How many trillion dollars does the Fed have to give away?
August 13, 2011 6:29 AM   Subscribe

The Federal Reserve Transparency Act's audit of the Fed "Reveals $16 Trillion in Secret Bailouts."
posted by rebent (16 comments total)

This post was deleted for the following reason: Maybe more substance and less sensationalism if this is a thing worth posting about. -- cortex



 
Sigh. Loan guarantees are not the same as bailouts. Guaranteeing that many loans meant that that these guarantees didn't cost us anything, let alone trillions.

This is a highly misleading article and frankly it should be deleted.
posted by anotherpanacea at 6:38 AM on August 13, 2011 [1 favorite]


Do you have another source for this, with more informative commentary?
posted by Philosopher Dirtbike at 6:45 AM on August 13, 2011


Yeah, loan guarantees only cost us when the loans they're guaranteeing go bad. Now it may be that all those loans are bad, in which case it really is worth $16 trillion. However, this is an awfully thinly sourced post. I agree, torch it.
posted by scalefree at 6:46 AM on August 13, 2011 [1 favorite]


What anotherpanacea said. This blog post is utter horseshit. There were some major bailouts going on, but temporary liquidity measures do not equal actual recapitalizations.

What really irked me was this comment:

The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest.

Emphasis added. Really? So Morgan Stanley has an $800 billion balance sheet, but the Fed lent $2 trillion to them and that loan is still outstanding? Give me a break.

Way to take a perfectly interesting GAO report and turn it into fodder for political BS.
posted by SeizeTheDay at 6:47 AM on August 13, 2011


GAO Source here.

CNBC take on the issue:
In September and November of 2008, the Federal Reserve extended credit to the affiliates of these Wall Street firms under terms very similar to those it was making under the Primary Dealer Credit Facility. But because these affiliates were not actually primary dealers, loans under that facility were not officially available.

But the Fed made the loans anyway, citing its powers under Section 13(3) of the Federal Reserve Act to extend loans in “exigent circumstances.” But it never explained exactly why it decided these loans qualified under this provision.

...

It goes to the basic question of whether the Fed’s powers under the law have any real limitations. If just declaring “exigent circumstances” exist is enough, then there are no real limits. If the declaration must be backed up in a way that can be publicly examined and debated, then the prospect of having to articulate a public justification at least creates a potential limit.
An explanation of Section 13(3) is here.
posted by kithrater at 6:47 AM on August 13, 2011


*sucks air in through teeth*

I, ah, thought it was interesting. I guess I don't actually know much about how the fed works? If it's indeed horseshit, then it should probably be deleted...
posted by rebent at 6:49 AM on August 13, 2011


GOOGLE RON PAUL LOAN GUARANTEE!
posted by pompomtom at 6:51 AM on August 13, 2011


To be fair, rebent, if it wasn't clear through my utterly flowery language, I dislike the blog post; my comment was not directed toward you. :-)
posted by SeizeTheDay at 6:54 AM on August 13, 2011


I think there's a story here.

Bernie Sanders instigated the investigation, and discusses it on his website, calling it "socialism for the rich, rugged go-it-on-your-own individualism for the poor".

It comes down to the Fed being able to be an extreeeeemely friendly bank to the powerful with no real oversight. Out of work? Fuck you and your unemployment. Down a trillion? Sure, Bob, here's a check. Pay me back when you can. How's the wife and kids?

This is why we can't have anything nice.
posted by Benny Andajetz at 6:56 AM on August 13, 2011 [3 favorites]


Yeah, loan guarantees only cost us when the loans they're guaranteeing go bad.

if i understand this correctly, we just got into a huge fight over whether we were going to raise the debt ceiling a couple of trillion bucks - but the fed quietly put us on the hook for another potential 16 trillion and few knew it?

that's pretty outrageous, isn't it?
posted by pyramid termite at 6:57 AM on August 13, 2011


Looking at the table cited, seeing exactly what it says.

Doesn't look like that 16 trillion is a loan guarantee figure, but it sure as hell isn't "money still owed to the fed". Of the 16 trillion figure:

* 9.0 trillion were loans made under Primary Dealer Credit Facility (PDCF), the goal of which is"to provide overnight secured loans to primary dealers facing strains in the repurchase agreement markets". Basically an overnight line of cash credit. All that money has been returned - as well it should of, being an overnight line of cash.

* 3.9 trillion were loans made under Term Auction Facility (TAF), the goal of which is "to auction loans to many eligible institutions at once at anauction-determined interest rate". TAF was made in 28 and 84 day loans, and as such, all that money has been returned too.

* 2.3 trillion were loans made under Term Securities Lending Facility (TSLF), the goal of which was to allow certain market players to "temporarily exchange illiquid assets for more liquid Treasury securities", usually for around 28 days. Again, all has been paid back.
posted by kithrater at 7:01 AM on August 13, 2011 [2 favorites]


They aren't even loan guarantees - its repo lending. The feds get assets in exchange for cash. Most of it just overnight. You can argue the rates were too low, or the haircuts were too small, but it wasn't giving money away.

(no the fed did'nt put us on the hook for 16 trillion - it put us on the hook for the potential difference between the value of the assets they lent against, and what those assets ended up being worth. You can't possibly know what that would be without examining the collateral. I'm sure its in that report, I just have not read it. Given most of the facilities were just overnight, I'd guees they were pretty low risk. Actually off the top of my head I'd guess most of the securities were government or quasi government securities - so the treasury would have to default for the fed not to be made whole)
posted by JPD at 7:09 AM on August 13, 2011


Doesn't look like that 16 trillion is a loan guarantee figure, but it sure as hell isn't "money still owed to the fed".

Ok, assuming that's true, serious question: Where did the money that was lent out come from, and what happened to the money once it was paid back? If it was created out of thin air and has remained in circulation, then it has had the effect of devaluing the currency. I think that is a big deal (especially considering it's more than the country's entire GDP). If, on the other hand, it was created and destroyed within 30 days, that is less concerning.
posted by mantecol at 7:11 AM on August 13, 2011


The Relovelution will not be mollified.
posted by Flunkie at 7:13 AM on August 13, 2011


of course it was created money. Look at what they called the facilities. That was the whole point.
posted by JPD at 7:16 AM on August 13, 2011


JPD: my guess is that most of the collateral would've been toxic mortgage-backed papers:
In September 14, 2008 ... the Federal Reserve Board announced that TSLF-eligible collateral would be expanded to include all investment-grade debt securities and PDCF-eligible collateral would be expanded to include all securities eligible to be pledged in the tri-party repurchase agreements system, including non investment grade securities and equities.

Footnote: For TSLF, previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged. For PDCF, previously,eligible collateral had to have at least an investment-grade rating.
Yup, just as the rating agencies started to realise subprime CDOs probably didn't deserve AAA, the collateral rules got changed.
posted by kithrater at 7:17 AM on August 13, 2011


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