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Fed Gave Banks Eye-Popping Emergency Loans, Without Telling Congress

timothy posted more than 2 years ago | from the please-don't-blame-this-on-a-free-market dept.

Government 629

An anonymous reader writes with this excerpt: "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."

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Is that all? (5, Funny)

benwiggy (1262536) | more than 2 years ago | (#38251338)

$13 billion? Meh. Drop in the ocean. When we're all short of trillions, what's a few billion between friends?

Re:Is that all? (1, Insightful)

lgw (121541) | more than 2 years ago | (#38251504)

It really is chump change on the scale of these bank bailouts. And the timing was "between presidents", so to speak, so it's no wonder the system was being gamed with particular intensity.

Almost all the government does these days is give money to politically favored groups. And before you bemoan corporate cronyism, that isn't the only problem. We give 100% of federal revenue to the old and the poor these days. I'm all for charity, but this is a bit much, especially what we give to the old who aren't the poor. Both parties give tax money to their favored groups with equal fervor!

There has to be some limit imposed on the government's ability to take from the politically disfavored and give to the politicallty favored, and if 100% of revenue isn't the limit (and with the bank bailouts + entitlements, it was closer to 200% in 08-09) how can the government survive?

Between presidents (4, Insightful)

symbolset (646467) | more than 2 years ago | (#38251684)

And here you have the problem. As if this one time weren't bad enough, raiding the treasury will now become a thing that happens every time we turn over administrations.

Huh? [Re:Is that all?] (5, Informative)

Geoffrey.landis (926948) | more than 2 years ago | (#38251756)

And before you bemoan corporate cronyism, that isn't the only problem. We give 100% of federal revenue to the old and the poor these days

Huh?

Do you mean social security? Let me remind you, that's not a hand-out; it's paid for. And it's not "100% of federal revenue".

In any case, if you're looking at the US budget, Defense, not "the old and the poor," is the largest share. Here's the discretionary portion of the budget: http://oranges-world.com/the-federal-budget.html [oranges-world.com]

Re:Huh? [Re:Is that all?] (4, Informative)

lgw (121541) | more than 2 years ago | (#38251888)

You're way off. Take a look at the link in my sig for the up-to-the-minute numbers. Also, I did say hand-out, I said money goven to the old and poor - the most favored political groups for spending, aside from corporations. Quick summary of the top 6 (as a percentage of revenue, spending is about 160% of revenue):

  • Medicare - 36%
  • Social Security - 31%
  • Defense and wars - 30%
  • Income Security - 18% (include a variety of programs for the poor, especially children)
  • Interest on the debt - 9%
  • Federal Pensions - 9%

Don't know why people think we spend the most on defense, it's less than 20% of the budget.

Another myth is that the social security you get is what paid for. The system completely doesn't work that way - your taxes pay for your parents and grandparents. Your kids and grandkids pay for you. Any "getting out what you paid in" in a comforting illusion - it's not a 401k, no money is saved or invested any more, the government spends every cent instantly these days (and would you ever expect them to do otherwise?!).

Re:Huh? [Re:Is that all?] (0)

lgw (121541) | more than 2 years ago | (#38251902)

Err, I didn't say hand-out. Grrr, /. seriously needs to grow up and let us edit posts.

Indeed. Only 13 billion. (4, Insightful)

Colin Smith (2679) | more than 2 years ago | (#38251546)

You want bigger numbers?

Look at the bond sales... Quantitative Easing...

1. Treasury sells them.
2. Someone buys them.
3. Someone sells them on to the FED during POMO.
4. Profit.

Look, all filled in. No questions.

Guess who someone is.

Horray for the Fed! (5, Insightful)

Geoffrey.landis (926948) | more than 2 years ago | (#38251664)

It seems that the Fed is the only organization in America that would rather solve problems than score political points. From all accounds, they saved the economy from a liquidity crisis that would have shut down every business in America. I say, horray for the Fed!

Re:Horray for the Fed! (5, Insightful)

SomeKDEUser (1243392) | more than 2 years ago | (#38251744)

True. However, the principle for a central bank, when there is a liquidity crisis is: lend freely, but at punitive rates, wipe-out boards and shareholders. You can do that, because the boards have no choice, it is either that or they end broke.

By now, the FED should _own_ Wall st. and what a good occasion this would have been to put an end to the casino mentality over there. And the banks knew that, and they were desperately afraid it would happen -- so pulled every string they could to prevent it.

Unfortunately, they succeeded. The good news is, this crisis was caused because of their culture, so it will happen again, and perhaps this time, the legislator will get it right. What a waste, though.

Re:Is that all? (4, Informative)

yincrash (854885) | more than 2 years ago | (#38251830)

It was actually $7.7 trillion. Half of the US GDP. $13 bill. is the profits reaped by a rough calculation given the data they got. $7.77 trillion is the total amount committed to rescuing the financial system. TARP was only $700 billion. GDP of the US is $14.58 trillion.

Re:Is that all? (1)

k10quaint (1344115) | more than 2 years ago | (#38251876)

Think of the headache involved counting all that collateral! 1,2,3,...7,699,999,000 7,700,000,000 bond units!

Re:Is that all? (1)

Galestar (1473827) | more than 2 years ago | (#38251908)

Citation needed. Not that I think you are making it up, its just that I've seen a lot of figures floating around and would love to see a reliable source.

Capitalism (4, Insightful)

Dyinobal (1427207) | more than 2 years ago | (#38251348)

Privatize the profits socialize the losses. Isn't capitalism great.

Re:Capitalism (5, Insightful)

BenJCarter (902199) | more than 2 years ago | (#38251374)

That isn't capitalism, it's Crony Capitalism. Our political class has become so corrupt they can't even see the problem.

Re:Capitalism (5, Insightful)

Anonymous Coward | more than 2 years ago | (#38251460)

It's called Corporatism. The word "capitalism" doesn't belong anywhere in describing the concept.

Re:Capitalism (5, Interesting)

istartedi (132515) | more than 2 years ago | (#38251616)

You sort of beat me to it, but I think the best word for what we have is simply cronyism. That gets you down to one -ism that describes it all. It applies mostly to corporations, but if you use the word cronymism it covers union corruption too. Anybody who opposes cronyism should be just as upset about the way bondholders were screwed in favor of unions during the GM bankruptcy as they are about the way banks are profiting.

Re:Capitalism (2, Informative)

rhakka (224319) | more than 2 years ago | (#38251716)

Doesn't have to be corporatism. Could be "richguyism" or, as it's commonly known, Plutocracy. However, it just so happens all that money is in corporations in our current economic structure.

Oh, and it's an inevitable result of laissez faire policies when capitalism is allowed to run amok. money is power. letting it all accumulate in the hands of a few just hands the reigns of power over to them.

Re:Capitalism (1)

geoffrobinson (109879) | more than 2 years ago | (#38251796)

Intervening is the exact opposite of laissez faire.

Re:Capitalism (4, Insightful)

khallow (566160) | more than 2 years ago | (#38251848)

The other replier came up with a better name, "cronyism". A plutocracy can be corrupt, but that's not a necessary condition. Most publicly traded companies would be plutocracies, but not manifest cronyism.

Oh, and it's an inevitable result of laissez faire policies when capitalism is allowed to run amok. money is power. letting it all accumulate in the hands of a few just hands the reigns of power over to them.

Wrong. Lending banks $1.2 trillion is not in the least a laissez faire policy. How could you miss this obvious rebuttal? The laissez faire policy would be to let these businesses fail hard.

More generally, I notice in this sort of situation, that the blame always goes to the same ideologies even though usually, there's usually no reason to. It's really tiresome.

just like communism... (2)

dlenmn (145080) | more than 2 years ago | (#38251882)

It's interesting that some people used to say similar things about the Eastern Bloc, "They have stalinism; the word 'communism' doesn't belong anywhere near it!" The response to that statement would be that stalinist despotism leads inexorably from communism.

I hope the equivalent statement isn't true for linking crony capitalism and pure capitalism; I don't think the claim can be dismissed out of hand. (Speaking as a libertarian leaning moderate.)

Re:Capitalism (0)

countertrolling (1585477) | more than 2 years ago | (#38251462)

The people that vote for them have become so corrupt they don't even want to see the problem. Might interfere with their 'upward mobility'.

Re:Capitalism (3, Insightful)

Hatta (162192) | more than 2 years ago | (#38251588)

30 years of corporatism has largely eliminated upward mobility.

Re:Capitalism (1)

khallow (566160) | more than 2 years ago | (#38251872)

Or their Social Security check from Uncle Sugar. You can't help fix the problem of corruption, if you don't understand what the bribes were.

Re:Capitalism (5, Insightful)

divisionbyzero (300681) | more than 2 years ago | (#38251562)

That isn't capitalism, it's Crony Capitalism. Our political class has become so corrupt they can't even see the problem.

This isn't communism. It's Maoism. It's Stalinism. Get it? Theoretical ideals go out the window when they hit reality. Any ideology that denies reality is doomed to failure, not to mention embittering its adherents or resulting in significant cognitive dissonance and rationalization.

Re:Capitalism (0)

ravenshrike (808508) | more than 2 years ago | (#38251586)

The only reason the government can do this is because we've allowed them the power to play with so much money.

Re:Capitalism (2)

alendit (1454311) | more than 2 years ago | (#38251784)

FED isn't the goverment, it's a private bank.

Re:Capitalism (1)

erroneus (253617) | more than 2 years ago | (#38251846)

I knew someone would finally say it. The fact that they were able to act without oversight or permission should be one of the many clues people have of this fact.

Re:Capitalism (2)

tmosley (996283) | more than 2 years ago | (#38251768)

Communism, Maoism, and Stalinism are all very similar. Corporatism couldn't be more different from capitalism. It's like trying to describe white by saying it is black, or describing one degree off left by saying it is right.

Re:Capitalism (1, Informative)

Anonymous Coward | more than 2 years ago | (#38251632)

It's capitalism, meaning you can buy anything and do anything for profit. They just happen to change who gets the benefits, but it's still capitalism.

Re:Capitalism (4, Insightful)

mtrachtenberg (67780) | more than 2 years ago | (#38251662)

Point taken.

Unfortunately, if you are an American over 18, you are part of the political class. That goes double if you've received a college education or learned enough about computers to be interested in Slashdot.

Vote, please, but recognize that American democracy has been corrupted by unlimited money for campaign advertising.

Further action is needed, and it will be an inconvenience. Fortunately for you and me, taking action requires far less effort and courage than that displayed by those in countries where protest is a life-threatening act. But it does require action.

Work to re-create a level playing field in politics -- work to ensure that every candidate gets public funding if they agree to give up private funding, work to make the public's airwaves free for political advertisers, so that media companies are forced to share the air as a condition of licensing, and work to prevent unlimited expenditures and their corrupting effect on our political system.

Slashdot libertarians might want to think a bit, and compare the statements of people like Ralph Nader over the past forty years with the statements made by those who have won office.

Re:Capitalism (0)

Anonymous Coward | more than 2 years ago | (#38251780)

And stalinism isn't communism either.

Capitalism privatises the losses too (3, Interesting)

Colin Smith (2679) | more than 2 years ago | (#38251412)

What you know, isn't capitalism. Hasn't been for quite a while.

Re:Capitalism (-1)

joocemann (1273720) | more than 2 years ago | (#38251438)

Bu..bu...but the regulations... th...they make da money not happen... um. Wait. ... if we get rid of the rules, it will work the best. I promise.

[Sarcasm]

Libertarians mod me troll! Im still embarrasingly on point.

Re:Capitalism (-1, Flamebait)

0123456 (636235) | more than 2 years ago | (#38251596)

Privatize the profits socialize the losses. Isn't capitalism great.

The Fed was created by the 'progressives'. Central banks are one of the ten recommended measures for creating a communist state in the Communist Manifesto.

So don't blame capitalists for the inevitable failure of another stupid left-wing policy.

Re:Capitalism (4, Insightful)

Ironchew (1069966) | more than 2 years ago | (#38251710)

The Fed was created by the 'progressives'. Central banks are one of the ten recommended measures for creating a communist state in the Communist Manifesto.

So don't blame capitalists for the inevitable failure of another stupid left-wing policy.

Right, a privately-run, for-profit bank with unelected members that controls the nation's money supply sounds so communist. /sarcasm

Or, like all major changes in this country, it was a compromise between two or more competing philosophies. Perhaps not an area where compromise works, but that's how it happened.

Re:Capitalism (1)

tmosley (996283) | more than 2 years ago | (#38251790)

Well, considering it is a plank of the communist manifesto, it is quite clearly a feature of communism. It just happens to be a feature that is shared by fascism as well as mixed systems (which is what we have).

Re:Capitalism (3, Insightful)

chill (34294) | more than 2 years ago | (#38251804)

Full on communism, with no central authority and a self-governing collective was the last stage of things according to Karl Marx's Manifesto. In the mean time, a strong, central-authoritarian government was needed to push the people in the desired direction. A central bank was very much a part of his plan.

The idea is to get control of the money supply in the hands of the strong central authority so it could be distributed "appropriately".

Re:Capitalism (1)

SomeKDEUser (1243392) | more than 2 years ago | (#38251822)

You are an idiot. Central banks are a crucial part of a capitalist economy with a well developed banking sector and money.

Money (as opposed to shiny metal) is required because you cannot ensure liquidity without being able to generate it out of thin air. And you should not be able to generate it arbitrarily, lest its value disappeared. Liquidity is necessary, because it allows the creation and exchange of goods and service without constraint on their total amount [1].

So you establish a central bank to do that, and you ask it to specifically regulate the money supply to minimise inflation and maximise employment (if you are not the BCE -- but that is a troll for another time). The central bank is necessary, because you cannot trust the government not to print whenever it suits them.

[1] If money is in short supply, you need to hoard it for when it becomes really necessary. This in turns means that you are not consuming goods and services. This means in turn that the production of these G&S is not profitable, and thus does not occur. Slowly, the value of money will rise (deflation) to accommodate the situation, but this is a slow and painful process as people dislike lowering their prices and wages.

Re:Capitalism (0)

Anonymous Coward | more than 2 years ago | (#38251718)

Isn't crony capitalism great.

Fixed that for you.

Re:Capitalism (0)

Anonymous Coward | more than 2 years ago | (#38251728)

I'm sorry, what losses? These are loans, they're being paid back. Stick to the facts.

Re:Capitalism (3, Insightful)

tmosley (996283) | more than 2 years ago | (#38251748)

That's corporatism, not capitalism. The inability of the public to distinguish between the two will lead directly to the downfall of this once great nation, if it hasn't already.

Surprising to anyone? (0)

Anonymous Coward | more than 2 years ago | (#38251358)

Is this really a surprise? It's sad really.

Unfortunately there are still powerful people that support this kind of secretive nonsense blocking any chance for a full audit of the Fed and transparency.

Re:Surprising to anyone? (1)

MagusSlurpy (592575) | more than 2 years ago | (#38251388)

Unfortunately there are still powerful people that support this kind of secretive nonsense blocking any chance for a full audit of the Fed and transparency.

And because Ron Paul doesn't manage to keep his ego in check long enough to get people behind him on that. I love him, but he needs to get some "Keep your trap shut" lessons from Joe Paterno.

Well, maybe that's not the best example.

Re:Surprising to anyone? (1)

icongorilla (2452494) | more than 2 years ago | (#38251534)

I liked Ron Paul. I'm probably going to switch over to the Pirate Party though. What the nation needs is a president who takes the kind of action that makes people shat their pants. Unfortunately, you'll never see that with the conspiring corporate sponsered candidates which everybody seems to go for.

Most do not know this but... (2, Informative)

AlienSexist (686923) | more than 2 years ago | (#38251372)

The Federal Reserve is not a government institution. Is not Federal. Is not a Reserve. It is a private bank, run for profit, with shareholders. In some regions they are even correctly listed in the Business Pages rather than Government listings. A private bank does not necessarily need government approval to take actions with another bank. What is unique about the Federal Reserve is that it is a private enterprise delegated the responsibility to print the nations money. Decide for yourselves if that is a good or bad thing.

Re:Most do not know this but... (0)

zoomshorts (137587) | more than 2 years ago | (#38251436)

Indeed it is, they need to be removed forever. But most people believe in the falsehood of money. NIGGERS!!!

Re:Most do not know this but... (4, Informative)

iggymanz (596061) | more than 2 years ago | (#38251458)

Not quite true, the Federal Reserve has both private and public components. http://en.wikipedia.org/wiki/Federal_Reserve_System [wikipedia.org]

Re:Most do not know this but... (1)

nickmalthus (972450) | more than 2 years ago | (#38251652)

Quote from former Alan Greenspan: "First off The Federal Reserve is an Independent Agency which basically means no other agency can over rule of the actions that we take." The federal reserve corporation believes and acts as if it is above the laws of our Republic, regardless of whatever the law actually is.

Re:Most do not know this but... (5, Insightful)

tyrus568 (644456) | more than 2 years ago | (#38251840)

Looks like it was more than that. [senate.gov] "Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "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 said."

Re:Most do not know this but... (0)

Anonymous Coward | more than 2 years ago | (#38251878)

You realize that "agency" is not the same thing as "law", right? The Peace Corps is also an independent agency. Neither is above the law. Both can operate only according to their granted authority, it's just that the rules for how they exercise that authority can be rather spartan and ambiguous. Since they're not directly overseen by the President (and his cabinet) the only thing reigning them in *is* the law and the courts.

Re:Most do not know this but... (2)

bgoffe (1501287) | more than 2 years ago | (#38251820)

Rather, it is a "central bank" and every country has one. Ours was established by the Federal Reserve Act of nearly a century ago and periodically their mandate has changed with the passage of new laws. Also, its leaders are nominated by the President and confirmed by the U.S. Senate. While hardly perfect, it has helped reduce instability in the economy. Check out http://www.nber.org/cycles/cyclesmain.html [nber.org] and you'll see that compared to the period before the establishment of the Fed, the last century has been much more stable. While they can indeed make a profit, it goes to the U.S. Treasury.

On the Fed's relative independence being a good or bad thing, the weight of the professional research literature suggests that countries with independent central banks have lower inflation. The reason is pretty obvious -- increases in the money supply is a pretty tempting thing for politicians to do.

It isn't widely recognized how severe the crisis was in the Fall of 2008 -- at one point U.S. banks had lost half their capital and interbank lending, a lifeblood to the system, was drying up. The U.S. financial system all but collapsed and if not for the intervention of the Fed it would have certainly dragged the economy down with it. Many claim that we should have let banks fail -- I understand the sentiment, but we tried that once -- it's widely known as the Great Depression. Back then 1/3 of U.S. banks shut their doors and this was in the days before deposit insurance.

Yes, the rescue was ugly and there is a lot to the point about socializing risk. But, back in 2008 that wasn't at the front of the Fed's mind. I'd be in favor of reducing the size of institutions so that we no longer have "systematically important institutions," but that doesn't carry much weight these days given Wall Street's influence in Washington.

Not that appeals to authority carry much weight, but among professional economists (I'm one) appeals to eliminate the Fed are seen as nutty. Also, much of this is covered in various college economics courses.

How? (2, Insightful)

TitusC3v5 (608284) | more than 2 years ago | (#38251382)

How is it that these people saw no jail time for this nonsense? I'm as jaded as the next person when it comes to our country, but this is obscene.

Have you seen who Obama's advisors are? (3, Interesting)

Colin Smith (2679) | more than 2 years ago | (#38251484)

Seriously...
Do a little graph of where they previously worked. Highly interesting.

Old boy's club owns America. Oh and Greece, Italy, ECB etc etc.

Re:How? (0)

Anonymous Coward | more than 2 years ago | (#38251490)

Because we try to only put people in jail for things that are crimes not things that you consider obscene.

Re:How? (1)

Anonymous Coward | more than 2 years ago | (#38251722)

Private profit was created by an arbitrage game whose ultimate costs will be paid by US public debt: the interest on Treasury bonds is going into banks whose Treasury purchases were financed by the Fed. In essence, the banks made pure arbitrage off future generations' money, and this was facilitated by the Fed, which is run by former bankers. That's enough to warrant a corruption investigation of the Fed and its leadership cadre. These loans were made to institutions supposedly in trouble (that's the justification for the loans' existence) while those institutions were publicly claiming to be healthy. That's enough to warrant investigation of the banks for fraud. These loans were made below market rates to select parties and kept secret. That's enough to warrant an investigation of both parties to the loans.

There are crimes to prosecute here, not just aesthetically displeasing market decisions.

Prosecuting them is going to take an army of lawyers, but if this isn't prosecuted it will be regarded as an open and festering example of corruption, prima facie evidence that markets are rigged in favor of select parties and that the country's fiscal policy is in the hands of people who value their friends' short term profits over long-term public benefit and growth. In the long run, that perception might be more damaging to the economy and to the legitimacy of capitalist ideals than the crimes themselves.

Re:How? (2, Insightful)

tmosley (996283) | more than 2 years ago | (#38251802)

No, we don't put them in jail because they haven't violated the law. They haven't violated the law because they ARE the law.

The system is corrupt. It's well past time to purge it.

Re:How? (4, Funny)

filthpickle (1199927) | more than 2 years ago | (#38251528)

The Daily Show treatment of this was titled something along the lines of 'Why the fuck did Martha Stewart go to jail?'.

where is my... (1)

joocemann (1273720) | more than 2 years ago | (#38251396)

...below market loan? I would like the same opportunities to game financial markets and reap fast profits.

Oh, I'm just a stem cell scientist. I don't work hard (merit) enough to get rich this way (easy). [Sarcasm]

In some countries, scumbaggery like this ends with evisceration.

Why/when do you think I changed my sig? (1)

Colin Smith (2679) | more than 2 years ago | (#38251642)

Rope is cheaper of course.

The bigger problem is these guys are zombies. They are insolvent the moment their "assets" are priced at market rates. It is going to take decades of support to keep them undead.

Remind you of Japan? The lost 2 decades? All because they refused to allow the people who fucked up to fail and those who didn't, to wipe out their debts and buy them out.
 

One thing is for certain... (-1)

Anonymous Coward | more than 2 years ago | (#38251426)

...nothing should be "Eye-Popping" anymore when it comes to the actions of the 1%. Nothing.

As a solid member of the 99%, the only comfort I find is that most of their stolen billions is in the very currency and financial system they are destroying, so go ahead 1%, keep it up. You may bend over after the rest of us, but your actions will likely fuck 100% of us in the ass in the end.

World's dumbest loanshark (5, Interesting)

John3 (85454) | more than 2 years ago | (#38251434)

Jon Stewart covered this topic quite well the other day [thedailyshow.com] . So essentially we (US Treasury) loaned the banks money at 0.01% and then they loaned us (US Treasury) the money back at a higher rate. WTF?

Re:World's dumbest loanshark (3, Funny)

Gr33nJ3ll0 (1367543) | more than 2 years ago | (#38251634)

How does Jon Stewart get away with this? You'd think that somebody would have silenced him by now.

Re:World's dumbest loanshark (2)

saleenS281 (859657) | more than 2 years ago | (#38251696)

Because the demographic he appeals to is currently a minority when it comes to voting. Silencing him would just give him more power. Better to let him yell from on high when nobody is listening.

Re:World's dumbest loanshark (4, Insightful)

tmosley (996283) | more than 2 years ago | (#38251808)

Today, as for a long, long time, the clown is allowed to point out the truth when others are not.

Re:World's dumbest loanshark (1)

smellotron (1039250) | more than 2 years ago | (#38251836)

How does Jon Stewart get away with this?

If "this" refers to "political satire", I believe that's covered in The Ancient Scrolls of Yore [wikipedia.org] . But if by "this" you are suggesting that the segment is factually inaccurate (either by error or omission), can you back it up with a reference?

Basic macroeconomics (4, Insightful)

jfengel (409917) | more than 2 years ago | (#38251682)

WTF is that the Fed wanted money pumped into the system, to compensate for all of the (virtual) money that was disappearing. They were afraid of a deflationary cycle, where too little money was chasing too many goods, causing prices to fall, fewer goods to be made, more workers fired, and even less money.

But the Fed doesn't have branch offices, so they can't make loans to companies or individuals. Instead, they hired the major banks to do it. The gave the money to the banks, who loaned it out a higher rate. The higher rate compensates them for the risks of the losses they were taking: they still owed the money back to the Fed whether the loan was repaid or not. It also pays them for all of the infrastructure they have to maintain to make and service those loans: employees, computers, etc.

None of that is figured into that estimate of "profit", which was based on the difference between the rates, without taking their costs into account. And it amounts to getting about 1% of the transaction cost.

The fact that this was done without supervision by Congress is noteworthy, and needs to be investigated. Monetary policy needs to be coordinated, while the goal is to create some space between the Fed and the government to reduce the influence of politics, the government is still supposed to supervise the Fed.

But as fiscal policy, this is reasonably orthodox. The banks were paid to do what the banks do: give loans so that the economy can expand. Getting somebody else to do the same job would have cost more. The numbers are proportional to what you'd expect of trying to manage a country with a $14 trillion GDP when it's in a crisis.

Re:Basic macroeconomics (5, Interesting)

John3 (85454) | more than 2 years ago | (#38251774)

--soapbox--

I'm speaking strictly from personal experience with my small business (hardware store employing 30 people) and what I hear from other small business owners both locally and in the hardware industry around the country, but the banks don't appear to be loaning anyone anything lately. Even with the Fed pumping money into the system they still aren't willing to loan it out to small businesses or individuals. Money is going to money, and that's doing nothing to help the businesses and individuals that are struggling.

--end-soapbox--

Re:Basic macroeconomics (1)

tmosley (996283) | more than 2 years ago | (#38251838)

They bought Treasuries. The Fed can buy treasuries too. It's called monetization, and it is a feature of failed governments. The only reason they did it this way was to hide that they were doing it. Now that it is public knowledge, America is likely to suffer the consequences. Ask Germany for details on how that works.

1.2 trillion? (1)

guruevi (827432) | more than 2 years ago | (#38251440)

The big picture is really 7.7 trillion dollars altogether over 2 years. We're just waiting on the bubble to pop on the debt the westerner nations have now created. The debt is really not backed by anything, it's just a number in the computer. But 50% of GDP is a big number to give away.

Hmmm... Was the Daily Show wrong? (1)

ArcadeNut (85398) | more than 2 years ago | (#38251448)

On the last Daily Show they said it was over 7T, and not 1.2T.

For some reason I trust the Daily Show for more accurate news then real news outlets...

Re:Hmmm... Was the Daily Show wrong? (0)

Anonymous Coward | more than 2 years ago | (#38251614)

1.2T is over 7T

Re:Hmmm... Was the Daily Show wrong? (2)

gQuigs (913879) | more than 2 years ago | (#38251666)

On the last Daily Show they said it was over 7T, and not 1.2T.

For some reason I trust the Daily Show for more accurate news then real news outlets...

It's 7.77 Trillion over the larger crisis time. 1.2 Trillion was on a single day.. Yes the Daily Show is better than many news outlets at this point.

Gee...The Daily Show? Wrong? Why I never! (1, Interesting)

RobinEggs (1453925) | more than 2 years ago | (#38251672)

For some reason I trust the Daily Show for more accurate news then real news outlets...

And the mystery of America's dysfunction deepens.

If you don't trust any of the 'real' news outlets then go do some research and figure out a bit of the truth yourself, or start finding trustworthy alternative papers and check their sources. Or don't bother with news at all.

The Daily Show is an entertainment product; just because it has a little news (and a big helping of insouciant liberal sarcasm) doesn't mean it's acceptable as a primary source of information. I'd rather watch the Daily Show than Nancy Grace or Glenn Beck, and I know the Daily Show will contain more true statements and fewer lies, but it's still not real news. It's something you watch after you figure out the real news, for some black comedy and hyperbole about how much the world sucks.

People who depend primarily on the Daily Show are better than people who depend primarily on Fox News, but not a lot.

Re:Gee...The Daily Show? Wrong? Why I never! (1)

uofitorn (804157) | more than 2 years ago | (#38251896)

People who depend primarily on the Daily Show are better than people who depend primarily on Fox News, but not a lot.

Sold!

OT: LOL!!! (0, Interesting)

Anonymous Coward | more than 2 years ago | (#38251464)

Can somebody with a little credibility submit this story...

http://www.nytimes.com/2011/12/03/us/officers-punished-for-supporting-eased-drug-laws.html ...an officer fired for answering a wildcard question.

January Issue (1)

sugarmotor (621907) | more than 2 years ago | (#38251480)

"... Bloomberg Markets magazine reports in its January issue" -- November just ended?

Re:January Issue (1)

LordKronos (470910) | more than 2 years ago | (#38251620)

lots of magazines (probably most) publish about a month before the issue date.

Ahh, the pleasures of being Noble... (1)

fuzzyfuzzyfungus (1223518) | more than 2 years ago | (#38251486)

Next time you get to spend far too many hours with your bestest buddies at Experian and Equifax, trying to get a $50 cable bill erroneously delivered to your old address for an account that you canceled when you moved wiped off your credit report, just remember that people more important than you had trillions in loans kept secret to avoid "stigmatizing" them.

What baffles me about this whole situation is that we haven't erected a guillotine in front of the bronze bull and gotten down to business...

Arbitrage buys profit at the expense of trust (5, Insightful)

Anonymous Coward | more than 2 years ago | (#38251488)

The real issue here isn't that the Fed made money available, but the disparity of interest rates between that at which the money was available to select parties and that which the open market would bear: that let the banks borrow massive quantities at virtually no interest, only to lend it back out at much higher interest rates. Pure arbitrage between the "emergency" funds' near-zero interest rate on a restricted market and the open market's willingness to pay interest. It's not even clear that the banks taking the loans were unhealthy--they may have just recognized the profitability of free temporary money that could be loaned out for more than it cost (arbitrage). The Fed basically just shoveled profit to the banks. This isn't to say that the Fed didn't get all its loaned money back -- that's irrelevant. They knew full well that they were creating an artificial market for a select group of players and in direct opposition to the preexisting open market, and that they were creating a textbook case of arbitrage that could only profit the participants with access to the fed funds.

If someone doesn't go to jail for this, it'll be very hard not to listen to the anti-regulatory, anti-government fringe loonies. This is exactly what they've been squawking about for years. This is the kind of move that destroys the people's trust in the government's ability to regulate the markets: there's no way to see this except as blatant corruption and cronyism. That loss of trust, in the long run, is the most important fallout of this story. If this country is going to recover economically, there's going to have to be a sea change in ethics on both sides of the markets, both the money-making side and the regulatory side (and, yes, we still need both), and its going to have to be a credible change, not just a veneer, to restore confidence in the form of capitalism we claim we practice (and obviously no longer do).

Re:Arbitrage buys profit at the expense of trust (1)

DarkOx (621550) | more than 2 years ago | (#38251858)

The first thing that needs to happen is more people need to get educated. Lots of people knew this was happening, but it was hard to get others to pay attention. Perhaps now that a fairly mainstream publication is running with the issue will get some legs. There litteraly exists a special class of people who because of this get free money. They are not the 1% That occupy is trying to gin up out rage against, most of those people earn theirs, this is more like the .01%. They are the worst sorts of criminals stealing from the mouths of every child in this nation and the adults who should know better alike and they quite litteraly outside the reach of law and oversight.

We can guess their names if we look carefully enough, they need to found and lynched

Occupy The Fed! (-1, Flamebait)

Anonymous Coward | more than 2 years ago | (#38251502)

Occupy The Fed!

Wipe out that bunch of rich, white, men who are ruining everything and profiting from everything...

($$$)

No, Illegal Mexican Immigrants are to blame! Shut the Southern Border...

No, Illegal Canadian Immigrants are to blame! Shut the Northern Border...

America, everything is fine. Go shopping. Buy a new 3D TV. There is absolutely nothing wrong, Fox TV just confirmed it....

Re:Occupy The Fed! (5, Insightful)

tmosley (996283) | more than 2 years ago | (#38251864)

Is the counterfeiter considered rich?

They are thieves. Don't stigmatize them for being rich, stigmatize them for being thieves. Many people become rich, some fabulously so, by legitimate means, and in so doing do a great service to the rest of humanity. Don't conflate them with these "people".

I'd borrow a trillion dollars at 0% interest too. (2)

jelle (14827) | more than 2 years ago | (#38251538)

Well duh.

If only I could become a bank to borrow at the FED counter...

Re:I'd borrow a trillion dollars at 0% interest to (1)

GameboyRMH (1153867) | more than 2 years ago | (#38251712)

You just have to find the "discount window." It's probably out back near the loading bays.

This is why I love Slashdot (0)

Anonymous Coward | more than 2 years ago | (#38251542)

The latest tech stories that I couldn't find anywhere else (like an economics blog.)

massive carry trade (1)

Pierre Bezukhov (1866830) | more than 2 years ago | (#38251552)

1) borrow risk free from fed at zero 2) invest in risk free treasuries at like 3 pct 3) PROFIT it doesn't take a genius to make money on wall street...

Can I exclude politics stories? (1)

pdxer (2520686) | more than 2 years ago | (#38251572)

Is there a way to exclude Politics stories from my Slashdot page?

Re:Can I exclude politics stories? (1)

Surt (22457) | more than 2 years ago | (#38251724)

Yes: Options/Exclusions/Politics.

It's an HBO movie (0)

Anonymous Coward | more than 2 years ago | (#38251594)

And it's called Too Big To Fail. I'd vote for the candidate that will not allow any bank/wall street firm to get so big its failure can sink the economy. Current issue of Time has a write-up about such a candidate.

Why only $13 Billion? (1)

gQuigs (913879) | more than 2 years ago | (#38251654)

They really must be incompetent to only make $13 Billion on 7.77 Trilllion of interest free money... How long is the term on these loans? Has it been paid back? I though the Federal Reserve only loaned money for a very short period of time (which would make the $13 billion more understandable). I disagree with Ron Paul on many issues, but he has been calling for the end of the undemocratic Federal Reserve for a long time.

Re:Why only $13 Billion? (1)

tmosley (996283) | more than 2 years ago | (#38251898)

The money went into Treasuries. The real crime is that it has been spent by the government, taking real goods off of the world market that the rest of us could have had for much cheaper otherwise (deflation is a natural mechanism that works to kick-start consumption after a crisis). The effect is basically that the government spent 50 cents for every dollars worth of productivity that year. The only reason this didn't cause a crash in the value of the dollar is because dollars are held worldwide due to reserve currency status. The consequence of this has been a minor fall in the dollar, but that fall has caused foreigners around the world to reconsider the wisdom of holding dollars or dollar denominated debt.

Look no further than the price of gold to see the real consequence.

stupid headline, loans cannot be eye-popping (1)

crowlogic (940856) | more than 2 years ago | (#38251688)

Unless you are someone who gives a flying fuck about money, in which case i feel sorry for you

A little late to the party eh SlashDot? (0)

Anonymous Coward | more than 2 years ago | (#38251704)

See above.

viewpoint of an investor (3, Insightful)

dnaumov (453672) | more than 2 years ago | (#38251740)

The Fed actually did no wrong, they did exactly what they were supposed to do, HOWEVER: the CEOs of the banks on the receiving end of the loans should absolutely be investigated for defrauding investors, because going out in public and telling the public that your balance sheet is solid and can weather the storm, while simultaneously they are in need of taking on multibillion loans from the Fed just to stay afloat is fraud, plain and simple. Too bad the SEC is in the same bed so nothing is likely to ever happen.

Re:viewpoint of an investor (1)

Qzukk (229616) | more than 2 years ago | (#38251862)

HAH! The banks made out like bandits, their CEOs did excellent by the only measure that actually matters these days.

Don't blame the Fed... (1)

Anonymous Coward | more than 2 years ago | (#38251810)

Of course the Fed gave the banks loans and didn't disclose it. The way banks works relies heavily on short term borrowing and long term lending. For a simple example, consider a bank that takes deposits and offers mortgages. Very likely, the depositors will want to access their money at least monthly, while no one who buys a mortgage will want a month long loan. So consider a Great Depression style bank run (before the FDIC). The bank may be solvent (have enough assets like loans to correspond to the deposits) but most of their assets are in mortgages, and they can't just go and demand instant payments. So when too many people take out their deposits, the bank collapses, even if it was ok.

So that's the similar problem that happened here. The banks relied on short term loans to keep running. Their assets were long term, so they were illiquid - hard to convert to money. When people started getting nervous about the various derivative products like CMOs, they didn't really want to lend to banks. If the banks can't get short term loans, they'll collapse, like the old school bank with a bank run. The banks were very healthy in the long run, but if they couldn't get short term funding, they would collapse.

Now as everyone got nervous, it became a big problem for the banks to get loans. So the Fed needed to step in. The problem was that if the Fed says hey, I'm loaning to this bank, people will think that the bank is in danger. Now rationally, the bank is fine, but people just saw a big collapse, and didn't want to take any chances. If the Fed keeps the banks going and doesn't cause a panic, people will eventually regain confidence, and the banking system will be able to run again. A panic is really the worst thing that can happen to a financial system. Before the FDIC (which insures bank deposits), bank runs were a big problem. If you heard a rumor that your bank was in danger, you'd have to run to withdraw. If people had confidence in their banks, they'd leave their deposits and the bank would likely be fine. If people didn't have confidence, they'd run, the bank would have to give out it's reserves, and once they were depleted, it would collapse, leaving tons of people without their savings.

So really, the Fed's actions and secrecy were necessary to prevent worse financial problems. Now sure, the leadership of the banks made bad calls, and have done extraordinarily well since, but that's not the Fed's issue. Congress - the people who won elections - are the ones to deal with these problems through regulations and such. If you want to point fingers, look at bankers and elected officials, not the Fed.

Monetary policy is actually quite accessible, though lots of misconceptions exist. It's usually helpful to read some legitimate source - not Ron Paul - before attacking central banks.

I don't blame this on a free market at all (5, Insightful)

shentino (1139071) | more than 2 years ago | (#38251824)

In fact this is exactly the OPPOSITE of the free market.

The emergency loans were uncapitalistic government interference that denied market forces the chance to punish these boys with failure like they deserved.

Especially since those same banks wouldn't have hesitated to foreclose on their own debtors.

OK (1)

koan (80826) | more than 2 years ago | (#38251916)

So we all see it, we all complain about it, but what exactly are we going to do about it?

They wrote the 2nd amendment into the constitution because they knew this sort of thing would happen, what they didn't count on was everyone being so weak, bloated and stupid to actually use it.

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