December 1, 2010

WASHINGTON, Dec. 1 - Calling the revelations "jaw dropping," Sen. Bernie Sanders (I-Vt.) said today's disclosure by the Federal Reserve that it gave banks and other institutions an estimated $3.3 trillion in emergency loans and other assistance during the financial crisis "begins to lift the veil of secrecy at the Fed."

The estimated $3.3 trillion in liquidity and more than $9 trillion in short-term loans and other financial arrangements dwarf the $700 billion Treasury Department bank bailout out signed into law under President George W. Bush.

The disclosure, available on the Fed Web site, was strenuously opposed by Chairman Ben Bernanke during a 2009 Senate Budget Committee hearing. The requirement to reveal the information was mandated by a Sanders amendment to the Wall Street reform law. The same amendment ordered the Government Accountability Office to conduct a top-to-bottom audit of the Fed.

"Almost two years ago I asked Chairman Bernanke to tell the American people which financial institutions and corporations received trillions of dollars as part of the Wall Street bailout.  He refused.  Today, as a result of an audit-the-Fed provision I put into the financial reform bill, we finally learn the truth - and it is astounding," Sanders said. (Read his full statement here.)

"We now know that Fed loaned trillions of dollars at zero or near-zero interest rates not only to the largest financial institutions in this country, but also to many of our largest corporations - including GE, McDonalds and Verizon.  Most surprising, the Fed also lent huge sums of money to foreign private banks and corporations" he added.

Among the corporate beneficiaries were Citigroup, which received over $1.8 trillion; Morgan Stanley, which received nearly $2 trillion; Goldman Sachs, which received nearly $600 billion; and Bear Stearns, which received more than $960 billion in short-term loans with an interest rate as low as 0.5 percent.  

The Fed's multi-trillion bailout was not limited to Wall Street and big banks, Some of the largest corporations in this country also received a multi-trillion bailout.  Among those are General Electric, to which the Fed made over $16 trillion in financing under a commercial paper funding facility alone; McDonald's; Verizon; and Toyota.

While the Fed loans were intended to stabilize the financial system and the entire economy, Sanders said today's disclosure underscores that "the Fed failed to require loan recipients to invest in rebuilding our economy and protect the needs of ordinary Americans."

For example, at a time when big banks have nearly $1 trillion in excess reserves parked at the Fed, the Fed did not require those institutions to increase lending to small and medium-size businesses as a condition of the bailout?  At a time when large corporations are more profitable than ever, why didn't the Fed demand that corporations that received backdoor bailouts create jobs and expand the economy once they returned to profitability? At a time when the Fed lent money to investors holding credit card debt, it did not require any interest rate caps for consumers, leading many of them to pay credit card interest rates of 28 percent or higher.

Sanders said the disclosure also raises questions about the degree to which secret Fed loans turned out to be direct corporate welfare to big banks.  He called for an investigation to determine whether banks took loans at near-zero interest and then loaned that same money money back to the federal government at a considerable higher interest rate.  "Instead of using this money to reinvest in the productive economy, I suspect a large portion of these near-zero interest loans were used to buy Treasury securities at a higher interest rate providing free money to some of the largest financial institutions in this country on the backs of American taxpayers," Sanders said.

The disclosure of the Fed's loan portfolio, Sanders said, raised another troubling issue: "How many big banks repaid Treasury Department bailouts in order to avoid limits on executive compensation received no-strings attached loans from the Federal Reserve?"  Overall, Sanders noted, Wall Street executives are making more money today than before the financial crisis.

The four largest banks in this country - Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup - issue half of all mortgages in this country.  Today's disclosure reveals that these banks received hundreds of billions from the Fed.  "How many Americans could have remained in their homes, if the Fed required these bailed-out banks to reduce mortgage payments as a condition of receiving these secret loans?" Sanders asked.