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November 11, 2008

Bigger than the bailout: Feds won't say who got $2 trillion worth of loans

The Federal Reserve is refusing to say who got $2 trillion worth of emergency loans, which, unlike the $700 billion bailout, were issued without congressional approval.

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You didn't think Bush would leave office without distributing a few little tokens of thanks to his pals did you?

what in the name of all that's holy could possibly be worth that much? And surely, if that much liquidity appeared mightn't there be some indication somwhere? This money is being used for capital investments, R&D and infrastructure, right?

Now now.... you can trust Chimpy's Government to always do the right thing. He loves Jesus, after all.

Lindsey,

Keep your big jew nose out of business you don't understand, and let the adults handle this.

Rog

Trillion?

The criminality is too audacious to do any thing about.

Wow, that's alot of money. Why aren't they saying? Is this part of executive privilege too? I really hope Obama steps in and starts a shitload of investigations his first days of office. Stuff like this and the missing money in Iraq really makes me feel like the US treasury is being looted.

This is pure theft. Pure criminality, on a scope that's almost unimaginable.

There must be something literally illegal about this... Please, somebody, anybody, can't we have these guys frogmarched out of our government buildings in handcuffs?

I talked to my colleague Zach, the Media Consortium's financial blogger, about why the Fed is refusing to give up the information. He guessed that they're afraid to let the public know which companies are getting the money because it would signal that the companies are in trouble--thereby defeating the purpose of the exercise, which is to restore the companies' ability to raise money on their own by selling stocks, etc. So, in other words, the Fed is trying to perpetuate the opacity that lead us into the problem in the first place. Nobody really knows how much bad debt is out there, and if the market knew, it would undermine the confidence that the bailouts are supposed to be creating.

How fucked is that? Of course by that logic, the whole $700 billion bailout must have been doomed from the beginning because we know (more or less) which banks got the money.

How fucked is that?

Tre' Fucked, I'd say.

Then again, ever seen the movie Sneakers or played around with information theory nerds?

Cosmo: Posit: People think a bank might be financially shaky.
Martin Bishop: Consequence: People start to withdraw their money.
Cosmo: Result: Pretty soon it is financially shaky.
Martin Bishop: Conclusion: You can make banks fail.
Cosmo: Bzzt. I've already done that. Maybe you've heard about a few? Think bigger.
Martin Bishop: Stock market?
Cosmo: Yes.
Martin Bishop: Currency market?
Cosmo: Yes.
Martin Bishop: Commodities market?
Cosmo: Yes.
Martin Bishop: Small countries?

Lindsay, but shouldn't full disclosure be required if a company is getting aid from the federal government? I mean if they're trying to cover up the fact their in trouble, which leads to people making financially devastating decisions, doesn't that make the government complicit in defrauding the market?

Man, I hate it when I make typo's and can't correct them....

I'm in favor of full disclosure. I'm just speculating about how the Fed will justify the lack of transparency.

Given this administrations record on the Iraq war I think there is good reason to be very suspicious what is happening. I believe it is looting, pure and simple.

I'm sure it's all going to a good cause.

Not.

Count Zero:

Stuff like this and the missing money in Iraq really makes me feel like the US treasury is being looted.
doesn't that make the government complicit in defrauding the market?

Man, I don't want to be too harsh here, but... Of course the US treasury is being "looted", and of course the US govt is using it to manipulate the market. That's what it's for. What, you think it's there for your benefit?

Dunc: Man, I don't want to be too harsh here, but... Of course the US treasury is being "looted", and of course the US govt is using it to manipulate the market. That's what it's for. What, you think it's there for your benefit?

What do I think it's there for? It's certainly not for my benefit since I'm not a large corporation. I really have no idea what they do, especially if there is no transparency. There is a responsibility to everyone in the nation how that money is spent, and no one person should be handing out billions without some sort of Congressional oversight. Collectively the Federal Reserve is there for our benefit. Operative word there is our. Not just handouts for big business. Without transparency I have no idea how the money is spent. Am I just supposed to trust the government all of a sudden?

People trying to interpret these enormous movements of money as an exercise in corruption are not thinking big enough, I suspect. It is my understanding that even in non-crisis periods, the Fed regularly lends billions to major banks, on a short-term basis, to keep the system juiced; who gets what is not disclosed publicly, and the money gets paid back quickly. So to some extent the secrecy is standard procedure. What has happened is that the Fed has expanded its balance sheet - the quantity of total loans outstanding at any moment has expanded by over a trillion dollars. This is balanced by all the new collateral - and that's the other new thing, that the Fed is accepting aggregated mortgage debts, credit card debts, and who knows what else as collateral.

The basic problem remains that there was an asset bubble - notably in housing, but in many other areas too. Many many goods and services were radically overvalued, and much money was lent on the basis of those overvaluations. Now the market value of houses, stocks, etc., is plummeting, but the debts remain the same, and so become a growing burden on the borrower, who turns out to have less wealth and poorer prospects than the lender thought. Sovereign lending to the US federal government is the apex of the global pyramid of debt, but the problem exists at every level: other nation-states, state governments, banks, corporations, households. The debts cannot all be paid off and so it's a legal and political (even geopolitical) problem as to which ones will and which ones won't.

The Australian economist Steve Keen proposes that part of the problem has been a systematic oversight in macroeconomic philosophy. Treasurers and central bankers have governed with their eye on three variables - inflation, unemployment, and growth. They should also have been paying attention to levels of debt (e.g. the ratio of debt to GDP), but debt has been dismissed as unimportant thanks to a form of equilibrium argument (i.e. the rationality of individual economic actors will keep debt to sustainable levels). The crisis was created by the blindspot, and the instruments of financial governance are being stretched into alarming (and possibly permanent) new shapes in response.

Zero - it's not government that you can't trust...it's the Bush Administration you can't trust.

There's a difference between our government and the Bush Administration Crime Syndicate.

It is not WHO gets the money, but what form of "asset/collateral" are the Fed currently accepting in exchange of cheap loan/free money.

The idea that knowing 'who gets' bail out will destroy their credibility is ridiculous. Almost all banks got it. They are all screwing up. Public already know that.

But the Fed? Is the Fed now solvent? Are they transfering bad asset onto Federal Reserve book? What lending capacity does the Fed still have?

basically... how liquid is the US?

(Yes, US can go bankrupt and defaulting on bond. That is the biggest problem now. ... )

There is no free money.

See chart here: (Federal Reserve Supply Funds) As you can see the chart is very scary.

http://calculatedrisk.blogspot.com/2008/11/credit-crisis-indicators-libor-rises_14.html

http://www.forbes.com/home/2008/11/12/paulson-bernanke-fed-biz-wall-cx_lm_1112bailout.html

According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system….The estimate includes many of the various solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp., as the credit crisis continues to plague banks and the broader markets.

The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available.

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