We’ve just learned about the Federal Reserve’s extraordinary secret bailout of the country’s big banks. We now know that the TARP bailout program was only the tip of the iceberg, and that financial institutions received a total of $1.2 trillion in loans and other funds while the rest of the country was left to struggle for economic survival.
We also know that, despite all that “we got our money back” rhetoric, these loans represent a cash giveaway to the banks that totals up to tens of billions of dollars – while homeowners and student loan borrowers continue to struggle.
Here’s what we now know about this secret bailout, thanks to a Bloomberg report, along with what we already knew – and what we still don’t know:
We now know that the 10 biggest banks in America received $669 billion in emergency loans from the Fed.
We already knew that the same 10 banks now own 77% of the country’s banking assets, more than before the crisis, making them even more “too big to fail” than ever.
We now know that the low interest rates they received were, in fact, a massive transfusion of cash – courtesy of the American taxpayer -just like TARP. Whenever Tim Geithner or Ben Bernanke says “We’ve got all our money back,” they’re distracting you from the real point. These banks received short-term loans at 1.1%, instead of the prevailing 3.8%.
That means each bank received a gift of $27 million each – tax-free, no less – for every billion they received under that particular program.
We already knew that the banks have not been asked to write down any of the principal on underwater homes, even though their industry spent decades persuading homeowners that real estate was a foolproof investment – and even though they often hired adjusters who inflated the estimated value of those homes.
We now know that the American taxpayer was asked to rescue failing businesses without being given any of the concessions any other lender or investor would have been demanded — like replacing the failed executives who ruined the enterprise, ending the practices that brought down the corporation (and the economy), or ensuring that the lender (who is also a customer) be treated fairly in all future business dealings.
We already knew that they’ve refused to refinance most homeowners, even though underwater homes are arguably more reliable than some of the collateral the Fed accepted when it rescued Wall Street. At the peak of the crisis it agreed to accept junk bonds and essentially worthless stocks in return for a trillion in loans – and tens of billions in giveaways.
We now know that the total amount of this secret bailout is $1.2 trillion – which, as Bloomberg’s investigative journalists observe, is roughly the same amount that’s owed on delinquent and foreclosed mortgages.
We already knew that the nation’s homeowners owe banks between $750 billion and $1 trillion in loans for nonexistent home value, since that’s the estimated difference between what people owe on their mortgages and what their homes are currently worth. Banks have never been asked to write down the principal for loans, even though they fueled the housing bubble and frequently knew (or should have known) that estimated home values were exaggerated.
We now know that Jamie Dimon’s JPMorgan Chase received $48 billion in direct emergency loans, and that it also benefited from the $107.3 billion in loans given to Morgan Stanley. It did this while it was bragging about its “fortress balance sheet” and its financial invincibility – no less than 16 times, according to Bloomberg. We also know that it kept taking these loans a year later, which means it was lying when it said it took these loans merely to convince other banks to do the same, out of patriotic duty.
We already knew that Dimon and JPM made the same claim about the TARP funds they received, so that was a bogus claim too. And we also knew that Dimon has thrown public tantrums about the criticism directed toward his profession (“Bankers! Bankers! Bankers!“) even though he knew about these loans.
We now know that the amount lent to these banks exceeded their total earnings for the entire decade!
We already knew that the Dodd/Frank bill did not reinstitute the Glass-Steagall Act and did not include a “too big to fail” provision.
We know now that, in the words of the Bloomberg report, “Even as the firms asserted in news releases or earnings that they had ample cash they drew Fed funding in secret, avoiding the stigma of weakness.”
We already knew that there have been no indictments of senior Wall Street executives, despite abundant evidence of criminality, and that many cases of stock fraud have been settled with no convictions and relatively small cash settlements. Those settlements are paid by the very same investors who were defrauded, not by the executives who defrauded them.
We now know that America’s banks, which were too mismanaged to receive credit from any reputable institution, received massive loans – even though the only collateral they provided was pretty much worthless at that point.
We already knew that these shaky enterprises depend on the kindness of strangers – in Washington and certain Attorney General’s offices around the country – to protect them from the consequences of their own illegal behavior. That strategy’s worked pretty well for them so far, to the detriment of the nation and the global economy.
As for what we don’t know yet — well, as Donald Rumsfeld said, there are the “known unknowns” and the “unknown unknowns.” (Or whatever the hell he said — you get the point.) Here are three “known unknowns”:
Did JPMorgan Chase lie to investors when it bragged about its rock-solid balance sheet, or did it take emergency loans it didn’t need in order to bilk the taxpayer?
It’s a crime to lie to investors about your own balance sheets, so how many bankers committed stock fraud by taking these loans, failing to disclose them, and making false statements about their own bank’s financial stability?
Why did the Federal Reserve and the government demand secrecy for these loans and fight so hard to prevent them from being exposed? If they wanted to maintain confidence in the banks and prevent a panic, have they decided where to draw the line between protecting the economy and deceiving the public? (f they have, they’ve drawn it in the wrong place.)
How much outrage is required before people demand rigorous bank reform, strong regulation, and criminal investigations?
I gotta tell ya – it’s that last question that keeps me up at night.
We discussed this issue the other day on Thom Hartmann’s “The Big Picture.” The video is here.