We got the preliminary results of one of the better provisions of the Dodd-Frank bill today. The Federal Reserve has released the results of its first “audit” – information on all its emergency lending during the financial crisis. This contains over 21,000 individual transactions of over $2 trillion dollars outside of the so-called “successful” TARP program, including the controversial “Maiden Lane” program and other lending facilities. Zach Carter is liveblogging the results as he finds them, and it’s quite astonishing:
Until September 15, 2008, the collateral accepted by the Fed at the Primary Dealer Credit Facility remained relatively robust, in terms of credit ratings.
On September 15, as Lehman Brothers and everything else hit the fan, the Fed began accepting total garbage as collateral. Including CCC-rated (beyond junk bond status) collateral from JPMorgan Chase, Citigroup, Lehman Brothers, Goldman Sachs and Morgan Stanley […]
The Fed accepted a total of $1.31 trillion in junk-rated collateral between Sept. 15, 2008 and May 12, 2009 through the Primary Dealer Credit Facility. TARP was nothing compared to this.
Let me posit that anyone who claims that TARP was a successful, cheap program to “save the financial system” is just ignorant of the facts. TARP makes up 2% of the total bailout cost at most. And what we’re finding in this report is that the Fed just bought everyone’s trash, as collateral, and in turn advanced trillions to the banks. THAT’S what saved them, and it was plenty costly, from both a raw financial standpoint and especially a moral hazard standpoint.
Matt Stoller writes at Naked Capitalism about the importance of this release:
This network of politicians, advocates, and bloggers will go to town on whatever revelations come out of that (though the Fed obnoxiously put its Maiden Lane disclosures in a non-copy or printable PDF format, so we’ll see how easy they make it to get this info). The defenders of technocracy are out in force as well. Paul Krugman is standing behind the institution, if not its every decision. The Democratic partisan class is going after right-wing Fed critics, while more liberal independents are pointing to the Fed in the 1940s and the Reconstruction Finance Corporation as a very different monetary model.
Not since the populist movement of the 1890s has there been this much discussion of monetary structures among the public, and so much dissent about how money is created and circulated throughout the economy. It’s happening for a reason.
[cont’d.] The public is now paying attention to finance. We did a focus group in Orlando last year, and one of the surprising conclusions was that nearly every independent voter knew who Ben Bernanke was. People don’t like the structure of our financial oligarchy, and they are talking about it. Even the deficit hysteria and the Fannie/Freddie GSE fights are a function of this monetary debate.
This heated debate is an important step forward. It means that we will be able to examine the real power structure of the American order, rather than the minor foodfights on view in our current political system. This will bring deep disagreements, profound ones, but also remarkable possibility. Modern American industrial policy is to push capital into housing, move manufacturing abroad, build a massive defense establishment, and maintain an oligarchic financial sector. This system isn’t a structural inevitability. People built it, and people are unbuilding it. People with names, motivations, and reputations. People like us, and like Sarah Palin.
The Fed used to be an extremely secretive place, but the castle walls have been pierced. Today’s release is a real and legitimate step forward. Alan Grayson, Ron Paul and Bernie Sanders should be proud of their work. But it’s really just a beginning. Hopefully we’ll have a lot more to report about the Fed and these disclosures in the weeks to come.