Socialism for the rich:

Socialism for the rich:
The Fed’s secret bailout of the world’s banks

By Mike Andrew

If you were outraged by the $800 billion TARP bailout of US banks and investment houses, hold on to your hat – you ain’t seen nothin’ yet!

A GAO (General Accounting Office) audit of the Federal Reserve has revealed that between 2007 and 2010 the Fed bailed out US and foreign banks to the tune of $16 trillion. Some independent estimates put the total as high as $29 trillion.

The money was handed out at near zero interest, and some of it has reportedly been loaned back to the US government. In other words, the Fed not only “saved” the world’s biggest banks, but also created an opportunity for them to make money at the expense of US taxpayers.

According to Sen. Bernie Sanders (I-VT) “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

To put this huge sum into perspective, remember that the gross domestic product (GDP) of the United States is only $14.12 trillion. The entire national debt of the United States government spanning the whole of its 223-year history is only $14.5 trillion.

The budget that is being publicly debated with so much sound and fury in Congress only amounts to $3.5 trillion, yet the bailouts authorized by the Fed were never publicly debated by anyone in any venue.

Some of the Fed’s transactions were already known – the so-called “Maiden Lane Transactions” whereby the Fed created a new financial vehicle to purchase the assets of Bear Stearns and AIG, for example.

Many of the Fed’s deals remained secret, however, until the first-ever GAO audit was completed in December.

Since the global financial crisis began in 2007, Fed Chairman Ben Bernanke has worked overtime to save Wall Street's biggest banks while concealing his actions from Congress behind an alphabet soup of special facilities designed to transfer funds to Wall Street.

It literally took an act of Congress to get Bernanke to release information detailing the Fed's actions. Progressive Democrat Alan Grayson (D-FL) joined with Libertarian Republican Ron Paul (R-TX) to amend the Dodd-Frank Wall Street Reform Act to require an audit of the Federal Reserve.

Bloomberg News also filed a Freedom of Information Act lawsuit to acquire documentation of the Fed’s lending.

Based on those documents, economics professor and Bloomberg contributor Randall Wray estimated that even the GAO’s $16 trillion figure is far too low. According to Wray, the real amount distributed by the Fed is closer to $29 trillion.

As you might expect, the biggest US banks and investment houses took away the biggest haul, with Citigroup, Morgan Stanley, Merrill Lynch (now a division of Bank of America), and Bank of America leading the pack.

However, British, Swiss, German, French, Belgian, and South Korean banks also got a piece of the action.

Besides the sheer volume of money the Fed handed out, the GAO report also revealed that the Fed helped many financial institutions to make money off the bailout.
According to the GAO report, the Fed outsourced most of its emergency lending programs to private contractors, many of which were also getting extremely low-interest secret loans.

The Fed outsourced virtually all the operations of their emergency lending programs to huge financial corporations like JP Morgan Chase, Morgan Stanley, and Wells Fargo, while giving the same firms trillions of dollars in loans at near zero interest rates.

Altogether about two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley, for example, got the largest no-bid contract to help manage the Fed bailout of AIG – a contract worth $108.4 million – while it received more than $2 trillion in bailout money.
Another appalling fact revealed by the GAO is that the Fed has no system to deal with conflicts of interest, despite the serious potential for abuse.

According to the GAO report, the Fed even provided conflict of interest waivers to employees and private contractors so they could keep investments in the very same banks and investment houses that were given emergency loans.

“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” Rep. Elijah Cummings (D-MD), the ranking member of the House Oversight and Government Reform Committee, said in a letter to Bloomberg News.