Bottom Line on Fed Bailout is No Secret

Were the bankers and Federal Reserve trying to hide something in particular? Or were they just fighting Bloomberg’s lawsuit to reveal the details of the Fed’s sweetheart bailout loans out of habitual arrogance?

I’ve been wondering about this as I make my way through Bloomberg’s expose based on the data the news service forced the Fed to turn over after several years of litigation.

The Fed and the banks tried to scare the courts into keeping the data secret, warning that disclosure would stigmatize those who received the low interest loans and cause them irreparable harm.

Finally, the courts saw through all the Fed’s and the bank’s bogus arguments and ordered the data made public.

The numbers are all so mind-bogglingly huge that it’s easy to be overwhelmed, for the information to lose it’s meaning. But as Columbia Journalism Review’s The Audit pointed out, Bloomberg went straight to the heart of the issue, reminding us what kind of a bailout our politicians delivered, in which banks and other corporations got access to $1.2 trillion in low-interest loans – about the same amount U.S. homeowners are struggling with on 6.5 million delinquent or foreclosed mortgages.

But as RJ Eskow reminds us, we knew a lot of the grisly details before the latest data dump – like that the 10 largest banks got $667 billion in low-interest loans from the Fed.

What we didn’t know until now is how much of that money was an outright gift from taxpayers; Eskow estimates that it amounts to about $27 million on each $1 billion worth of loan, based on the difference between the usual 3.8 percent interest rate and the 1.1 sweetheart rate the Fed charged as part of its bailout. Because the Fed attached no strings to its generosity to the banks, the bankers never paid it forward to the rest of us, who saw our access to credit shrink. And it never occurred to the Fed that it might have stimulated the economy with a few well-placed low-interest loans to the rest of us.

The bottom line is that the Fed shouldn’t be handing out trillions of dollars without any accountability or transparency. Most Americans are not going to have wade through the details to confirm their gut feeling – we’re getting screwed.

Fear Factor, Financial Crisis Edition

The administration has been touting what a good deal the Troubled Asset Relief program turned out to be for taxpayers – most of the $700 billion has been repaid; the banks after all, did not collapse, and it only ended up costing us around $50 billion after repayments.

“TARP undoubtedly helped to stem the financial panic in the fall of 2008 and contributed to the stabilization of the financial system,” Tim Geithner, the treasury secretary, said in a statement today.

But now we’ve got a whole new threat to the financial system, according to the bankers. They contend that if the public ever finds out the facts surrounding the rest of the bailout, it will cause them “irreparable harm.”

This is the part of the bailout the administration doesn’t talk about, with costs that dwarf the piddling billions spent on the TARP program. These are the trillions in secret loans the Federal Reserve provided financial institutions.

If it wasn’t for a dogged reporter at Bloomberg News, it would all still remain a big secret.

But the reporter, Mark Pittman, convinced his employer that the public had a right to know who the Fed was loaning the taxpayer’s money to, and under what terms. Bloomberg filed suit in November 2008.

The Fed and the banks fought the lawsuit for nearly two years. But in August a federal appeals court rejected the Fed and the banker’s arguments. Fed president Ben Bernanke announced in late September that the agency would finally make the information public by December 1.

Anybody care to bet on the chances that the big banks will fold when the information comes out? Any bets on revelations that will graphically show just how cozy both Bush and Obama administrations were with the big banks?

The banks’ response to the lawsuit reminds me of the atmosphere of fear and crisis the previous administration and the banks created, with the major media’s assistance, at the time of the original bailout. No time for questions, no time for debate. Hand over the blank check now or the whole economic system will blow up, they screamed.

Pittman died last year at 52. He remains one of the few heroes that emerged from the financial collapse, who raised tough questions in the months and years leading to the meltdown and was not intimidated by the banks’ fear mongering, continuing to demand answers.

Meanwhile, at some point, the bureaucrats will get around to the audit of the Federal Reserve’s activity since 2007. Congress passed that audit with broad bipartisan support in the face of fierce opposition from the administration, as part of financial reform. No doubt we will hear another round of predictions of disastrous consequences as the results of that audit are readied for release. It’s supposed to be conducted by the General Accounting Office.

From the beginning of the crisis to today, fear has been the most potent weapon used by the bankers and the bureaucrats to get their way, along with the complexity of the system the banks are always ready to clobber the public with. The spirit of reporter Mark Pittman remains one of the strongest antidotes we’ve got.