Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Real Cost of the Credit Crisis Bank Bailouts [So Far]

Stock-Markets / Credit Crisis Bailouts Sep 30, 2011 - 02:17 AM GMT

By: Rob_Kirby

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleBack on July 21, 2011 – Senator Bernie Sanders  [VT] published a paper titled, The Fed Audit, where he made the claim that a GAO [Government Accountability Office] report showed the real cost of the Federal Reserve bailout was 16 Trillion.


A snippet from 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 entire GAO report can be read here: http://sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf

Here’s a few snippets directly from the GAO report:

“The Reserve Banks’ and LLCs’ financial statements, which include the emergency programs’ accounts and activities, and their related financial reporting internal controls, are audited annually by an independent auditing firm.  These independent financial statement audits, as well as other audits and reviews conducted by the Federal Reserve Board, its Inspector General, and the Reserve Banks’ internal audit function, did not report any significant accounting or financial reporting internal control issues concerning the emergency programs.”

 [pg. 23] “The Federal Reserve Board is a federal agency that is responsible for maintaining the stability of financial markets; supervising financial and bank holding companies, state-chartered banks that are members of the Federal Reserve System, and the U.S. operations of foreign banking organizations; and supervising the operations of the Reserve Banks.”

And at page 112:

“Emergency Programs That Have Closed Have Not Incurred Losses and the Federal Reserve Board Expects No Losses on Those With Outstanding Balances.”

So how could something that the GAO reportedly claimed cost 16 Trillion at the same time be showing no losses anywhere?

At page 166 we finally begin to get a picture – albeit fuzzy - of how much money [credit] was actually extended during the bailout – with an aggregated breakdown of how much by each institution under broad based programs:

+++Table 8 [above] aggregates [AND AS SUCH IS MISLEADING] 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 days. 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.

Key to terms on chart:

TAF     Term Auction Facility

PDCF  Primary Dealer Credit Facility

TSLF   Term Securities Lending Facility

CPFF  Commercial Paper Funding Facility

AMLF  Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility

TALF   Term Asset-Backed Securities Loan Facility

When adjusted for term – a truer and clearer picture of the cost of the bailout is as follows:

The following graphic shows how and when each broad based emergency funding programme was ramped up – peaking at approximately 1.1 Trillion - and subsequently wound down:

                 

In addition to Broad Based Programs – the Fed also engaged in other liqidity adds which fall under Dollar Swap Lines with other Central Banks [14 of them], Assistance to Individual Institutions and Open Market Operations.  These 3 categories – at their peaks – potentially added an additional 2.056 Trillion – bringing the PEAK TOTAL COST of the bailout to a theoretical 3.1 TRILLION

Subsequently, 943 billion of this “2.056 Trillion add” remains in place – mostly resulting from a remaining balance of purchased Mortgage Backed Securities by the Fed through Open Market Operations:

The unrecouped costs of the bailout [to date] are believed to be:

  •  13 billion outstanding on TALF
  • 22 bilion outstanding Maiden Lane
  • 12 bilion Maiden Lane III
  • 909 billion worth of MBS – still held by the Fed
  • An undetermined amount of new Dollar Swap arrangements with Foreign Central Banks

So from the standpoint of Bernie Sanders claiming the bailout cost 16 Trillion – this is rankish, misleading hyperbole illustrating that a]  the good Senator really doesn’t have a grasp of the manner in which the numbers are being presented, or b] he’s just another politician engaging in erroneous,  indulgent,  political posturing .  To say the cost of the bailout was 16 Trillion is akin to saying a 10 billion overnight loan rolled for thirty days cost 300 billion dollars.  This is asinine and blatantly misleading.

The Bigger Picture

How is it that such an erroneous report detailing the size of the bailout is written and published by a sitting senator?  Senators have serious budgets with professionally paid researchers and staffs.  How could they get something this important and sensitive so ENORMOUSLY wrong – unless it was done with intent?

On the surface, this GAO report [the Fed Audit] appears like it was purposely written to confuse, but a first year economics student would/should have picked this up.  Apparently, all of this was lost on Senator Sanders and his paid staff???????

So what could it be?  What possible reasons could there be for such an erroneous fabrication – by professionals who should have known better?   

Let’s answer this question by asking another related question: namely, where is attention diverted from by focusing on this hyped, manufactured distraction??

The Complete Undermining of Capitalism in the Name of Perpetuating U.S. Dollar Hegemony

By keeping the “bailout” front-and-centre the Federal Reserve / U.S. Treasury are cast in the role of saviours by our mainstream “whore” press.  This way, unthinkable acts being committed by Fed and the Treasury’s Exchange Stabilization Fund [ESF] – UNDERMINING CAPITALISM – are largely ignored or go un-noticed.  Just think about this:    the GAO clearly stated that,

[pg. 23] “The Federal Reserve Board is a federal agency that is responsible for maintaining the stability of financial markets; supervising financial and bank holding companies, state-chartered banks that are members of the Federal Reserve System, and the U.S. operations of foreign banking organizations; and supervising the operations of the Reserve Banks.”

So how is it that Morgan Stanley – a BANK HOLDING COMPANY with a 31 billion dollar market cap – grew their derivatives book by 14 TRILLION in notional over the latest 6 month reporting period Dec. 31, 2010 – June 31, 2011 – and the Fed says NOTHING? 

The instruments which Morgan Stanley “piled on” require 2-way-credit –checks” meaning counterparties need to have credit for each other before these trades can be consummated. 

WHO ON GOD’S GREEN EARTH HAS CREDIT LINES THIS LARGE FOR MORGAN STANLEY – to enable them to grow their book by 14 TRILLION in 6 months??????

Anyone who believes this occurred “naturally” or in “free markets” must also believe in Santa Claus, the Easter Bunny and Keebler Elves.

The answer to this mystery is posted at kirbyanalytics.com in a power point presentation titled, Derivatives Demystified.

Got physical precious metal yet?

By Rob Kirby

http://www.kirbyanalytics.com/

Rob Kirby is proprietor of Kirbyanalytics.com and sales agent for Bullion Custodial Services.  Subscribers to the Kirbyanalytics newsletter can look forward to a weekend publication analyzing many recent global geo-political events and more.  Subscribe to Kirbyanalytics news letter here.  Buy physical gold, silver or platinum bullion here.

Copyright © 2011 Rob Kirby - All rights reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Rob Kirby Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules