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."
Ron Paul 2012 (Score:4, Funny)
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Dennis Kucinich is the left-wing equivalent. Both Kucinich and Paul are vocal about the Fed and its parasitic relationship to national economies. It is for that reason that I know they can be trusted.
Re:Ron Paul 2012 (Score:4, Insightful)
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Re:Ron Paul 2012 (Score:5, Informative)
The gold standard is overrated. The longer a country stayed on the gold standard during the Great Depression, the longer it took that country to get out of the Great Depression.
As this article [econbrowser.com] notes,
Enough with the gold standard nonsense already.
Re:Ron Paul 2012 (Score:4, Informative)
Re:Ron Paul 2012 (Score:4, Insightful)
In the real world, the U.S. went off the gold standard in 1933, and the while there is some debate among experts about how big a role the gold standard played in the Depression overall, it was undisputably a major factor in the bank run and bank collapses that were one of the early events of the depression, because these were directly triggered by waves of attempts to convert dollars to gold.
Its true that much of the world, including the U.S., adopted a system that was something like a gold standard under the 1946 Bretton Woods agreement, but this wasn't what most people (including most current advocates of a "gold standard") define as a gold standard (particularly, it was a "U.S. dollar standard" with a notional peg to gold, but only certain specially privileged actors had the right to convert dollars to gold; most gold standard advocates advocate free convertibility.)
Even the limited sort-of-gold-standard of Bretton Woods was showing major strains by the late 1950s, and was completely failed by the late 1960s (with major runs on gold, the US threatening to deny conversion of dollars to gold to certain countries, and the open market price of gold far above the notional peg price), and effectively killed any meaningful resemblance to a gold standard in 1971 when direct convertibility was suspended and then the dollar began a series of rapid adjustments in nominal gold value in an attempt to maintain the core of the Bretton Woods system, which was the peg of other currencies to the U.S. dollar.
What actually happened in 1973 is that the world left the U.S. dollar standard, more than the U.S. leaving any meaningful gold standard.
How about if you quit being a shill for the gold investors would-be parasites that are looking for their chance to join the banking cartels in that draining. If you look at the history of economies under the gold standard, its not like banking cartels were any less parasitic. The push for a return to a gold standard largely comes from people who have staked out positions in gold hoping to benefit from the inevitable runs on gold that gold standards produce, and their dupes.
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Considering that "going off the gold standard" in that time period is just a roundabout way of saying, "stealing the gold people were entitled to as currency holders", I think you need to show a little more than (very temporarily) puffed up economic activity to show that it was a good idea.
In most shitty economies, you can goose the economic numbers for a few years if you loot the rich and spend the proceeds on cool stuff. (See: History of every Banana Republic.) That doesn't somehow prove that looting th
Re:Ron Paul 2012 (Score:5, Informative)
. 13 other countries besides the U.K. had decided to abandon their currencies' gold parity in 1931. Bernanke and James' data for the average growth rate of industrial production for these countries (plotted in the top panel above) was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth. - this entire paragraph is ridiculous.
The US didn't begin a recovery in 1933 at all. US only recovered once the WWII ended, so the government stopped with the spending and the credit could be reallocated back into the private sector. 1929-1945 were the years of bail outs and stimulus. And when talking about 'output decline', yeah, that's their most important metric. For the government of-course, as when prices fall in a deflation, they collect less taxes and they owe money, so to a government this is a double hit - they collect less in taxes and they must repay debts in appreciating currency.
Of-course they hate deflation, but deflation is great for the consumer. FDIC was created to fight an imaginary problem - only 2% of deposits were wiped out during the Depression, but the prices fell by a much bigger amount due to the deflationary pressure, which was a healthy unwinding of the bubble, that the US government has created in the twenties, when it was buying UK debt, to prop up UK pound, so they inflated a huge bubble in agriculture, prices needed to go down and they fought it tooth and nail by printing so much money, it was obscene by those times.
The consumers who didn't have their deposits disappear, gained hugely from the increase in purchasing power, much more than 2%, as the prices for agricultural products were plummeting, and government was trying to keep the prices up then, just like it's trying to keep prices for houses and various companies (banks, GE, GM, etc.) up today.
Real gold standard wouldn't have let US to get into the Great Depression in the first place, because the Fed wouldn't be able to print money. The current depression wouldn't have happened either.
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We also became a superpower without the internet; bye now!
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Forty Carriers (Score:4, Informative)
Got news for you, before WWII, our solders pointed broomsticks at cars ("tanks") and said, "eh, eh, eh, eh, eh, eh", to simulate firing an imaginary weapon. During WWI, gunners trained by using their finger and pointing at imaginary targets while spinning in a swivel chair. The US absolutely did NOT become a super power until after the close of WWII. And in large part, that was thanks to the Germans (including Nazis) absorbed by the US.
At the Battle of Leyte Gulf, we had forty aircraft carriers: 8 fleet, 8 light, and 18 escort. Plus a dozen battleships and over a hundred fifty other ships.
Forty fucking aircraft carriers.
We were a super power--and the only nuclear power--before the end of World War 2.
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The US absolutely did NOT become a super power until after the close of WWII. And in large part, that was thanks to the Germans (including Nazis) absorbed by the US.
It had much more to do with Europe (the former economic super power) having completely wrecked its infrastructure following two major wars, while the U.S. had a completely intact infrastructure from a complete lack of being bombed into the stone age.
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Re:Ron Paul 2012 (Score:4, Insightful)
Whenever someone proposes that something complicated or unmanageable by human standards should be controlled by a computer, I cannot help but read the whole sentence in Dr Strangelove's voice. Which of course makes it instantly hilarious.
I think my brain does this because people still don't get the fact that computers are just as fallible as man. They are after all, programmed by us. Computer control is NOT the answer and any system which would rely on it in a "savior" like way, is not one that I would 'bank' on. (heh)
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So, bright eyes, what would happen if a gold-backed currency could not find more gold to back it?
You are not understanding how a gold standard is operated. It doesn't mean that the amount of money is tied to an amount of gold. It means that the dollar is tied to the price of gold.
For example, right now you would set the dollar to target $1500 per ounce of gold. As gold rose, dollars would be drained from the economy. As gold fell below $1500, dollars would be injected into the economy. We don't need to monkey with the tax rates either (actually, that would be an absolutely terrible idea). You would use
Not that you would stop spreading disinformation.. (Score:3)
But Ron Paul does not advocate return to pure gold standard, he advocates allowing competing currencies, some backed by gold, other by silver, third by "trust in US Government", and letting people/markets decide which one do they prefer.
And, as others have said, US was technically on the gold standard until 70s, this is how dollar became reserve currency of the world...
Paul B.
Re:Not that you would stop spreading disinformatio (Score:5, Informative)
But Ron Paul does not advocate return to pure gold standard, he advocates allowing competing currencies, some backed by gold, other by silver, third by "trust in US Government", and letting people/markets decide which one do they prefer.
Because multiple competing currencies worked so great during the Articles of Confederation days, right? Oh wait, it was an abysmal failure.
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Well, let's see, gold was trading for around $350 an ounce not too long ago, and it's now well over $1,000 per ounce. Basically, that would have us living with what, 200% inflation? Why would you peg your entire economy to some random mineral? Remember when two clowns in Texas came very close to virtually cornering the global silver market? If some one creates a way to artifically produce gold on a vast scale, then what? It's already happened with diamonds, but there's no cartel to protect gold prices.
Re:Ron Paul 2012 (Score:5, Insightful)
Well, let's see, gold was trading for around $350 an ounce not too long ago, and it's now well over $1,000 per ounce. Basically, that would have us living with what, 200% inflation?
No, it's the other way round. If a commodity that used to cost $350 now costs $1.000, that means that dollars had 200% inflation in that time period.
Re:Ron Paul 2012 (Score:5, Insightful)
You're deluded if you don't think inflation isn't a problem. You're also nuts if you think all of these commodity spikes are somehow "speculation" driven.
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You are injecting too much politics into this. Do you really think that Glenn Beck and Rush Limbaugh's audience have the economic power to cause a major commodity to rise to an all time high? For a major commodity like gold to go up in price some major players have to be getting in on the action. And in fact, China and India have been buying large amounts of gold.
And it makes sense why people are buying. There is a lot of uncertainty in the world economy right now. There are fears from austerity measur
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Re:Ron Paul 2012 (Score:5, Insightful)
Fiat currency is a technology. We the ppl can use it to benefit us! Just think, if the Fed created $16 trillion out of thin air and there was no inflation to speak of, why can't we print the budget and empower individuals with a basic income, and fund challenges to stimulate the innovation that is the real driver of standard of living increases?
There's no such thing as a free lunch. Those at the top get to use the money while it retains most of it's value. Those further down the money "food chain" won't get to use any of that extra money until most of the value is depressed. That's how the wealthy use fiat money and inflation to rob the rest of the people. Because they just need capital to get more capital, but the rest of us have to do real work and produce real goods and services.
Re:Ron Paul 2012 (Score:4, Informative)
If some one creates a way to artifically produce gold on a vast scale, then what? It's already happened with diamonds, but there's no cartel to protect gold prices.
For accuracy's sake I should say that artificial gold is a practical impossibility until we have cheap transmutation; diamonds are just a form of common carbon, while gold is made of precious gold. To answer your specific question of what might happen when we have the technology to cheaply create synthetic gold, I can only imagine: our economies might well have moved past physical scarcity by that point in time.
Perhaps you should have been thinking about cheaply extracting the gold that already exists on Earth. Getting it from seawater is an idea that I've heard mentioned a few times and if that were possible then the price of what is basically just an expensive commodity would plummet, so naturally basing a currency on it would be a Bad Thing. Until that happens I've no idea why the gold standard is bad but then again I don't know how to cast the bones like an economist.
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our economies might well have moved past physical scarcity by that point in time.
Umm... they already have with fiat currency.
Or do you mean our economy as a whole, i.e. the trading of goods and services, would move beyond scarcity? I don't see how that is possible. Value is intrinsically linked to scarcity.
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I think you are confusing knowledge of all things with knowledge of a specific thing. As we learn more, the sum total of knowledge increases, the aggregate value of that knowledge increases. But as specific knowledge becomes widespread, the value of that knowledge decreases.
If only one person knew how to brew beer, that knowledge would be very valuable. If everyone knows how to brew beer, that knowledge is less valuable.
Re:Ron Paul 2012 (Score:5, Insightful)
Both are pretty bad actually.
Gold is valuable as a currency because it looks pretty, doesn't have many industrial uses, is difficult to counterfeit, and cannot be created infinitely by the controlling authority. There's no artificial scarcity involved with gold like their is with paper money. Classically, staying on the gold standard was a good idea because almost every attempt to create a paper currency throughout history ended in the controlling authority (the monarchy usually, the Fed and congress in our case) printing more money to cover their debts until inflation rendered the currency worthless.
Unfortunately, when the population and economy expand, the money supply has to expand with it. When administered responsibly (I.E. not just printing more money to cover debts), a paper money supply can be controlled much more finely. The gold supply expands in a fairly unpredictable way, controlled by how fast mining can be done, which can be completely unrelated to current economic conditions.
Basically, if you have a responsible and knowledgeable administrator, fiat currency can be superior to the gold standard. If you have an irresponsible administrator, fiat currency can and will turn into economic doomsday.
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Eh, even if gold wasn't currency, people would still want it. It's shiny, can be made into jewelry, which can then be used to help you find a mate (getting down to the basics). If everyone one day decided to stop using gold as currency, you'd still have it as an intrinsically valuable commodity, just less valuable then when it was a currency.
But, you're right to say that every currency (Fiat, mineral, or otherwise) is just an arbitrary token that has been agreed to be worth a certain amount of goods or se
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.
Re:Ron Paul 2012 (Score:4, Insightful)
Steady deflation provides an incentive to keep most of your wealth in savings, rather than invest it. The result is a tendency for slower economic growth compared to an inflationary economy.
People tend to become slaves to debt in America because they don't know how to live within their goddamn means.
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No it wouldn't. The price of bread doubled when the value of dollars dropped by half. Ribeye steaks cost $12/lb at my grocery, 3 years ago they cost $6. You are supposing a gold based currency which is the opposite of what we have. 1 Oz of gold used to buy $800, now it buy $1600 thus the cost or value of the doller is now half what ti was 3 years ago. Good if you are paying back loans, bad if you had money in the bank. Irrelevant if you had gold.
Re:Ron Paul 2012 (Score:4, Informative)
Inflation is only easy to control if you get to define 'inflation' to mean whatever you feel like. As in "something went up in price so we'll make up an excuse to exclude it - see we have no inflation". Or "oh, beef got more expensive, but eh, people will eat processed dog instead so their meals got no more expensive - see, we have no inflation".
Perhaps, if we got accurate measurements of inflation it would be a workable model, but unless things like asset inflation get included we'll just get an endless process of bubble-crash-bubble-crash as malinvestments get stuffed into segments that are not accounted for.
A deflationary economy would ultimately be less painful, but as it would put significant problems for stealth taxation and it would create less benefit for the economic actors closest to money creation, it is unlikely to happen.
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:5, Insightful)
Your grandfather should have invested that money not hoarded it.
Inflation is good in that it encourages spending.
Re:Ron Paul 2012 (Score:5, Insightful)
Your grandfather should have invested that money not hoarded it.
Inflation is good in that it encourages spending.
That is perhaps the greatest fallacy of the modern era: economic strength is in spending.
An increase in economic activity is not an indication of strength. Spending (consumption) is actually a destructive force. If spending and an increase in economic activity were indicative of economic strength, then nations with hyper-inflated currencies are among the strongest in the world, because those people spend all of their income the very same day they get paid.
Power is increased through accumulation (saving), which is reserved not for itself, but for the sake of future spending and investing, whether or not there is a goal in mind for those savings. Whether or not you see it, spending must always come from savings. What about spending on credit? Well that is just a promise that you will save in the future. You are promising future savings for spending today. If you can't learn to save before spending then you will never catch up with your debt, and you will live out the rest of your life as a slave to your debt.
A monetary system that discourages savings by way of inflation will make slaves of all of it's subjects.
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If spending and an increase in economic activity were indicative of economic strength, then nations with hyper-inflated currencies are among the strongest in the world, because those people spend all of their income the very same day they get paid.
And if not spending were indicative of economic strength, then nations where everyone lives in caves and there is no industry would be among the strongest in the world, because everyone's money would just sit in the bank.
Power is increased through accumulation (saving), which is reserved not for itself, but for the sake of future spending and investing
So spending now is bad, and what you really want to do is spend later? I'm not sure I see the distinction.
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No, he is right. For all intents and purposes, spending and investing are the same. In aggregate, the money put into the system in exchange for is used to produce more goods and services.
It is a bizarre illusion that some transfer of money between two parties is "spending" and some of it is "investing". In the end, it doesn't matter: money gets transformed into goods and services. When you spend your money in a restaurant, you are allowing this restaurant to stay in business. And you are ensuring that you
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I dare you to go to you favourite shop, and buy a suit for an ounce of gold.
A friend of mine runs a store that sells fancy bicycles, and a guy tried to do just that. He actually had the gold coins on his person. Really, though, it seemed like he was less interested in buying a bike than in haranguing shop owners about the evils of fiat currency, etc., etc. This may be why a lot of folks assume that people who are obsessed with the gold standard are loonies.
Re:Ron Paul 2012 (Score:4, Informative)
You do realize that it was Bernie Sanders, not Paul, who ordered this audit, right? You know, Sanders (S-VT), where "S" is the Socialist Party of Vermont?
Re:Ron Paul 2012 (Score:4, Informative)
You do realize that it was Bernie Sanders, not Paul, who ordered this audit, right? You know, Sanders (S-VT), where "S" is the Socialist Party of Vermont?
Actually, it was originally Ron Paul's bill. Sanders sold out, gutted it, and instead of a comprehensive full audit of the Fed became and extremely limited, one-time audit instead.
Re:Ron Paul 2012 (Score:4, Informative)
A one liner solution would be great (Score:3)
But I am unsure how the the powers of the Executive Branch can force a change.
1. He only gets to sign or veto bills written by other people.
2. He has no control over the airwaves that would be saturated by very desperate people who want to keep things the same.
3. He will want to get re-elected.
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Or maybe the guy who actually did this?
You know Bernie Sanders, or as Paulites would refer to him "teh ebil Socialist."
Ron Paul gets a lot of credit for doing a whole lot of nothing.
Re:Ron Paul 2012 (Score:5, Informative)
Here's the deal on this: Ron Paul is one of the minority in Congress who actually believes what he's saying and isn't for sale. It's actually not unusual for him to ally himself with the likes of Bernie Sanders (S-VT) and Dennis Kucinich (D-OH), because he will come to the same conclusions they do for completely different reasons. For instance, Kucinich and Paul have worked together trying to stop the war in Libya. Dennis is against it for typical liberal peacenik reasons like thinking it immoral to bomb people who present no threat to the United States. Ron is against it because he thinks of big military spending as tax-and-spend big government.
Now, Paul has been pushing "audit the Fed" from a conservative angle for years. Sanders, on the other hand, actually managed to get it into law. Kudos to both of them for making the right decision.
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You mean let whatever goes on around him just happen?
By doing nothing I do not mean preventing laws from passing or making sure the government does nothing. I mean just lets the rest of his party do whatever they want.
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And by "most of us" you mean a small minority of right-wing whackjobs, right? Because most of us don't want a government that does nothing.
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Democratic Socialists (Score:3)
Bernard Sanders is not the only self-described democratic socialist in the Congress; there are at least 69 others (since, including Sanders, there are 70 members of the Democratic Socialists of America in Congress, but there may be additional self-described "democratic socialists" who are not members of the DSA.)
Re:Ron Paul 2012 (Score:5, Insightful)
Ron Paul follows the Austrian school of economics. They believe that mathematical models and statistics can't be used to analyze economics, and that you cannot conduct tests are experiments to determine the validity of economic theories. You just have to reason it out from first principles. It is basically a rejection of the idea that economics can be developed as a science or based on real world data.
They are essentially the economic equivalent of creationists, rejecting science. A Ron Paul economy would be a disaster.
Maybe he'd be better on non-economic issues. Oh wait--he's tried three times now to use an underhanded legislative trick (jurisdiction stripping) to make it so the Constitutional prohibition of establishment of religion would not apply to the states. Yeah, state sponsored religion--that's just what we need.
How about education? He supports spending public money on vouchers for Christian schools, but voted against vouchers for DC schools. I guess he thinks public schools are good enough for Black kids.
Votes no on pretty much anything designed to encourage development of clean energy or to reduce our dependency on oil.
Do Ron Paul supporters ever actually look into his record? Nearly all of them I've seen on the net seem to support him because he agrees with one or two of their pet issues, and they have no idea of how terrible he is on so many things.
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That's actually not a feature of rational choice theory, which models behavior as making the choice with the best utility with full knowledge, not making a "rational decision" based on "presented facts". Its actually well-known that what it posits (which r
Surprise! (Score:2)
I wish I had a surprise face for this, but things like this just don't seem to surprise me anymore.
They're almost expected?
16 trillion? A typo? (Score:3)
I don't see how the federal reserve could have given out 16 trillion in secret loans when that represents more than five times the total assets of the federal reserve... Am I missing something? The GAO's report never mentions this figure.
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As someone else mentioned the Federal Reserve does overnight loans for banks and that if they are not paid back that day then there is a new overnight loan the next day, and the next, and the next, etc. Which really makes the totals add up quick even if the amount borrowed was not much initially.
And these are Loans, not gifts, they get paid back.
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Search the GAO PDF for "trillion" and you'll find several instances.
Look at the CitiGroup bailout, they were worth "Citigroup was the second largest banking organization in the United States, with total consolidated assets of approximately $2 trillion."
Re:16 trillion? A typo? (Score:5, Informative)
As a poster suggested above, these were overnight loans that were almost immediately repaid.
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Collateral or not, short-term or not, a loan at 1% APR (or whatever obscenely below-market rate they charged) is pretty fucking sweet, and the fact that the Fed doesn't extend this offer to everyone, but only the "important people" should tell you something. If nothing else, the difference between the market cost of such a loan, and the price the Fed charged, is the magnitude of the subsidy.
Which means that all of these firms did, in fact, get a free handout just for being "special".
Re:16 trillion? A typo? (Score:5, Informative)
Thats total, not at once. Lend out $100 Billion to someone on Monday night, they pay it back Tuesday morning, and borrow it again Tuesday night to pay back Wednesday morning. Do that for a week and you just lent out a Trillion.
This is well known (Score:5, Informative)
Its not some sort of secret, it has been disclosed by the Fed in their annual reports as required by law.
http://finance.fortune.cnn.com/2011/07/08/surprise-the-big-bad-bailout-is-paying-off/ [cnn.com] Fortune Magazine Article
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Yes. The problem is many people don't understand.
The bailouts work in that the US economy didn't completely collapse.
People seem to thing the bailouts working means things won't get bad.
They are bad, but not nearly as bad as they would of been otherwise. Look at what happened in Japan when this happened. Look at pretty much in country this type of collapse happened.
I do wonder if letting it crash would have been better for us in the long run. Meaning better regulations and controls. But that's a different t
This Audit Was More Extensive (Score:3)
Per the Wikipedia entry [wikipedia.org], normal audits of the Fed leave significant gaps, gaps that were to some degree addressed by this more through audit.
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Bail outs did not work because the same institutions that were bailed out are just as insolvent today, as they are now loaning from the Fed's discount window and making a spread by buying/holding T-Bills. Once the interest rate goes up, they fail, and real interest is going up, Fed won't be able to hold interest down as long as it's printing, and it will continue to print.
Fed now cannot even technically be bankrupt, as a couple of months ago, the Fed changed the rules, that any liabilities it holds actually
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More horse-tripe, unfortunately. 'Unfunded liabilities' is just another way of projecting a deficit into the future and assuming nothing will ever be done to deal with it. It's a fun way to come up with a big-assed number but worthless in any real discussion.
The reality is that no deficit survives long enough to come remotely close to the numbers the talking heads spew out. Changes are made (or forced to be made) long before then.
Just like the 'hundreds of trillions' of dollars of face value people were
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More horse-tripe, unfortunately. 'Unfunded liabilities' is just another way of projecting a deficit into the future and assuming nothing will ever be done to deal with it.
- no, unfunded liabilities means that there are debts, liabilities that have no funding behind them.
As in they are only funded on paper with IOUs, that are US Treasury T-bills that need to be sold. Somebody has to buy them. On the other hand if US could scrap the entire liability situation, as in default on its payments for these unfunded liabilities, then it would deal with its debt. By defaulting, just like it did in 1971, when it defaulted on its promise to pay gold for US dollars.
When you say
assuming nothing will ever be done to deal with it.
what ex
Did they pay it back? (Score:5, Insightful)
OK, so they loaned out a truly epic amount of money. A reasonable thing to do during a crisis: you borrow money to get through the bad times, then you pay it back when times are better.
The questions are:
* Did they pay it back?
* Did they pay interest?
* How much?
I don't really care about the absolute dollar figure: this was an international crisis and the dollar figures are going to be proportional to the size of economies, which will measure in the trillions. As long as the net result was that the economy survived (which it did), that it didn't blow up inflation rates (which it didn't; inflation was negative for a while), and that in the end the books balance (thus my questions).
It may well be that the interest rates were so low as to be questionable, especially given that the banks have been giving nonexistent interest to depositors and have been very chary about turning that money around to investment. But I'm not going to wring my hands over the size of it. I'm more concerned about the terms.
Re:Did they pay it back? (Score:5, Interesting)
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Thanks for actually reading a very lengthy FA.
In return: the discount rate is very low now (.75%) but in August 2007, it was 5.75% for primary credit. (That is the lowered discounted rate; it had been 6.25% before that.)
http://www.frbdiscountwindow.org/historicalrates.cfm?hdrID=20&dtlID=52 [frbdiscountwindow.org]
The rates proceeded to drop like a rock, so they either paid it back fast or got caught with a hell of a spread.
16 friggin trillion? (Score:2)
I Betcha' that's just the tip of the iceberg.
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]
This is more money than the Federal Public Debt (Score:2)
Incorrect (Score:4, Informative)
Lets say I have 5 dollars.
I lend you 5 dollars, the next day you pay me back 5 dollars and 5 cents.
The I lend that 5 dollars to someone else and they paid me backs 5 dollars an 5 cents.
I lent out 10 dollars during those 2 days, but I never lent more then I had. And I ended with 10 cent more then I started.
Get it?
Listening to most slashdotters talk about finance is like listening to accounts talk about a computer. simple painful.
ok (Score:5, Informative)
A) These are loans, almost all of which get paid back.
B) this is not a secret. Just because something goes on you didn't know about, doesn't mean it was a secret. It just means you where ignorant.
C) This benefits the US. The US MADE money from this.
I just had to get that out there, I know it wont stop the frothing lunatics.
Re: (Score:3)
Re: (Score:3, Informative)
US lost money on this and it will lose money going forward on these very bail outs again.
1. Moral hazard was created - now everybody knows they will be bailed out again. Everybody can gamble, government made sure of it. You loan money to these major banks, you can't lose. The government won't let you. All managers at the banks know, they can take any crazy risks, the government will bail them out.
2. The bail outs are causing massive price hikes, the money printing is inflation and inflation causes prices
Re: (Score:3)
The so called repayment is no such thing. Let the Fed show the actual money, because the moment they try to sell the assets that they own from those banks they will find out their actual worth, and it's nowhere near what they tell you, there is no repayment.
Uh, the Fed prints money. They can show whatever they want. The Fed responded to a massive deleveraging (leveraging is when money is spent multiple times). In the U.S. economy, we rely on money being spent around 8 times at once. It's hard to envision
Senator Sander, you know better. (Score:3, Informative)
"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.
Since when is the Federal Reserve an agency of the United States government? Last time that I checked it was and still is a privately owned corporation.
Re:Senator Sander, you know better. (Score:5, Informative)
Since [federalreserve.gov] December 23, 1913 [federalreserve.gov]:
Act of congress (Score:4, Informative)
Since when is the Federal Reserve an agency of the United States government?
I would guess ever since the Federal Reserve System was created by an act of Congress [wikipedia.org], which has been amended some 200 times. All banks are required to be members of the Federal Reserve.
Last time that I checked it was and still is a privately owned corporation.
It is technically private but that doesn't mean it doesn't answer to the government. The Fed needs some independence to do its job properly. But the Fed is a quasi-governmental entity. It is backed up by the full faith and credit of the US government and only exists because Congress delegated some powers to it. It is private in the same sense that Fannie Mae was private. Technically true but well understood that it had the backing of the government.
Re: (Score:3)
Federal reserve is a part of the government. I believe it's a common misconception that it isn't a part of the government because it's an independent agency and word of mouth isn't that hot about specifics. I had the understanding that it wasn't a part of the government until I took an economics class where the instructor mentioned that it was and I did a little digging.
http://en.wikipedia.org/wiki/Federal_Reserve_System [wikipedia.org]
Re: (Score:3)
This is Why (Score:3)
It's called the discount window (Score:5, Informative)
The way to do this. (Score:3)
1: Stop with all the NEW pork projects in the government and military.
2: Finish out any projects already on the books that are within their original budgets.
3: Do not continue to pay for projects that are overdue.
4: If projects are overdue, DEMAND DELIVERY.
5: If the contractor cannot deliver, declare the project failed and in default.
6: Liquidate the company's assets to recoup the cost of the failed project.
7: Stop all the government welfare crap. If there's legitimate medical reason, maybe. I'm a big fan of government-created work programs though. Nothing like a lot of back-breaking labor to motivate someone to get a real job. Tie it into health and housing support with a small budget for food, etc.
8: When an official is elected to office, liquidate all his assets and put them into a fund tied to the well-being of the economy. This way, if the economy does well, he has a lot of money when he leaves office. If the economy tanks, he's handed a set of clothes and turned out on the street when things are over. Tax rates would be fixed during their term and only take effect once their successor took office. This way they can't fix tax rates to generate false profit.
I could go on, but you get the idea.
Of course, this would never work. Politicians of all stripes would never actually DO this. The lousy fucking bastards are all more worried about keeping their jobs and lining their pockets than they are about actually doing something to help the country.
Maybe they should wor
Re: (Score:3)
Better idea: guarantee a basic income to everyone, and encourage innovation through challenges (biz can hold them too). The focus should be on the advance of knowledge and technology, because that is what raises standard of living and increases the survival fitness of society. Debt is a giant distraction, purely a way for attention-seeking bankers to seize control of the national discourse to gratify their egos.
Top to Bottom Audit? Ha! (Score:3)
Now if only they could find that 12 Billion that went missing in Iraq. Yeah, whatever happened to *that* ?
I'd expect nerds to be smarter than average (Score:3)
But I guess it isn't so :-(
This isn't really news. These weren't even real loans, they were just 28-day backstops during the money market meltdown. Just like the inflated values reporters loved to throw around about CDSs, it's more of the same here. They're just adding them all together sequentially (and conveniently forgetting to report the short durations and senior debt status).
And, really, only a complete fool hopes and prays for the banking system to fail.
Go looking somewhere else, this was one thing the Fed actually did right. And like TARP, the government didn't lose any money doing it either.
If you want to complain about something complain about the use of the AIG bailout as an indirect method of bailing out the (mostly bank) counterparties. That was real money that didn't have to be paid back to the government.
-Matt
Perspective (Score:3)
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.
Re: (Score:3)
The quick look at plots shows that the maximum amount (in 2008) was below $1T.
Re:Isn't this illegal? (Score:5, Informative)
It's on page 131, table 8, bottom right:
In short, it's a pretty absurdly inflated number. Loaning 10 billion for 1 day, and doing it for 30 days, is counted as 300 billion of loans, rather than a 10 billion 30-day loan.
"Table 8 aggregates total dollar transaction amounts by adding the total dollar amount of all loans but does not adjust these amounts to reflect differences across programs in the term over which loans were outstanding. For example, an overnight PDCF loan of $10 billion that was renewed daily at the same level for 30
business days would result in an aggregate amount borrowed of $300 billion although the institution, in effect, borrowed only $10 billion over 30... In contrast, a TAF loan of $10 billion extended over a 1-month period would appear as $10 billion. As a result, the total transaction amounts shown in table 8 for PDCF are not directly comparable to the total transaction amounts shown for TAF and other programs that made loans for periods longer than overnight"
Further, this is pretty much regular operations of the Fed as part of their work in stabilizing the economy through monetary policy. It's what they were made to do.
The GAO is pointing out failures in controls. Offering some perspective as a public company auditor (not a government auditor) I see failures in control all over because there is the concept of an ideal control environment, but every control represents additional costs and times, and general inefficiency. It adds hoops to jump through to get things done. At some point companies look at the risk and the cost needed to implement additional controls on that risk and decide that it's not worth it to strive for 100% security against a problem that may or may not exist. However, auditors point out these risks because that's their job, and the risks are real, whether or not the cost/benefit makes sense. In this specific case, revolving around conflicts of interest, there's only so much you can do, but considering the nature of the issue, it is damned important to have strong controls in these area. In summary, it's not suprising to see control deficiencies, and control deficiencies are not evidence of fraud or misstatement, but it's always better to have less control risk.
Re: (Score:3)
Has your stolen bicycle been returned yet? If so, who cares?
Re:Isn't this illegal? (Score:5, Insightful)
It's not illegal if no one enforces the law against it.
Re:Bravo! (Score:5, Insightful)
Stolen?
They made overnight loans on which the Fed profited. Meaning they reduced the amount the American people owe.
Re: (Score:3)
Re: (Score:2, Funny)
Now let's put these criminals who've stolen trillions from the American people behind bars.
Oh wait.
They're already behind bars... of gold.