Archive for the ‘Foreign Central Banks’ Category

From Senator Bernie Sanders:

The Fed Audit

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.”

The entire GAO report is here.

Don’t you think the mainstream media would be interested in talking about this?  Apparently not.  Just think about how far $16 Trillion would go towards solving our government debt/deficit problem.  Someone tell me why it is we are talking about ‘austerity’ programs when we can afford to bailout FOREIGN BANKS!  This is stealing from working, taxpaying middle class (Americans) to bailout the wealthy (foreign) bankers.   Meanwhile our Congress is in DC arguing over how much pain will be inflicted upon the American people because we’re broke.  How long will you stand for this America?

Perhaps now you understand our motto here at FedUpUSA:

STOP THE LOOTING AND START PROSECUTING!

The European Union would like us all to believe that they will be able to continue to shove all the bad debt under the rug.  They’d like the world to believe that government funded, socialist entitlement programs are sustainable forever, despite the fact that more people draw on the funds than pay for them.  They’d also like the world to believe that the answer to the insolvency problems of certain countries (Greece, Ireland, Spain, Portugal) is to just take money from those who are still solvent.  Well, the problem with socialists is eventually they run out of other people’s money – and eventually those who are stolen from get angry.

From The Brink of Total Financial Collapse by Michael Coffman, Ph.D. and Kristie Pelletier:

Other European banks have also loaned Greece tens of billions of dollars. It is extremely difficult to determine the exact amount, but private banks in the U.S., France and Germany all have about a $40 billion exposure (loss) if Greece defaults. They are currently rolling over the debt into new loans, hoping for the impossible – that Greece will recover, or they can shed their debt to some other institution, preferably their government’s central bank.

Then it becomes the liability of the people. (We’ve already seen how that works out with TARP – the banks profit, the people suffer). The central banks will provide unlimited liquidity to the banks suffering runs or default on Greek loans, thereby limiting the damage. However, the world could ride out the storm; albeit with some significant belt tightening. The downside is that if Greece defaults, the PIIG nations fall like dominos. Again, it is hard to estimate total private bank exposure, but Bloomberg estimated in April of 2011 that U.S. private banks held a $236.8 billion exposure. Bloomberg reports that European private banks hold over $1 trillion in Greek and Spanish debt alone.  Ironically, some economists are warning that Spain and Italy are very close to total collapse already. They believe that it may happen this year regardless of what happens in Greece.1 It is impossible to get accurate information from the central banks because they don’t 2 provide an accounting, but the exposure is likely in the many trillions of dollars. In the case of the U.S. Federal Reserve (Fed), American citizens are liable for any bad debt incurred by the Fed.

This is not idle speculation. The Fed recently complied with a Freedom of Information Act request that revealed that all of the $630 billion Second Quantitative Easing (QE2) ending June 30 this year directly, or indirectly went to bailing out defaulting European banks, not to U.S. banks to help the U.S. economy. No wonder small business could not get loans! Tyler Durden, writing for zerohedge.com made this staggering conclusion:

In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to U.S. borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months.

QE2 was nothing more (or less) than another European bank rescue operation!  (Original in bold) Durden also provides evidence that the Fed has done this in the past to bail out the European Central Bank as well as many other private European banks. These machinations have saved Europe from going under already. However, there is no way either private or central banks can weather a PIIGS default storm. Trillions of dollars would soon disappear from the balance sheets of hundreds of private and central banks in Europe and the United States. As banks directly affected by the PIIGS’ defaults begin to fail themselves, their failure will set off a domino effect, seriously affecting banks not directly involved.

For some reason Zero Hedge is prone to take a great deal of heat (both directly radiated and reflected) whenever we opine on the (rather obvious to us) prospect that interest rates might actually (quelle surprise) rise in this environment.  Today, rather than engage in “we told you so” gloating, or endure the repetitive pleadings of commentators that this or that Treasury auction was really a success if you just look a little deeper at the figures, we’ll just quote Bloomberg quoting other fixed income observers on today’s auction of two years, in an article “ambiguously” titled “U.S. 2-Year Yields Highest Since October After $44 Billion Sale.”

Treasury two-year note yields reached the highest levels since October as an investor class that includes foreign central banks bought the least of the debt in five months at today’s record-tying $44 billion auction.

Indirect bidders purchased 34.8 percent of the notes, the lowest amount since July, and below the average for the past 10 sales of 45 percent. Treasuries of all maturities have fallen 3.6 percent this year, according to Bank of America Merrill Lynch indexes. That would be the worst performance since at least 1978, when Merrill began collecting the data.

We aren’t really sure how this will be spun into a “good thing,”™ but we are sure that someone will find a way.  Back to you, CNBC.