberg argues that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money.
Reported on the AP via Yahoo News:
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The Federal Reserve generated record profits last year, reflecting money made off its extraordinary efforts to rescue the country from the worst economic and financial crisis since the 1930s.
The central bank announced Tuesday it logged a record windfall of $52.1 billion. Of that total, a record of $46.1 billion gets turned over to the Treasury Department.
It marks both the biggest profit and payment to Treasury on records dating back to 1914, when the Fed began operating. The previous record payment turned over to the Treasury — of $34.6 billion — was registered in 2007. In 2008, the Fed reported a payment of $31.7 billion.
The Fed’s efforts to end the crisis are separate from the $700 billion taxpayer-funded financial bailout program authorized by Congress in 2008 and overseen by the Treasury Department.
Originally set up to shore up banks, money from the publicly-derided program also has been doled out to rescue other types of companies, including General Motors, Chrysler and GMAC.
I wonder what it was like to be Ben Bernanke today, on the receiving end of an absolute lashing from Senator Jim Bunning. Here’s a taster:Amen.Chairman Greenspan’s attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.Bunning then quoted Bernanke’s own words from his own confirmation hearing, when he said that “no bank is too big to fail”. No, Bunning wasn’t laughing either:Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.This is the sort of parliamentary rhetoric which we Brits are quite used to, but which is electrifying in the normally-staid confines of the US Senate. Good for Bunning for taking the gloves off.
“An unusual coalition of progressive economists, labor leaders, and bloggers has decided to fight back against a congressional amendment that would allow the Federal Reserve to continue operating in secrecy.”
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November 18, 2009
House Financial Services Committee
2129 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Frank, Ranking Member Bachus, and Members of the Committee,
During the past two years, the Federal Reserve dramatically changed its operating procedures. Instead of simply setting interest rates to influence macroeconomic conditions, it rapidly acquired a wide variety of private assets and extended massive secret bailouts to major financial institutions.
There are still many questions about the Fed’s behavior in these new activities, including potential cronyism and favoritism in its distribution of many trillions of dollars. As the Special Inspector General for the Troubled Assets Relief Program recently wrote about their bailout of AIG, the Fed’s “strategy to pursue concessions from counterparties offered little opportunity for success, even in light of the willingness of one counterparty to agree to concessions.”
The Federal Reserve balance sheet expanded to more than $2 trillion, along with implied and explicit backstops to Wall Street firms that could cost even more.