Bernanke Escalates Foodfight with Bloomberg: Score Bloomberg 1, Fed 0

It’s telling that the Fed was dumb enough to try upping the ante in its ongoing fight with Bloomberg News over the central bank’s refusal to disclose many critical details about its emergency lending programs during the crisis. Any poker player will tell you you don’t raise with a weak hand when the other side is pretty certain to call your bluff.

For those who have been too preoccupied with Europe to keep track of this wee contretemps, Bloomberg last week released a news story that received a great deal of follow through in the media and the blogosphere on the latest information it extracted from the Fed under duress.

Bernanke sent a letter that is pissy by the standards of Fed discourse to Tim Johnson, Richard Shelby, Spencer Bachus, and Barney Frank (the big dogs of banking in Congress). Given that Obama had to whip personally to get Bernanke reappointed, and that antipathy towards the central bank is a rare bipartisan cause, writing an aggrieved letter to powerful Congresscritters is not an obvious way to win friends and influence people.

And particularly a letter like this one. Get a load of how it begins:

First, it tries the sneaky device of complaining about all the bad press it is getting, and alludes in passing to the latest Bloomberg report (“one last week”). So are we dealing with the general or the specific? The attachment to the letter, which makes a series of specific claims of where the coverage allegedly was off beam, was rebutted with great speed and vigor by Bloomberg. So trying to have it both ways (attacking Bloomberg but trying to depict it as part of general critic wrongheadedness) backfired.

But what is even more striking is the tone and substance of the letter: overreaching words like “egregious,” the patently false claims that there is nothing new in the latest (and by implication, earlier) Bloomberg stories, that the disclosure issues are settled. If there was no new information given to Bloomberg, then why did the Fed fight so hard to prevent the release of information? The Fed has never been cooperative. Even with the Congressional Oversight Panel, the so called Sanders report coming out of Audit the Fed (and remember, the Fed succeeded in lobbying to narrow the scope of Audit the Fed), a new GAO report, the latest Bloomberg FOIA still pried loose more information. The Fed is clearly not interested in transparency, but keeps trying to claims that everything that anyone would want to know is public, and there really is nothing here to discuss any more.

Bloomberg, as indicated, offers a virtual paragraph by paragraph rebuttal of the attachment to the Bernanke letter prepared by Fed staffers. The funniest part is the way in the both the overview and the attachment, the Fed tries to maintain that it kept Congress fully appraised. The staff and Bernanke apparently don’t have great reading comprehension. The Bloomberg report points out that in its article of last week, it quoted one of the recipients of the Bernanke letter, Barney Frank, who said that Congress was kept in the dark on key details, and other Congressmen confirmed his view:

Response: Bloomberg’s story said Congress wasn’t fully apprised of the details of the Fed’s efforts. “We were aware emergency efforts were going on,” U.S. Representative Barney Frank, who served as chairman of the House Financial Services Committee, said in the Nov. 28 story. “We didn’t know the specifics.” Other members of Congress on both sides of the aisle also said they weren’t aware of the details.

The Bernanke letter also complains of possible double counting of borrowings due to rollovers while deliberately failing to say where they allege it took place or doing anything to help clear any actual confusion up. It was the Fed that caused any confusion by refusing to say which loans were rolled over and for how long.

The Fed also keeps thumping the Obama party line that it made money on these programs. That’s not yet certain (they have not yet all been unwound) and not the right metric. The Fed is playing three card monte, trying to distract the public from two critical facts. First, these programs are only a subset of the total subsidies extended to the banks. Andrew Haldane has taken a stab at what they save in borrowing costs via being too big to fail and having a state guarantee. Ed Kane has estimated they ought to pay $300 billion a year more in insurance premiums. The entire banking system is also getting massive subsidies via super low interest rates, which is a transfer from savers to banks.

The Fed has also taken the unusual step of hoovering up securities in an effort to lower spreads on certain types of longer term assets. It would show real losses from a taxpayer perspective if this were accounted for properly; the vagaries of Fed/Treasury reporting allow for this sorry fact to be masked. Per former Fed economist and research director Bob Eisenbeis via The Big Picture:

The essential argument is that the Fed has earned interest income on its large holdings of securities, and after deducting expenses and required contributions to surplus and capital, the remainder is remitted to the Treasury as “profit” and is scored by the Treasury as revenue. The sums are huge; and last year, for example, the Fed transferred $ 79.258 billion to the Treasury.

From the Fed’s perspective, this transfer of funds may look like a remittance of “profits,” but despite that claim, these are not profits from the taxpayer’s perspective. In fact the Fed cannot make a profit for the taxpayer, related to its asset acquisition activities, whether as part of the bailout or in its normal course of business. To understand why, it is necessary to engage in what some readers will regard as a mind-numbing discussion of Treasury and Federal Reserve transactions and accounting. Intrepid readers can find the detailed analysis posted on Cumberland’s website at

For those who choose to read no further, the bottom line is that, from the taxpayer’s perspective, the government (Treasury) is paying interest to itself (the Fed). The Fed takes out its operating expenses that are now growing because of the interest the Fed is paying on excess reserves. The remainder is returned to the Treasury. In the process, under current government accounting conventions, an expense is magically converted into revenue. This is financial alchemy, but from the taxpayer’s perspective it unambiguously represents a net loss. The amount returned to the Treasury by the Fed will be less than what the Fed receives as an interest payment.

Moreover, the central bank has indicated that it does not intend to sell those securities until it needs to mop up liquidity. As the old traders’ saw has it, it is easy to manipulate markets, but really hard to make money doing it. Per its own plan, the Fed will sell its holding into the market when interest rates are higher…guaranteeing losses (high interest rates = lower prices on bonds). So the Fed is most certainly going to show losses (or find new clever ways down the road to disguise them).

Consider the dead bodies in this room: the costs of the REAL programs are not yet known, so any made money/lost money declaration is premature. In addition, the aggregate support, which comes out of more buckets than just the emergency lending programs, and the total support was necessary for the banks to be able to pay back the facilities they did pay down. How much of this operation is really tantamount to someone refi-ing their house (an analogy the Fed uses), except the nature of the inflows and outflows is masked by all the other action on bank balance sheets?

And there are other assertions that the Fed makes that are questionable, for instance, that the facilities were adequately collateralized. Felix Salmon, among others, have questioned whether that was true in the case of Morgan Stanley. In addition, adequacy of collateral is a function of price as well as quality. If the Fed was accepting collateral at what amounted to stale marks (not at all unlikey, given its objective of propping up banks) then loans would NOT have been sufficiently collateralized.

Moreover, the Fed tries to make much of its lending to the real economy, via programs such as the TALF. Erm, the TALF was so loosely run that it was used by all sort of healthy players who didn’t need help, such as, infamously, two Wall Street housewives. And the loans under that program were non-recourse.

But the biggest lie in this fabric of Big Lies is that the banks were just suffering a wee liquidity crisis in the crisis, not a solvency crisis. If that was true, why did we need a TARP plus making failed credit default swap hedges good via the AIG rescue? In addition, Steve Waldman has described, long form, that bank equity is such an abstraction, in that there is a very high degree of uncertainty in the value of both assets and liabilities, that you need much bigger buffers of equity than anyone now has to properly deem a bank to be solvent. And Bloomberg tartly points out:

From Fed memo: “The articles misleadingly depict financial institutions receiving liquidity assistance as insolvent and in ‘deep trouble.’”

Response: Bloomberg never described any of the financial institutions mentioned in its bailout stories as insolvent.

The New York Fed’s report on Jan. 14, 2009, called Citigroup Inc.’s financial strength “marginal” and dependent on $45 billion in TARP funding. Citigroup’s Fed borrowing peaked six days later at $99 billion. Other numbers tell a similar story. Morgan Stanley’s borrowing totaled $107 billion on a single day. Royal Bank of Scotland got $84.5 billion from the Fed at about the same time it was taken over by the U.K. government.

The largest banks later had to raise billions of dollars of capital to assuage investor concerns that they might not be solvent, and they took capital injections from the Treasury Department. Former Treasury Secretary Henry Paulson wrote in his book, “On the Brink,” that “our banking system was massively undercapitalized.”

Under the terms of the Fed’s lending programs, the determination of whether a bank is “solvent” is based on the opinions of bank supervisors. These examinations are confidential.

The last comment, perhaps a deliberate tongue in cheek, points out why the Fed’s argument re solvency is disingenuous. There was a clear political decision made, both during the head of the crisis and in early 2009, when Citi and Bank of America were clearly on the ropes, not to put either one into resolution. That appeared to be based on fear of the complexity of the task, and the possibility, like the resolution of then number 4 bank Continental Illinois, in 1984, that the US might wind up owning a big chunk of the business for a very long time. And there is no evidence that during the crisis or the phony stress tests of 2010 that any nitty gritty examination of solvency was made, particularly samplings of the whether valuations of risky assets and liabilities were realistic.

But the regulators determine whether a bank was insolvent. And since no regulator was willing to say a bank was insolvent (although Sheila Bair was clearly close to doing so with Citi), ipso facto, they were all solvent. Nice to have such accommodating people handing out grades.

There is more fun reading in the Bloomberg piece. As reader Hugh summed up,

All in all this is a reprise of the Fed’s standard defense. On the one hand, it alleges that it was fully forthcoming and, on the other, it blames its critics for their faulty conclusions although these are based on the (incomplete) data the Fed provided. The shorter form of the Fed argument is and remains: Fuck you.

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  1. Brito

    “$7.77 trillion in secret Federal Reserve loans to banks?

    I have been looking into the claim recently made by any number of internet sites (for example, here’s one of the many hundreds, if you insist on a link) that the Federal Reserve made $7.77 trillion in secret loans to banks. The claim is outrageously inaccurate, as I explain below.

    Let me begin with some accounting basics. Suppose that at the start of January I make a 3-month loan of $100 to person A and a 1-month loan of $100 to person B. At the start of February, person B rolls it over into a new 1-month loan, and does so again at the beginning of March. On the first day of April, person A and person B both repay me the original $100. So, students, here’s your question: how much did I lend to person A, and how much did I lend to person B?

    The correct answer, of course, is that I lent $100 to person A and I lent $100 to person B. But, if you were trying to sensationalize and misrepresent what actually happened, perhaps you’d say that I lent $300 to person B, by adding the three $100 1-month loans together.

    This is a very elementary point in economics or accounting. A loan is what we refer to as a “stock” variable. It’s measured in units of dollars at a particular point in time. It is a completely meaningless exercise to take outstanding loan amounts at different dates and add them up as if it’s one big total.

    On the other hand, if your goal is to come up with a number that sounds really big, you’ll be excited to learn that I also lent $100 to person C in the form of a series of daily loans. These were rolled over for the same 3 months, so someone with a sufficiently bizarre theory of accounting (or a sufficiently strong political agenda) might claim that I lent $9,000 to person C.

    So where in particular did people come up with this $7.77 trillion figure? The source appears to be a recent story from Bloomberg news, which includes the following statement:

    Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system.

    I contacted the reporters who prepared the Bloomberg story to try to learn some more details. They communicated to me that those who claim that the Fed provided $7.77 trillion in secret loans to banks have misinterpreted their article. Specifically, they clarified that the $7.77 trillion number was not intended to represent loans the Fed actually made, but instead refers to loans it potentially might have made, that the number refers not to loans to banks but to the broader financial sector, and that Bloomberg’s use of the term “secret” in describing these loans refers not to the total amount but instead to the specific identities of the recipients.

    The source for the $7.77 trillion figure turns out to be this Bloomberg article from March 31, 2009. At the end of that second article is a table that breaks down what it calls the “limit” on various categories of Federal Reserve lending.

    According to that table, the biggest single component in the $7.77 trillion total is a $1.8 trillion item labeled “net portfolio CP funding”. This apparently refers to the Commercial Paper Funding Facility. The $1.8 trillion was evidently calculated by Bloomberg by taking the formula for the maximum amount of commercial paper that the Federal Reserve said it would be willing to buy from any one institution and assuming that the Fed in fact purchased this maximum amount from every single eligible institution. As actually implemented, the maximum outstanding balance ever reached by the CPFF was $350 B on January 21, 2009. That was all repaid, and the CPFF outstanding balance has been zero since February 2010.

    The second biggest component in the $7.77 trillion is $1 trillion in mortgage-backed securities. Here the Fed actually did end up buying even more than this. But these purchases were made when the CPFF and other items included in the $7.77 trillion were being wound down. Adding together the $1 trillion in MBS held in February 2010 to the $350 B in CPFF loans in January 2009 (or, even sillier, to this $1.8 trillion CPFF figure) is the kind of nonsensical calculation with which I began my discussion. Furthermore, these are agency MBS, not those issued by private banks. It was the U.S. Treasury, not the Federal Reserve, that had already taken over the guarantees of these MBS before the Fed bought them. There is no sense in which the Fed’s purchase of these MBS could be construed as a loan to banks.

    The third biggest item in the $7.77 trillion figure is the Term Auction Facility, whose “limit” entry in the Bloomberg table is $900 billion. Apparently the source for this number was the statement issued by the Federal Reserve on October 6, 2008 that “$900 billion of TAF credit will potentially be outstanding over year end.”

    There were never any secret commitments associated with the TAF. The way the program worked was the Fed would decide how much additional reserves it wanted to add to the system, invite bids in the form of interest rates banks were willing to pay to borrow this fixed quantity of funds, and lend the prespecified quantity to the highest bidders. That’s why it was called an “auction” facility. The Fed never lent anywhere near $900 B through this program. The maximum amount ever reached was $493 billion, the outstanding balance as of March 11, 2009. The loans were all repaid, and the outstanding balance has been zero since April 2010.

    Moreover, there was never anything secret about any of these numbers. They were all published continuously each and every week in the Fed’s H.4.1 statement, and readers of Econbrowser saw their pros and cons actively evaluated as the programs were initially proposed and subsequently implemented. If you are interested in ex-post evaluations of whether programs such as the CPFF and TAF were beneficial, you can consult for example Christensen, Lopez, and Rudebusch (2009), McAndrews, Sarkar, and Wang (2008), Taylor and Williams (2009), Adrian, Kimbrough, and Marchioni (2011) and Duygan-Bump, Parkinson, Rosengren, Suarez, and Willen (2010).

    You’re free to take your own position on whether these programs had beneficial effects. But please know that anyone who tells you that the Federal Reserve secretly loaned $7.77 trillion to banks is spreading a lie.”

    James Hamilton would be a better spokesperson for the fed.

    1. Yves Smith Post author


      You were a complete troll on an earlier post and I see you doing it again. The last time you were warned. Now you put up a LONG comment that is not on target with the post, which is about the Bloomberg v. Fed exchange. Buried in the middle is a comment from Hamilton that says the Bloomberg reporters said whoever came up with the $7+ billion figure misinterpreted the report.

      I’m sorry, but you’ve tried hijacking this thread, as you did the last one, and I won’t tolerate it.

      1. Bill C

        good for you Yves, it seems there are many more people here making comments more like those in the ZH comments section (snarky, “gold bitchez”, non-substance type, etc) than there used to be. I’m glad you’re taking action.

        BTW, I read ZH every day, and like it very much, but the comments mostly add zero to their articles (unlike the comments here, where I typically learn as much as in the original post).

    2. K Ackermann

      So when these institutions stated they were healthy and liquid, was it because they could float $1.8T in CP?

      Any statement as to their health, under those conditions, is meaningless. It means they were insolvent, else the $1.8T wouldn’t be nessesary.

      The Fed lied again.

    3. Carlito Quesare

      Well, you could have just posted this link:

      That 7.7T number was repeated incorrectly in the blogosphere ad nauseam over the last week since the original BB article was published.

      Heck, I was so inclined to believe it I took it hook line and sinker for a day until I started to look for a refutation of that very very big number.

      The Bernank must feel a political lynching in the works and is hoping to haranguing the Congress in to defending him and the Fed institution.

    4. Woodrow Wilson

      Thanks to the late Mark Pittman, and his small group of Bloomberg colleagues, they have helped expose the truth, and continue to do so, thankfully.

      For people like yourself, in a different era, we would hunt you down and leave you where you lay. Fucking scumbag.

      1. nun yerbizness

        spot on.

        Pittman’s reporting as early as 2006 and if followed through the bitter end foretold today’s events.

        Mark Pittman’s reporting and Bloomberg’s integrity in publishing is the only silver lining to the debacle IMHO.

        Not only did Bloomberg have the stones to publish but unlike many their archives continue to serve as a monument to Mark Pittman as his reporting remains their today for all to read.

        We were warned.

        an equally important piece of reporting and still an under appreciated component of the biggest bank heist in history is this…

        “Posted on Mon, Oct. 19, 2009

        “How Moody’s sold its ratings – and sold out investors

        “Kevin G. Hall | McClatchy Newspapers

        “last updated: April 12, 2010 04:38:21 PM”

        none of this could have happened without the rating agencies, they were “in on” the planning, execution and get away.

    5. Yearning To Learn

      Your point may be valid, but “so what?”

      Please go through the opaque accounting of ALL Fed support to banks and then bring us back that number. What is it? $1 T? $3 T? $5T?

      Because you see, your point is largely irrelevant. whether $1T or $7T the point is that the banks got a TON of below market loans and support, without which the banks would be in ashes. They could no more have raised 1T than 100T. Yes, Virginia, they were that bad. And the fed is and was opaque about it. Thus, Bloombergs article still holds.

      If the fed doesn’t like the bloody number, let it furnish its own. Ah, lack of transparency is a bxxxx isn’t it?

      Besides, we all know the number is meaningless anyway. The biggest support is making sure everybody knows that the USG will support all TBTF banks. The “no more Lehman” support which is worth quadrillions.

      1. nun yerbizness

        and if the banks “were in ashes” where would the rest of us be?

        any ideas?

        can you say “Weimar Republic”

        the banks heist was over, the get away complete and they were holding the world hostage.

        what would you have done?

        1. FaustCarton

          Couldn’t the banks have been temporarily nationalised, the depositors and most of the creditors kept whole and then new owners eventually installed, as Prof. Hussman has been saying since it all went down? Isn’t that the point? The banks, and their illegally rewarded execs, would not have absorbed the fighting funds that would have been made available to avoid many home foreclosures(mortgages being the epicenter of the great heist) via some form of what Hussman calls property appreciation rights. The US and the world economy would be looking a lot brighter by now,despite the decades of excessive credit still to unwind, instead of approaching the catasrophe we seem to be inevitably facing as a result of this outrageous ‘insiders club’.

    6. mac

      In fact if you loan money “daily” then each loan is a different loan and if you loan $100 to a person on a “daily” loan 365 times then the amount loaned is 100 time 365!!

      1. Kunst

        No, it isn’t. It’s a one-year $100 loan, not a $36,500 one-day loan. Granted that one year is riskier than one day, it still doesn’t make your balloon math work.

        1. mac

          Yeah it does! a loan for a day is a single loan, if you do it again the next day then that is 2 ..etc etc!!

    7. ChrisPacific

      If you are going to respond to a long NC post with an equally long form reply of your own, I suggest waiting for longer than 21 minutes after it’s posted. (That is, if you want to preserve at least the appearance that you’re responding to the points presented in the post).

  2. Richard


    Great post. One issue you did not directly address is the fact that the banks failed to adequately disclose the Fed’s secret loans apparently with the Fed’s blessing – hard to take the position that the Fed should not share the data and then have the bank’s they regulate publish the data.

    The bottom line is that the Fed directly undermined confidence n the banking system.

    This is of course compounded by their foolish attempts to claim the banks are solvent as a result of the stress tests.

    Until opacity is eliminated from the financial system, and this includes at the Fed on all interactions with the banks, we are not going to fix the financial system.

  3. Max424

    Hey Europe, here comes a 500 billion dollar button blast! Are you ready!

    (Don’t worry, if that doesn’t ease your pain, we’ll button blast you 500 billion dollars more!)

    I like Barney Frank’s irritated tone when he introduces Grayson, and how he can’t wait to cut the motherfucker off. It’s like, “That son-of-a-bitch Grayson is the only one who will not climb aboard our Treason Bandwagon. Thank God he’s in a Republican district, we’ll only have to deal with this dangerously patriotic insight for two more years.”

    “Lest something unfortunate should befall him, then it would be less. Hmmm…”

    “Hey boys! I’ve come up with a great bi-partisan idea!”

    1. Dan G

      Blarney lets not be Frank- shrill for FIRE- From:

      Top Contributors
      Representative Barney Frank

      Contributor Total Indivs PACs
      FMR Corp $108,550 $76,550 $32,000
      American Bankers Assn $86,950 $3,800 $83,150
      National Assn of Realtors $84,742 $5,700 $79,042
      JPMorgan Chase & Co $83,500 $8,000 $75,500
      Human Rights Campaign $78,251 $2,250 $76,001
      Bank of America $69,500 $22,500 $47,000
      American Fedn of St/Cnty/Munic Employees $66,500 $1,000 $65,500
      American Assn for Justice $63,500 $0 $63,500
      Laborers Union $59,750 $0 $59,750
      State Street Corp $58,200 $52,500 $5,700
      National Assn of Home Builders $53,000 $0 $53,000
      Credit Union National Assn $52,000 $0 $52,000
      American Institute of CPAs $51,359 $0 $51,359
      Securities Industry & Financial Mkt Assn $50,996 $0 $50,996
      New York Life Insurance $50,250 $14,750 $35,500
      UBS AG $48,100 $23,100 $25,000
      Brown Brothers Harriman & Co $47,000 $47,000 $0
      United Food & Commercial Workers Union $46,948 $0 $46,948
      Liberty Mutual Insurance $46,000 $11,500 $34,500
      Intl Brotherhood of Electrical Workers $44,850 $0 $44,850

      1. EH

        Well sure, but you just let those figures stand on their own without even touching on the implications of his resignation during this cycle? As it stands, your point is what, homophobia or something?

        1. Dan G

          Connect the dots by reading the post that I replied to and the general blog post. Let me be Frank aboutt it then. I love when banks get bailed out by Bernamke because I am a paid off politician fo rthose banks. I made sure that the Dodd Frank bill allowed the banks to continue to bankrupt this country by selling leveraged derivatives that do nothing except enrich bankers and their paid off shrills. is it a little more clear now? I am shrillaphobic

        2. Max424

          Representative Frank sold out.

          News flash: gay people sell out. Do they sell out more easily and repeatedly than heterosexuals? I doubt it. If somebody did a sell-out study, I’d bet they’d find that rat-bastardry extends roughly equally across all sexual frequencies.

          Personally, I think Barney started out with his heart in the right place, but he spent too many years in the grey zone, and in order to compete in that zone, he had to allow himself to be turned.

          Sought power to do good, and power corrupted. Age old story.

          1. Max424

            I like to add this, though; if Obama had shown courage, if he had taken forceful leadership in the beginning, then cowering Representatives (and maybe even some cowering Senators), would have taken heart, and followed him. Done the right thing.

            But Obama didn’t do this. He did the exact opposite. So essentially, he took all those who were still capable of doing good, in either legislative body, and left them twisting in the wind.

            No excuse though. Just because your leader sells out and becomes a whore, doesn’t mean you can sell out too, and not be whore.

            Keeping your integrity while you abjectly play, “follow the leader,” only works if you follow a leader with integrity.

  4. Finance Addict

    Spot on, Yves. The Fed had to be dragged kicking and screaming through the court system before making these disclosures. You’d never know it from the tenor of that first paragraph.

    To me the biggest point of Bloomberg’s story was that the names of the institutions needing this extraordinary aid were withheld, from the TARP architects as well as the Congresspeople writing Dodd-Frank. Which explains in part why we could never have a serious conversation about breaking up Too Big To Fail Banks.

  5. fresno dan

    I would say the issue is: Did the FED bailout banks?
    I think Waldman nails it:
    It seems to me the FED and FED defenders are in an untenable position. The market solution is not allowed – FAILURE and bankruptcy….because these institutions are TOO BIG TO FAIL, so we have the ridiculous specticle of Goldman Sachs awarding its biggest bonuses ever after the financial collapse.
    The firing of CEO’s and CFO’s, (i wn’t even mention the outrageous lack of investigation into FRAUD) as well as the board of every bank that “needed” a bailout could have been a condition of the bailout…
    But OH NOES !!!!! – we can’t interfere in the market!!!! And where in the world did the idea that everybody had to get a bailout cause it would “stigmatize” the banks who really needed a bailout?
    If this a school lunch program????

    The FED wants to be treated as a hero for rushing into a burning house, while ignoring the fact that the FED was downstairs, drinking excessively in a room full of candles, gasoline, and the FED was setting off fireworks.

    And read this from Geithner:

  6. L Goodmang


    I am curious to your take on Confidence Men by Suskind. I just finished it and although I feel it is 200 pages too long with unneeded offshoots. I still feel it was on point with Geithner pushing the bogus stress tests and funneling the debate. Not sure if I missed your post on it, but if you havent done one yet, would you review it? Curious to what your take was….

  7. wunsacon

    I was stunned by in-all-other-ways-wonderful Bill McBride / CR defending the Fed’s lending as an example of following Bagehot’s instruction. It *might* be argued the Fed “lent freely” but it cannot be said that the “lending” was “at a penalty” or “only against good collateral”. And, really, when you fail to abide by the latter two requirements and when the “lent” money is instead parked back with the “lender” in order to pay interest, can you even call it “lending”? It was gifting.

  8. indio007

    I guess it’s are imagination that the FED kept this secret. We all hallucinated the FED fighting Bloomberg in court to try and avoid disclosure. Then the released the information in the form of dissembled gibberish. I know because I have the FED release that is in the form of a gazillion pdf’s whose file name is untitled. Just some random numerical designation.

    Converting a spreadsheet from it’s original format to a pdf is not an accident. It is meant to make it as hard as possible to crunch the numbers.

  9. ftm

    You need a central bank as lender of last resort when the system is at risk. But the penalty rate needs to be high ( it wasn’t) and systemically important institutions should take only limited and highly regulated risks ( not like our TBTF’s). The Fed is playing games. They know they f*cked up big time with their hands off approach to the mortgage market and that they had to go way beyond their mandate to save the system. Now they are just blowing smoke to cover their tracks.

    1. jake chase

      Bingo! Walter Whatshisname (19th Century, Lombard Street) would be proud of you. The central bank should lend at penalty rates on sound collateral. Bernanke lends at zero on worthless drek. Note to Ben: I have several hundred thousand shares of 1980s penny stocks which have not traded since ’89. How much can I get on the dollar?

  10. beowulf

    That TARP bill will end up being the Fed’s death warrant as an independent agency. The Fed refused to jump off the bridge unless Congress jumped with them. As a result, a slew of congressmen and senators lost their jobs over it last year. The surviving Members are pissed and the new Members are crazy.

    Bernanke should have gone to President Bush and asked him to declare a national emergency and order the Fed to take action per the International Emergency Economic Powers Act (“The President may regulate… transfers of credit or payments between, by, through, or to any banking institution”).

    Putting the Fed under temporary presidential control would have taken the Fed, Tsy and Congress off the hook and Bush was retiring to Houston in a few months anyway. Ironically, avoiding this temporary loss of independence has doomed it to a permanent loss of control (Which is for the best, I don’t remember Ben Bernanke campaigning in Iowa).

    Its a very simple legislative fix, strike the FRA’s “conflict with the powers” condition precedent for the Fed to be “subject to the supervision and control of the Secretary of the Treasury”.—-000-.html

    1. Susan the other

      The International Emergency Economic Powers Act. When was this passed? and could it be invoked in secret, in some congressional star chamber?

    2. securecare

      Think in terms of “National Economic Security” and maybe that will make some things clearer.

  11. Aquifer

    As I certainly cannot meaningfully comment on the actual financial shenanigans involved here – i will just suggest there may be more deception going on here than mentioned with regard to what Congress knew and when they knew it.

    We seem to be willing to say “Golly gee, they kept Congress in the dark, too!” Well maybe, just maybe mind you, maybe these Congress critters knew a lot more than they are admitting and allowing them the luxury of plausible deniability serves us ill. Now that the Fed is in the hot seat for all this, and Congress is saying “Shucks, if we had only known about all this we might well have chosen differently ..” perhaps the Fed may decide it is not going to be the only fall guy. Is that really why Frank is quitting? From what i read this was a complete shock to his constituency who are now scrambling (looking for another Kennedy), so it was not “long planned” and his excuse is pretty pathetic …. Maybe Frank, and perhaps others, are/were about to get “outed” in a much less politically correct way …

    I don’t have a nose for finance, but have at least one nostril for political tomfoolery, and it is smelling something fishy …..

  12. psychohistorian

    Thanks for the posting Yves.

    The Fed is owned by the global inherited rich that I want to see out of control of all “Western Democracies” and into rooms at the Hague.

    As a society it is way past time to deal with inheritance and ongoing private ownership of property creating the propertarian scumbags that brought us to this juncture.

  13. Because

    You mean Bernanke 0 Bloomburg 0. Nothing was loaned out. It was all based on a promise. People still don’t get this. Until they do, either stop posting or try something else.

      1. securecare

        As most know a balance sheet is only a snap shot in time and these are extremely fluid times what with computers, networks and all.

        When was the snap taken and how much time has passed until the viewing ? How often might a balance sheet be “updated” compared with “real time” ?

        See the post down the page by thief 12/7/2011 9:15 Post Meridian.

  14. lloyd blankstein

    I resend this Fed-bashing article. Given that libertarian Ron Paul is the most vocal opponent of Fed in Congress and wants Fed to shut down, I would say that Fed is good.

  15. Susan the other

    So many people colluded, treason doth prosper. I’m always sympathetic with Bernanke because I think he was handed the worst mess in human history. I think he is not doing his own bidding but following dictates from a variety of colluding sources both domestic and foreign. Just like in the 50s, before Vietnam, we were totally busted in the 90s and we couldn’t hide it. Our economy was gone. Why else did Little George stage a coup in two elections and take us into an oil war based on fraudulent excuses? And flood the world with dollars. Encourage us all to use our houses as ATMs, And let the banks gamble on credit default swaps to protect themselves. And etc. That we let our economy get so out of control for 50 years is as staggering as it is paralyzing. But we should not blithely allow this story to continue.

    1. Hugh

      Perhaps this short excerpt from wiki on Bernanke might help”

      From 2002 until 2005, he served as a member of the Board of Governors of the Federal Reserve System. Here he outlined the Bernanke Doctrine and first spoke of the Great Moderation, where he postulated that we are in a new era, where modern macroeconomic policy has decreased the volatility of the business cycle. He then served as Chairman of President George W. Bush’s Council of Economic Advisers before President Bush appointed him to be Chairman of the United States Federal Reserve on February 1, 2006.

      Bernanke had courtside seats to the events surrounding the housing bubble, its bust, and the meltdown. He was not an innocent bystander upon a tremendous mess was suddenly dumped. Both the Bernanke doctrine which earned him the name “Helicopter Ben” and presaged all the money he dropped on the banks as well as his espousal of the Great Moderation with its central idea being that markets can be free and self-policing show that the problem was in his understanding and application of monetary policy. I have no sympathy for Bernanke. His kind of thinking led to the conditions of the bubble, its bust, the meltdown, and his multi-trillion dollar bank friendly bailouts in response to these. There are many great criminals among our ruling classes and Bernanke ranks high among them.

      1. securecare

        “The secret of great fortunes without apparent cause is a crime forgotten, for it was properly done.” – Honoré de Balzac

  16. steelhead23

    I could hold my nose and accept that the Fed was within its charter when it extended the duration of its short-term lending facilities and accepted dreck as collateral to ease liquidity and confidence problems. But there is so much more the Fed has done that simply does not comport with its charter or the will of We the People. In my view, the crowning achievement in this regard was the outright purchase of weak and collapsing bonds at par to keep AIG upright and prevent a CDS avalanche. It seems that that behavior was malfeasance, designed to both enrich the Feds owners (or prevent their losses) and reduce the Fed’s workload in reconciling the banking system. Do not get me wrong – in a wholly detached analysis, it may be that the Fed prevented a lot of pain on the part of We the People, but, in acting outside of its charter, it acted in a manner not contemplated in the Federal Reserve Act without the benefit of a democratic discussion of merits. This is financial tyranny and the willingness of the U.S. Congress to abide such actions calls into question the effectiveness of representative democracy in promoting and protecting the will of We the People. This unwillingness to call tyranny what it is, by both parties, has me looking to the fringes of the political spectrum for a champion.

    1. securecare

      But there is so much more the Fed has done that simply does not comport with its charter or the will of We the People.

      All done under the necessity of “National Economic Security”.

      Understand ?

      Do not make the mistake in assuming that I am justifying the behavior. Just suggesting the banner under which actions were taken.

      Understand ?

      If you do then you understand that none of those involved give a F **K about “We the people” or ever have.

      Reality is what it is and whining doesn’t matter.

      Understand ?

  17. Anon

    Interesting dynamic, then, between mayor 1%, whose eponymous organ has done the legwork on this story (all hail) and Bernanke, who has gone epistolatory on our asses.

    What gives?

  18. ECON

    Great post by NC. We must realize since 2006 that crony capitalism and corruption will eventually lead to an implosion from a trivial innocuous source much like the fall of all empires.

  19. theft

    The Bloomberg article left out some crucial information. I assume it wasnt available.

    1) if the discount window was mostly paid back, how much is “most” of several trillion.
    2) when was it paid back
    3) was it mostly paid back after the Bloomberg lawsuit began
    4) is the discount window still open

    Because as far as we can tell, the banks just found a more expensive lender for a few minutes while they handed off their books to Bloomberg.

    Please tell me I’m wrong.

  20. financial matters

    The Fed is most easily understood when its actions are construed as to help its member banks. This has been true ever since its formation prior to WWI. It is now giving money to Europe to insure that interest payments, etc will continue to flow to the Feds member banks. This money which is created out of nothing ultimately dilutes the money supply in the nature of an inflation tax.

  21. Ray Phenicie

    I beg to differ on the references to taxpayers footing the bill on these loans. My good buddy over at New Economic Perspectives -L Randall Wray- has made it clear that when the Fed loans funds to the bank it is not really a loan in the traditional sense of that term as the alchemy of high powered money that the Fed is dealing with is different from the type of loan made through an office of retail banks.

    My distress over these loans arises from the creation of a zombie bank zone-we all know how dangerous zombies can be from watching the latest flick at the mall-that keeps the Fed busy propping them up while the rest of the country rots.

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