Wall Street bailout

$1.2 Trillion to Banks, You 0

Bloomberg News has researched a bombshell story, the Federal Reserve gave $1.2 trillion in secret loans to banks during the financial crisis, from August 2007 until April 2010. This is in addition to the TARP bail outs which was publicly known.

The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The top three banks at peaking borrowing are: Morgan Stanley, $107.3 billion, Citigroup took $99.5 billion, Bank of America $91.4 billion, or a total of $298.2 billion. Gets worse, foreign banks amounted to half the loans.

Half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

It's All About Privatizing Gains and Socializing Losses

We are stupid! We've been punked! Punked by the financial oligarchy. Punked by financial conglomerates. And yes, punked by the Obama Administration.

Currently, there is a story on EP about private equity firms feeding at the trough. It talks about FDIC's loss share agreements. These are very generous sweetheart agreements whereby the FDIC, and more directly taxpayers, assume losses of assets sold to private equity firms and other acquirers of failed bank assets. Here is a little taste of these loss share agreements:

Is Congress Starting to Get It?

Congress still has a long way to go in representing their constituents and not their special interest benefactors (eg. cram down bill) but we should give credit when credit is due. Yesterday, two potentially significant pieces of legislation were signed by the President: Helping Families Save Their Homes Act of 2009 and the Fraud Enforcement and Recovery Act of 2009. These pieces of legislation are potentially significant not so much because of their main objectives (which are significant in their own way) but for two potentially powerful amendments included in each.

Helping Families Save Their Homes Act of 2009

A Stroll Down Maiden Lane - Part 2: Maiden Lane II and III

On April 23, the Fed released audited financial statements which included financial statements from a few of the super “structured investment vehicles” that it created in 2008. The Fed called them “Special Purpose Vehicles”. Yeah, right, we know what “Special Purpose” means. Here’s a hint: giveaway. AIG and third-party counterparties to AIG's CDS received the largesse with Maiden Lane II & III. Just like Maiden Lane I, with a stroke of the pen tens of billions of dollars of “toxic assets” were lifted from AIG’s and other financial conglomerates’ balance sheets and transferred to the Fed’s balance sheet.


Please note, that I am having trouble locating detailed financial statements for Maiden Lane II, LLC. The financial results have been consolidated onto the Federal Reserve Bank of New York’s financials but the details were lacking.

A Stroll Down Maiden Lane - Part 1: Maiden Lane, LLC

On April 23, the Fed released audited financial statements which included financial statements from a few of the super “structured investment vehicles” that it created in 2008. The Fed called them “Special Purpose Vehicles”. Yeah, right, we know what “Special Purpose” means. Here’s a hint: giveaway. JP Morgan Chase got a sweet heart deal with the help of Maiden Lane. With the stroke of a pen $30 billion in assets were moved from Bear Stearns balance sheet to the Feds.


The Fed (Federal Reserve Bank of New York) wanted to help out JP Morgan Chase purchase The Bear Stearns Company. Does Jamie Dimon, CEO of JP Morgan Chase serve on the Board of Directors of FRBNY? No conflict of interest there! But Bearn Stearns had a “toxic asset” problem.

Why the Wall Street Bailout will Harm average Americans -- even if it works!

Even if the $700 Billion Wall Street Bailout, together with the $Trillion or more pumped by the Federal Reserve into Wall Street banks and their counterparties, succeed spectacularly in rescuing the economy from financial meltdown, even if they succeed in generating +GDP and economic recovery for years to come -- in short, even if they succeed beyond just about anyone's wildest expectations -- they will almost certainly still work harm on the average American household.

The political bailout of Wall Street will do harm because it is the biggest single example of "trickle down" economics in our nation's history, a particularly toxic "trickle" because the inflation it creates will affect prices long before the cash wends its way from fatcat corporate cronies to average consumers. This is the problem of "first/early receivers" vs. "late/non-receivers" of new money or credit. How it applies to the Wall Street Bailouts I will explain below.

Time to Claw Back Wall Street's bonuses for Fictitious Profits

Back when the execrible Wall Street Bailout bill was before Congress, The New York Times and also Barry Ritholtz of The Big Picture blog called for a "claw back" provision to the TARP program, pointing out that at the same time as Wall Street firms needed nearly $1Trillion from taxpayers to stay solvent, their CEO's and other senior executives were keeping monstrous bonuses for what turned out to be fictitious profits. Writedowns in the $ hundreds of billions had completely wiped awary the alleged profits of years' past.

Needless to say, that paeon fell on deaf ears.

Today CNBC has an article on exactly how egregious those bonuses were.