Fed Audit's Initial Report Reveals Trillions in Secret Loans 499
An anonymous reader writes "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."
Re:Ron Paul 2012 (Score:2, Interesting)
It should be forbidden in our constitution to BORROW money that is created out of thin air by a privately held organization such as the Federal Reserve Bank (which pays no taxes BTW!). That is simply insane. Woodrow Wilson was incredibly naive and foolish to sign the Federal Reserve Act of 1913.
How Much is a Trillion? (Score:5, Interesting)
www.wtfnoway.com [wtfnoway.com]
Re:How Much is a Trillion? (Score:4, Interesting)
Here is what a Trillion looks like.
http://www.pagetutor.com/trillion/index.html [pagetutor.com]
Re:Did they pay it back? (Score:5, Interesting)
Re:Ron Paul 2012 (Score:2, Interesting)
Yes.
A currency based on valuable commodity is much more foolish than one based on un-payable debt, sustained only through inflation and growth-for-growth's-sake.
I fail to find any intellectually sound argument that can establish the difference between a fiat money that is valued by debt, and a Ponzi pyramid, other than the differential factor of inflation.
We Have Forgotten What the Ancient Sumerians and Babylonians, the Early Jews and Christians, the Founding Fathers and Even Napoleon Bonaparte Knew About Money [blogspot.com]
Money As Debt - Full Length Documentary [youtube.com]
Re:Inflation v Deflation (Score:4, Interesting)
If you desire to purchase a good, let's say a loaf of bread, do you factor in the rate of change of value in the currency? How about when you purchase a new phone? Of course not, because the change in value is insignificant to the price of the good. The supply chain works to support your needs as a consumer, so the argument that deflation affects production is false, especially when we begin to evaluate how markets behaved when there really was deflation.
We did not leave the gold standard until the Federal Reserve Act of 1913. Before that we were on the gold standard, and from the ratifying of the Constitution to creation of the Federal Reserve we went from a third-world bankrupt nation to the largest manufacturer on the planet (1895). Clearly the small amount of deflation did not hamper investment in capital goods. In fact, it probably made the economy grow more quickly because investments were made more wisely.
Most people are poor at making investment decisions, but inflation puts pressure on people to invest because they know that their savings will be worthless when they want to draw on it during retirement. With this pressure they are more likely to make higher risk investments. However, if they know that a penny earned now will be worth a penny after being saved, they become much more skeptical about investing, meaning that those seeking investors will have to have much more robust business plans to convince the investors to part with their money. With less malinvestment prices are more stable and the economy will grow more quickly.
Re:Ron Paul 2012 (Score:4, Interesting)
Because it is so expensive it is only adapted when there is really no alternative.
The paradox here is that something like 50 percent of all gold that isn't used for money or investments is used for jewelery and other decorative purposes, all of which are completely unnecessary. There are also plenty of alternative shiny things that could be used to make jewelery, but people choose gold anyway. So whatever demand there may be for it in industrial applications is offset by the completely irrational demand for it in other applications. In my book that makes it a lousy commodity market to be in, unless you're there to exploit bubbles.
To illustrate, titanium is also used in medical applications because it has some properties similar to gold, and it's probably useful in far more medical applications than gold is, yet gold is currently 1,224 times more expensive than titanium.
How is this news (Score:3, Interesting)
I'm not sure why this is news (google "short term loans federal bailout" for stuff back in march/april). The Fed Reserve admitted to as much months back, though it had to be coerced out of them. The loans (overseas and domestic) were done in an overnight or sub-week fashion in order to provide liquidity in the open market. Where I draw issue is that most of these banks had capital, but were unwilling to lend it. Instead, they were able to get essentially free (~0% interest) money with which they could purchase short-term positions with guaranteed returns (e.g., US Treasuries) and make considerable money. Almost *none* of this money was lent to small businesses (as that would've required a long-term loan from the Fed, which this was not).
During that interval I really wished I would've qualified as a bank so I could (1) get huge sums of zero-interest short term money from the Fed and (2) just stash it somewhere to get returns in gov't bills.
Also, the metric reported (16 trillion) is a bit skewed. If you imagine that this was done over 14 months and the loans were of a 2.5 day average, that means any given day only 95 billion dollars was actually wrapped up in loans ( e.g., the RMS loan value is $9.5e10= $16e12/(14 months*30days/month)*2.5days). However, taking that back-of-the-envelope number and calculating interest, that let (with 3% compound interest at 14 months), the collective of banks make ~3.6 billion in returns. So, given the loss to the community (e.g., free money of 3.6 billion to rich banks), versus the potential fallout if they hadn't made these loans (e.g., bank collapse??), I say that this was a *very* cost effective means of stabilizing the economy. This is in contrast to other "bailouts" and shovel-ready plans which essentially just funneled cash into poorly managed state slush funds and pet projects.