What Did the Federal Reserve Do With All That Money?

The Federal Reserve Had Two Weeks to Comply with a Supreme Court order to turn over information about what it did with the bailout money.

This is from Bloomberg, who initiated the lawsuit to force this disclosure.

http://www.bloomberg.com/news/2011-03-22/fed-s-court-ordered-transparency-shows-americans-have-a-right-to-know-.html

 

A Supreme Court order that forces unprecedented disclosures from the Federal Reserve ended a two- year legal battle that helped shape the public’s perceptions of the U.S. central bank.

 

The high court yesterday let stand a lower-court ruling compelling the Fed to reveal the names of banks that borrowed money at the so-called discount window during the credit crisis. The records were requested by Bloomberg LP, the parent company of Bloomberg News. In July, Congress passed theDodd-Frank law, which mandated the release of other Fed bailout details.

 

Fed Chairman Ben S. Bernanke “now must finally understand that this money doesn’t belong to the Federal Reserve, it belongs to the American people and the American people have a right to know how their taxpayer dollars are being put at risk,” said Senator Bernard Sanders, a Vermont Independent who wrote Fed transparency provisions in Dodd-Frank.

 

The financial crisis, which began in August 2007 and peaked after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008, focused the public’s attention on the Fed and its $3.5 trillion effort to rescue the banking system, said U.S. Representative Ron Paul, who heads the House subcommittee that oversees the central bank.

 

“People wanted to know more about what the Fed was doing,” said Paul, a Texas Republican. “It’s been a significant change and the American people won’t ever be complacent about this.”

 

While Congress required the Fed in December to reveal details of assistance it provided through various emergency programs during the crisis, discount window loans were exempt. The central bank, which was created in 1913, has resisted transparency for the discount window, its oldest lending tool.

 

'Reluctant to Borrow'

 

“The presumption is that the borrowers were to be kept private,” said William Poole, former president of the St. Louis Fed. “Other loans are another matter but banks that borrow at the discount window are often presumed to be in financial trouble. That might create a run on those banks and will make banks in the future reluctant to borrow.”

 

The high court’s order means the Fed will have to reveal an unprecedented level of detail about its discount window lending during the financial crisis -- including borrowers’ names and amounts. Officials are preparing to comply, said David Skidmore, a spokesman for the central bank. He declined to elaborate.

 

Attorneys for the Fed have not yet decided how or precisely when they will provide the information, said Thomas Golden, a partner with Willkie Farr & Gallagher LLP who represents Bloomberg LP in the case. Based on discussions with the Fed’s lawyers, Golden said he expects the central bank to comply within the next two weeks, though it’s not yet clear whether officials would post the information publicly on the Fed’s Web site…

 

Paul, who has called for abolishing the central bank, signed up more than 300 co-sponsors for a 2009 bill requiring a Fed audit. The measure passed the House before being dropped by the Senate. It was quite a difference from similar proposals in the 1970s that attracted little attention, he said.

 

“The Bloomberg lawsuit had a lot to do with the cultural change,” Paul said. “Bloomberg has credibility that politicians don’t have.”…

 

The Fed declined to appeal the case to the Supreme Court; the Clearing House Association LLC, a group of the largest U.S. commercial banks, asked the high court to intervene.

 

Under the trial judge’s order, which the Supreme Court refused to reconsider, the Fed must reveal 231 pages of documents related to discount window borrowers in April and May 2008, along with loan amounts. After Bloomberg filed suit, News Corp. (NWSA)’s Fox News Network LLC requested similar records over a longer period of time and also filed suit. It stands to receive 6,186 pages of documents on loans made from August 2007 to November 2008.

 

The Fed must be forced to divulge such information, said Mark Williams, executive-in-residence at the Boston University School of Management and a former Fed bank examiner.

 

“The Fed has to be held to higher accountability,” Williams said. “It takes lawsuits like this to do that.”

The Federal Reserve released the data on or around April Fool's Day. 

After its release, the news was again very quiet -- but here is what we did see from Bloomberg:

Foreign Banks Took Most of Fed Money

http://www.bloomberg.com/news/2011-04-01/foreign-banks-tapped-fed-s-lifeline-most-as-bernanke-kept-borrowers-secret.html

 

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

 

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

 

Commercial Paper

 

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.

 

Those programs also loaned hundreds of billions of dollars to the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley. (MS) …

 

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

 

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

Ron Paul is one of the few who are doing anything about this.

 Rep. Paul Planning Hearing on Fed Foreign Lending in May

http://www.reuters.com/article/2011/04/02/usa-fed-paul-idUSN0214517620110402?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=22&sp=true

 

(Reuters) - Persistent Federal Reserve critic Representative Ron Paul plans to hold a hearing on the U.S. central bank's emergency loans to the branches of non-U.S. banks, his spokeswoman said on Saturday.

 

"I was surprised and deeply disturbed ... to learn the staggering amount of money that went to foreign banks," Paul said in a statement.

 

"These lending activities provided no benefit to American taxpayers, the American economy, or even directly to American banks," he said.

 

Paul spokeswoman Rachel Mills said the Republican lawmaker, who advocates abolishing the Fed and returning to a currency backed by gold or silver, is planning a hearing on the discount windowlending in May. Details are still being worked out, she told Reuters.

 

Data the Fed was required by courts to disclose on Thursday showed the U.S. branches of foreign-headquartered financial firms had made extensive use of the central bank's emergency lending discount window during the severe financial crisis that froze financial markets in the fall of 2008.

 

During that period, the Fed actively encouraged financial firms to obtain funding from an array of unusual emergency funding vehicles to prevent markets from freezing up entirely.

 

While making emergency loans is at the discretion of the individual regional Fed banks, the discount window is open to any firms in sound condition able to post good collateral.