Thursday, November 20, 2008

A Trillion Here, a Trillion There

November 20, 2008, 7:50 a.m.

Where Have All the Dollars Gone?

(With credit and apologies to Pete Seeger's "Where Have All the Flowers Gone?"; and for the title to the line "A billion here, a billion there, and pretty soon you're talking real money" -- attributed, though without substantiation, to former Senator Everett Dirksen of Illinois.)

[Photo credit: Jay Mallin/Bloomberg News]

Somehow, while we were focusing on the $25 billion bailout request from the private-jet-flying Big Three Auto CEOs, roughly 100 times that amount disappeared from this building (the Federal Reserve), notwithstanding the security guard pictured here near the entrance.

That's right. While we were assuming that the debt Secretary Paulson and our frightened elected representatives were handing off to our great grandchildren was limited to Paulson's $700 billion gift to his friends, it turns out that the Fed's Bernanke had friends of his own to whom he was providing another Two trillion dollars!

Now Bernanke is refusing to reveal who his newly-wealthy friends are or what kind of collateral he was willing to accept for these "loans."

It's all reminiscent of another song Pete Seeger made famous that will soon be coming round again, "Banks of Marble":

I've traveled 'round this country
from shore to shining shore
It really made me wonder
the things I heard and saw

I saw the weary farmer
plowing sod and loam
l heard the auction hammer
just a-knocking down his home

[chorus] But the banks are made of marble
with a guard at every door
and the vaults are stuffed with silver
that the farmer sweated for
And so on through "the weary miner, scrubbing coal dust from his back."

It is our money. We have worked for it. We paid it in taxes to support social and other legitimate programs of our federal government. And now it is being given away by the trillions, by two individuals to friends of theirs, friends who bear much to most of the responsibility for the greed that has created our current economic collapse.

In case you missed the details, read on:

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return. . . .

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''

Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn't respond to a phone call and an e-mail seeking comment. . . .

The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.

Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. . . .

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities . . ..

Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group. . . .

The nation's biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.

In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.

``I talk to Geithner and he was pretty sure that they're OK,'' said Frank, a Massachusetts Democrat. . . .

The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.'' . . .

``As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to,'' said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.

Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.

Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.

The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site, which focuses on the secrecy shrouding the Fed's moves.

The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).
Mark Pittman, Bob Ivry and Alison Fitzgerald, "Fed Defies Transparency Aim in Refusal to Disclose (Update2)," Bloomberg, November 10, 2008.

A trillion here and a trillion there and pretty soon you're talking real money.

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