Uncle Sam: 16,000,000,000,000 (TRILLION) In sECrET bAnK LOaNS

Posted on Friday, 22nd July 2011 @ 05:12 PM by Text Size A | A | A

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July 21, 2011

The first top-to-bottom audit of the Federal Reserve
uncovered eye-popping new details about how the U.S. provided a whopping
$16 trillion in secret loans to bail out American and foreign banks and
businesses during the worst economic crisis since the Great Depression.
An amendment by Sen. Bernie Sanders to the Wall Street reform law
passed one year ago this week directed the Government
Accountability Office
 to conduct the study. “As a result of this
audit, we now know that the Federal Reserve provided more than $16
trillion in total financial assistance to some of the largest financial
institutions and corporations in the United States and throughout the
world,” said Sanders. “This is a clear case of socialism for the rich
and rugged, you’re-on-your-own individualism for everyone else.”

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.

The non-partisan, investigative arm of Congress also determined that
the Fed lacks a comprehensive system to deal with conflicts of interest,
despite the serious potential for abuse.  In fact, according to the
report, the Fed provided conflict of interest waivers to employees and
private contractors so they could keep investments in the same financial
institutions and corporations that were given emergency loans.

For example, the CEO of JP Morgan Chase served on the New York Fed’s
board of directors at the same time that his bank received more than
$390 billion in financial assistance from the Fed.  Moreover, JP Morgan
Chase served as one of the clearing banks for the Fed’s emergency
lending programs.

In another disturbing finding, the GAO said that on Sept. 19, 2008,
William Dudley, who is now the New York Fed president, was granted a
waiver to let him keep investments in AIG and General Electric at the
same time AIG and GE were given bailout funds.  One reason the Fed did
not make Dudley sell his holdings, according to the audit, was that it
might have created the appearance of a conflict of interest.

To Sanders, the conclusion is simple. “No one who works for a firm
receiving direct financial assistance from the Fed should be allowed to
sit on the Fed’s board of directors or be employed by the Fed,” he said.

The investigation also revealed that the Fed outsourced most of its
emergency lending programs to private contractors, many of which also
were recipients of extremely low-interest and then-secret loans.

The Fed outsourced virtually all of the operations of their emergency
lending programs to private contractors like JP Morgan Chase, Morgan
Stanley, and Wells Fargo.  The same firms also received trillions of
dollars in Fed loans at near-zero interest rates. Altogether some
two-thirds of the contracts that the Fed awarded to manage its emergency
lending programs were no-bid contracts. Morgan Stanley was given the
largest no-bid contract worth $108.4 million to help manage the Fed
bailout of AIG.

A more detailed GAO investigation into potential conflicts of
interest at the Fed is due on Oct. 18, but Sanders said one thing
already is abundantly clear. “The Federal Reserve must be reformed to
serve the needs of working families, not just CEOs on Wall Street.”

To read the GAO report, click here.

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