Matt Stoller, who worked on Capitol Hill from 2009-10, writes that the Dodd-Frank Act made no structural changes to the banking system, and that his main focus, the audit the Fed amendment, merely allowed “for the beginning of a real debate over our monetary system.” We don’t really have real debates on much of anything in America anymore, so it’s worth questioning whether this will be the effect. But for what it’s worth, Bernie Sanders’ office has released the major investigation coming out of that amendment – a GAO audit of the emergency lending programs carried out by the Fed in the wake of the financial crisis. These programs – not TARP, which mostly put the Congress on the hook for the bailout politically – represented the bulk of the federal government’s support for the banking sector. And they were carried out largely in secret. This GAO audit provides a window into just what the Fed did.
GAO found that the emergency loans peaked in late 2008, when the Fed had over $1 trillion loaned out to financial firms, mostly at near-zero interest rates. Over the course of all the emergency lending programs, the Fed loaned over $16 trillion. Many of these loans went to foreign banks, which our Federal Reserve saw fit to prop up under a shroud of secrecy.
The NY Fed, then under the direction of Timothy Geithner, handled the majority of these activities, including the large-scale purchase of mortgage-backed securities. They then contracted out most of the work, to the tune of $659 million, and GAO found that “Most of the contracts, including 8 of the 10 highest-value contracts, were awarded noncompetitively, primarily due to exigent
circumstances.” Many of the contractors, including JPMorgan Chase, Morgan Stanley, and Wells Fargo, also got low-interest emergency loans from the same programs. One of GAO’s seven recommendations is to limit noncompetitive bidding and open up the process.
GAO also found conflicts of interest at the NY Fed, which is obvious, since some of the top bankers being bailed out at the time sat on its board. JPMorgan was one of the clearing banks for the emergency lending program while also being a recipient. Neil Irwin gets at more of this in a WaPo article.
For instance, William C. Dudley, the president of the Federal Reserve Bank of New York who was a senior official there in 2008, owned stock of American International Group before the Fed bailed out the giant insurance firm. The GAO report did not mention him by name, but Sen. Bernie Sanders (I-Vt.), who spearheaded the audit, identified Dudley as the unnamed official described in the report.
Lawyers at the New York Fed allowed Dudley to continue owning the shares while working on issues relating to the bailout. They concluded that for him to sell the shares immediately after the central bank bailed out the firm would be more ethically problematic than simply holding onto them and selling at a later date.
The report also found that lines of authority between the Fed’s Board of Governors in Washington and the 12 regional Fed banks around the country were sometimes muddled during the crisis. For example, it was not always clear where authority resided on questions of what collateral would be adequate for an emergency loan.
Sanders’ statement includes the following: “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. This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.” He wants to remedy the conflict of interest situation by banning anyone who works for a firm receiving direct financial assistance from the Federal Reserve to be employed by them, a simple enough fix.
GAO will conduct a more wide-ranging investigation by October 18, but just from this one, we have a sense of how incestuous Wall Street and the nation’s central bank are.



70 Comments


Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
am grateful to see your reportage David –
I was beyond apoplectic about this disclosure yesterday – it’s one thing to have known for years they were bailing out the MOTU’s – whole ‘nother deal to have one’s nose rubbed in the actual figures (page 131 of the GAO pdf)
Citigroup: $2.5 trillion
Morgan Stanley: $2.04 trillion
Merrill Lynch: $1.949 trillion
Bank of America: $1.344 trillion
Barclays PLC (United Kingdom): $868 billion
Bear Sterns: $853 billion
Goldman Sachs: $814 billion
Royal Bank of Scotland (UK): $541 billion
JP Morgan Chase: $391 billion
Deutsche Bank (Germany): $354 billion
UBS (Switzerland): $287 billion
Credit Suisse (Switzerland): $262 billion
Lehman Brothers: $183 billion
Bank of Scotland (United Kingdom): $181 billion
BNP Paribas (France): $175 billion
and of course there’s more
so I, a self professed Fin/Econ illiterate have a question:
where do I, a taxpayer, go to see how much (if any) has been repayed, and by whom, and in what period of time ?
Who coulda ‘magined?
Thanks, David, for bringin’ us the news which everyone should peruse!
DW
Just what is happening here other than
thug scapegoaters, puppeteers in league, their
puppets and their scared followers? (munchkins.)
Then add: patsies and recognition-deprived
sell-outs propounding demagoguery and otherwise
fast-ripping you off?
I’m early. So I can’t cite particular events.
I have a family and simply choose not being earliest.
But this can be simple, soft and painless if you
all speak up simultaneously.
Power?
Bribery going on?
Oaths of office broken?
Party designates needing recall?
Just do it.
Find new leaders and hold them to their
purported principles and oaths of office.
Simply: what have you got to lose?
http://goo.gl/HTped
I’m early. So I can’t cite particular events.
I have a family and simply choose not being earliest.
But this can be simple, soft and painless if you
all speak up simultaneously.
Power?
Bribery going on?
Oaths of office broken?
Party designates needing recall?
Just do it.
Find new leaders and hold them to their
purported principles and oaths of office.
Simply: what have you got to lose?
http://goo.gl/HTped
And we’re supposed to be concerned that these mother-fuckers might get nervous or uncomfortable about lending in the economy they wrecked?
nice to have the US taxpyers as an endless piggy bank to the Banks
That’s an excellent question, one I’d like to see the answer to as well.
My question is this:
As a citizen, where do go to find where the House of Representatives, as the official holder of the purse strings in our government, voted to allocate $16 TRILLION in loans to these assholes.
Either the US Government has control over it’s own money, or it doesn’t. Which is it?
Ya know, I was just thinking, “Hmmmmm, I shoulda recommended David’s piece and I hope it makes it to the front page.”
Shazam!!!
Thanks be to all a … you.
And … recommended … “high-end” piece here!!!
DW
not a word in the MSM
First, it’s reasonable to assume many of the “free” loans to oversees money-center Banks was to insure they’d pay their debts to our money-center Banks. I’m reminded that Lehman was “allowed” to fail while Bear wasn’t. Was it coincidence that Goldman held enormous Bear paper but almost none of Lehman’s?
Have we no uber-wealthy Individual in this Country who will stand up & say, enough, our country can not afford this?
Good on you, David, good on Bernie and Matt. NewDeal2.0 Has more opinions on the first anniversary of Dodd-Frank, except for Mike Konczal, I think they all believe it was an abject failure.
But it was all the White House would allow. And please remember: there were some actually sound and important amendments from a handful of Dems Obama and Geithner tanked. And tanked full-throatedly, and likely monetarily through lobbyists.
http://www.newdeal20.org/
Gosh golly, sadlyyes, the MSM doesn’t get paid to do that.
They are all very much too busy doing something else … anything else … everything else.
It’s the dreaded Fourth Estate Tax on brains, courage, integrity, and honor.
But you’ve got to admit that America’s MSM is … what IS that damned word(?) …. oh, yes! … exceptional … no, wait … “EXCEPTIONAL!!!”
(Just ask ‘em.)
(Of course the political class, of which the MSM is butt a part, also think themselves exceptional and above reproach.)
DW
David, it’s important to say that the GAO did not find evidence of misuse of funds beyond relatively small scale sweetheart loans and no-bid contracts. The tone of the report was actually pretty favorable to the Fed.
The $16T figure seems to have captivated a lot of people, but it does not mean that the Fed gave $16T of free money to investment banks. My SWAG is that the total losses to the taxpayers were no more than $350B and, according to the GAO, far, far less. Like zero, though I don’t believe that conclusion.
This is not to condone or approve of the handling of the situation. Far from it: as Sanders said, this is socialism for the rich. But some of the things Firepups have been saying on these message boards sound crackpot, and are clearly the result of misunderstanding what the report does and does not say.
The oligarchy does not vet it’s dirty laundry. Next where is the $16 trillion now? Time to oen up and investigate the Fed’s actions, the deciders and put Timmy Geithner on the hot seat. I recall them flatly denying to answer the questions at one of the hearings “…who borrowed the money” answer we won’t say it will hurt the borrowing institution.
The Pres should be impeached for prr4siding over this and making a deal without Senate president Reid.
It just keeps getting worse. How can USA lead the world in this mess…Oh yeah eternal war.
CBL, I think there are two key places to look: Table 1 and Appendix I. Table 1 shows that most of the accounts have been closed without losses. There are three accounts that are open: TALF (loans to help investors buy securities), Maiden Lane I-III (Bear Stearns and AIG), and the bailout of Fannie and Freddie (Agency) mortgage backed securities.
I think that if there really weren’t any losses in the first two, as the GAO claims, the Fed would close them. But those are relatively small.
The GAO implies that the bailout of Fannie and Freddie mortgage backed securities is also without losses to the Fed. Technically that’s true, but only because the Congress guaranteed that paper. And this was largely a payout to the investment banks, the Chinese, and others.
I think the point is that if one wants to assign blame, most goes to Congress. The Fed was lax in its oversight, used no-bid contracts, and there were a few sweetheart loans. But Congress, not the Fed, bailed out the investment banks.
Can anyone, ANYONE, please explain to me why the House and Senate had to vote on the $800 Billion TARP program, but didn’t have to approve the $16 Trillion here??
thanks so much, and Welcome Charles !
I admit to confusing TARP with these loans amidst my apoplexy yesterday :D
your info is very much appreciated
forgive the grossly generalized answer – but the $16T was done through the Fed’s
“non depository discount window”
wiki:
You are right, CharlesII, “conflicts of interest” do not imply “misuse of funds”.
And 350 billion will not long supply million dollar-plus “bonuses”, if it has to do other “work”, as well.
Do you not imagine that “misunderstanding” is the intent of the “astute” elite who, as you say, are happily agreeable to “this socialism for the rich”?
This “misunderstanding” seems wide-spread enough to be almost universal, don’t you imagine, and very, very deliberately intended to be that way?
It is not a mere 350 Billion dollars, which is really at issue, but the wealth of the people, themselves, of the nation, which has been siponed off, these last fifty-odd (and dishonest) years, with clear intent and “legal” assistance from the political class, as a whole. So, one hopes that Bernie might reserve a bit of his disgust for his fellow “representatives of the people”.
DW
Old Fat Guy, the $16T is a misleading figure. If I make you a monthly loan of $100, which you pay off timely, so I renew the loan twelve times, I have provided you with $1200 in financial assistance. But it’s the same $100.
Then there are guarantees. The USG provides an insurance guarantee for nuclear reactors through Price-Anderson. The value of that guarantee is hundreds of billions or (more likely) trillions of dollars. As long as a reactor does not blow up, it costs nothing. Same principle applies in the financial realm.
At no time has the Fed balance sheet exceeded ca. $2.5T> So it is impossible for the Fed to have had $16T on loan at any given time.
See what I mean about misleading?
I think I get that, what I’m having trouble understanding now is why they voted on the $800B in TARP money. Those were mostly loans as well, IIRC.
Was it just so the treasury secretary got to pick where the money went instead of the Fed??
I am sure that the American taxpayers are saddled with the toxic assests. Yiu know that too. Maybe you can say how much magic paper came off of the balance sheets of the banksters onto USA Treasury? Federal Reserve? What about the FDIC carrying the losses for hundreds of closed banks?
Meanwhile deficit reduction is costing older sick citizens SS medicare and medicaid no COLA. These people are pigs with pig shit all over them. It is an insult to our humanity, morals, ethics and spirituality. Obama ia tge main player starting before the transition from BUSHCO.
DW, I do think that misunderstanding is a deliberate policy of the wealthy. If not, the media would spend their time explaining these issues so people would know what’s for real and what’s not.
But there’s a tendency on the left to hear a partial explanation, get blindly angry, and not dig into it to understand things properly. When these people then call their representatives to complain, they sound just as loopy as right-wingers calling in about “death panels” and “long-form birth certificates.” They are easy to ignore.
Much more difficult to ignore is the person who takes the time to understand the issue and is still mad as hell.
I’m sure there will be more enlightened analysis of the GAO report than I can provide from people like Krugman, Baker, and other economists. But for the time being, tread lightly on the $16T number. I think it’s misleading.
Yeah, I see how the 16T can be misleading.
I would have a problem with the Fed’s doubling it’s exposure though (which your graph shows) without any sort of OK/thumbs up/sign off from the USG since we’re talking US Dollars that they’re throwing out there. But that’s an old independant versus non-independant Fed argument.
Where I’m still unclear is why the need to vote on that $800 Billion. What was different about that money other than who decided where it went?
It is the “meanwhile” stuff, fifty-odd year’s worth of it added to the “consequences”, for SS, Medicare, education etc. that are, also, a part of the “cost”, bigbrother, that Charles has not yet presented, in total, for us.
Of coures, Charles does not have to do this, as the Political and Money classes will insist upon doing so, after “covering” their own assets.
DW
btw, we were all treated to a fabulous post about Modern Monetary Theory by Warren Mosler yesterday at FDL – unfortunately, it was before the GAO/Sanders disclosure
but another MMT’er Michael Hudson weighed in last night:
link
damn I love this place
I do not disagree with the gist of your second paragraph, CharlesII.
:~DW
My 90 yearold step mom and millions of others getting squat for their treasury notes so that the banks get virtually free money. You make it all sound so innocent. Be reminded this help went to the CROOKS that packaged paper crap (CDOs, Tranches and other mortgage backed securities) that wrecked retirement funds, global economy and left millions without jobs. No No No free pass..the suffering is palpable with no end in site. The safety nets are cut across the board from cities, small towns and counties. Let us keep it in context.
Your neat orderly characterization falls way short of the reality.
I am burning with resentment and anger while my power od perception is quite clear. These crooks cheated we set them up right again and they are back at the game again. No regulation!!!!!
crikey – here is link to yesterday’s FDL post by Warren Mosler
link
Gaia bless selise, wherever she is :D
When the wolves and foxes believe that they are so much more entitled than the flocks, you can always be assured that there will be mutton and chicken served on the tables of the powerful.
Who’s guarding the flocks and the henhouses again?
That’s the point, bigbrother. The Fed’s balance sheet is where to find what assets, toxic or otherwise, they hold.
Focusing on the major category, Agencies (Fannie and Freddie), you compare Table 1 (value of assets) with Appendix 1 (cost of purchase less cost of sale), you notice that there’s a discrepancy of about $300B. That corresponds to (roughly) 25% of purchase price. That, in turn, roughly matches the predicted default rate for mortgage Agencies. Therefore, I think that the Fed is adequately accounting for those toxic assets.
The other stuff, TALF and Maiden Lane, is much smaller in size, ca. $50B overall. So, even if it was all toxic, it’s not that big a portion of the Fed’s holdings. I posted a graphic of the Fed’s balance sheet. It’s worth reading and understanding. The context for the graphic, and the graphic itself, is here.
Cenk Uygur made a very clear and concise postulation of the media’s coverup of all facts last night it was a utube format on this blog site. I would also comment that most American minds are not trained in logic. That percentage of the population is rather small.
Hudson is not telling you that to do that, you would have to expect a significant drop in the currency (think higher oil prices and other imports, as well as foreigners able to buy up American assets cheap).
What the Fed has done in Quantitative Easing is fundamentally different, because they are able to mop up liquidity as easily as they create it. When money is created by the Congress, there’s no simple way to mop it up quickly.
That’s not to say it can’t be mopped up. It can–through taxes. So, the entire shortfall in Social Security, Medicare, and Medicaid could be financed by issuing debt, as long as it was accompanied by a tax increase.
But Hudson is selling a formula that will not work, because Social Security, Medicare, and Medicaid are real money (M-1 and M-2), while Quantitative Easing does not involve real money until banks start lending it out. And at that point, the Fed has its finger over the interest rate button and can easily drain liquidity by simply selling Treasuries.
I ask the same blessing on selise, cbl.
selise is truly exemplifying what real leadership is actually about: Scouting unknown territory and thought-horizons and then sharing those experiences and the thoughts arising therefrom, with the rest of us.
DW
Thanks for the answer. If the housing bubble caused the global economy to fall over the cliff then it was Christopher Cox SEC Chair in concert with a host of others that presided over the scams. The construction industry was destroyed. Home equities were destroyed along with household budgets and the fed was complicit in keeping TBTF insitution running whom a year later recordeded RECORD profits.
Congressional investigations failed I watched the banksters and Federal official refuse to answer questions posed. It is ongoing and gambling supported by taxpayers is a recipe fro economic disaster. The burn is white hot.
Appreciate your considered understandings, CharlesII, just so ya know.
DW
Sorry for the stupid question (I’ve said many times I’m not the sharpest knife in the drawer) but I still can’t figure out why, if TARP was mostly loans too, why they had to vote on that $800 Billion.
The only answer I can think of is my memory is wrong, they weren’t mostly loans and were flat out expenditures OR the organizations receiving TARP money were unable to go directly to the Fed.
Anyone that knows the answer that doesn’t mind helping this dummy please do so.
That post yesterday was awesome. Modern Monetary Theory comments bt Warren Mossler was a gem Selise pulled out of the hat. The deficit crisis is manufactured by the rescued banksters. My firm conviction is The New World Order folks are a conservative conspiracy to make the corporate oligarchy MTOU. These events are Schock Doctrine to destabilize the status quo and open the opeortunity to take/destroy or take government assests. Their is a political economic struggle and the Administration is assisting that effort. He did not have to start a deficit commission.
Man I hope you and selise and ubetchaiam and letsgetitdone and some others would get together and do an open diary just to discuss this topic.
I would so love to read and follow the discussion.
There’s a long list of responsibility, bigbrother. It couldn’t have happened without dishonest and uninformed buyers. It couldn’t have happened without crooked assessors and real-estate agents. It couldn’t have happened without crooked mortgage originators. It couldn’t have happened without the collusion of credit rating agencies and investment banks. If Bush hadn’t pushed housing as the solution for the recession of 2001, it wouldn’t have happened. Even the Catholic Church played a minor role, with the Bishops helping to scotch regulatory oversight for fear that it would reduce low income housing.
It couldn’t have happened without low interest rates from the Fed. The Agencies had a role in moving mortgages into the secondary market. If the Fed had exercised its oversight role, it wouldn’t have happened. If the SEC had exercised its oversight role, it wouldn’t have happened. If the Congress had exercised its responsibility, it wouldn’t have happened.
We expect that buyers, assessors, real estate agents, mortgage originators, and investment banks will be dishonest. That’s what regulatory oversight is for. What changed between, say, 1980 and 2000 was that the regulatory agencies were weakened, and the Congress became dysfunctional.
But let’s recognize that there’s no single villain. There is a lot of blame, and a lot of people who could have prevented the crisis.
I get your larger point which is that in that particular case the Fed gave the individual $100 loans 12 different times and none of those loans exceeded $100. The credit line is $100.
That being said you’re missing the larger point which is that basically the Fed has been used as a giant piggy bank for the well off and connected. If I come to a bank 12 different times for a loan even if it was for an amount I paid off previously then there would have been some questions about my solvency and my financial decisions. But that was the not the logic at the Fed, as a matter of fact the money was given specifically to counter solvency issues. Basically the Fed has been propping up banks like BofA and Citigroup. Which bank can I go to that will just give me money to allow me to continue living lavishly (and let’s face it when your CEO makes 7-8 figures during a fiscal crisis you’re living lavishly)no questions asked?
Some of the TBTF banks converted to commercial bank status to get the funds. These were the large secutitizatio operation that had toxic assests on their balance sheets and yes Goldman was in the thick as Harry Pauson hafd control of the levers of power. It was in fact a “Coup de Grace” to end congessioankl constitutional power and shift to the corporations as Supremes in Citizens United did without objection from Obama or congress,
Well said! Thank you for adding that important bit of context.
TARP was run out of the Treasury. As such, its expenditures have to be authorized by Congress. Fed programs are not under the direct control of the Congress.
TARP loans, which never approached the amount authorized, have been repaid.
I get that, which is why I asked above, was the only reason for TARP so that the Treasury Secretary could get to choose who gets the money instead of the FED???
In sum we have a civilization in moral crisis, Ethics, principals and the “Rule of Law’ are on the back burner while the looting continues and the shift of wealth goes to the super wealthy who have a team of well paid enablers including the MSM and the USA government, congress and WH. remember the regent law schools folks they are still in the DOJ pulling power levers to prevent oversight “looking forward”. Still Steaming! FISA, Patriot and much more with the department of homeland ‘surpression’ in every courthouse and on every internet and phone line in the land of the free and the home of the brave.
CWaltz says, “That being said you’re missing the larger point which is that basically the Fed has been used as a giant piggy bank for the well off and connected.”
Believe me, I am not missing the point. We haven’t talked about on this board the real backdoor bailout, which is that if the Fed loans a bank money at 3% and a bank can buy Treasuries yielding 4%, the bank is in effect getting free money on the 1% differential.
But it’s smaller than trillions– a lot smaller. A one percent differential amounts to $10B on a trillion in loans. Plenty to pay fat bonuses to executives, plenty to be angry about, but not the mind-bending sums people are talking about.
My whole purpose is not to convince people that things are OK, or that the bailouts were a good thing. It’s to get them to understand what actually happened so that they don’t sound like idiots when they’re telling off their congressman.
The thing is, Charles, is that TARP wasn’t supposedly meant to be a loan program.
TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of “troubled assets,” defined as “(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.”
Now how much troubled assets did the government acquire and move out of the marketplace? Zero that I can tell. The same bad paper that brought on the fiasco is still out there, and still valued in make-believe future or past value, not what it’s really worth. We got nothing to help improve stability, and the banks got big loans allowing them to operate under business as usual, at the best rates ever.
OldFatGuy asks, “I get that [TARP is a Treasury program that has to be authorized by Congress], which is why I asked above, was the only reason for TARP so that the Treasury Secretary could get to choose who gets the money instead of the FED???”
I’m no mind-reader, OFG. What the Bush Administration did was run to Congress to tell them the world is ending and that they needed $800B immediately, no strings attached, no questions asked, to fix it. The Congress wisely did not agree to that, and did ask questions and attach enough strings that we didn’t get a replay of Baghdad 2003 (in which, you’ll recall, pallets of $100 bills were shipped to the Coalition Authority and disappeared by the billions). In fact, the Administration did not even spend what was authorized.
So, it could be that they asked for the money as they did hoping they could spend it as they pleased. Or they could have been totally incompetent. Or both. But they could not have been both competent and honest in asking for the money the way they did.
Well now see, this is sort of where I’m coming from with my questions.
It seems to me that the whole TARP vote, given that I hope we agree that $800 Billion in loans was next to really NOTHING in the big scheme of things, that the USG is intentionally trying to make folks not understand things.
For example, you use the term bailouts.
What are the bailouts??? The $800Billion TARP that Congress voted on OR the $16T in loans the FED did? Both??? Are they different in some way that it would help when we’re telling off our congressman?
EDIT: Oops, just noticed you answered my last question. Please disregard this one. Didn’t mean to monopolize your brain.
Thanks for the discussion. Not sure you and I agree on a lot, but there’s no doubt in my mind you’re mind is an asset to anyone. Thanks for letting me pick at it a little. *g*
Well said, Charlesll, yet the “bailout” was only the culmination of deceitful long-term behavior, and it is that context and the consequences arising from the destruction of both economic honesty and the rule of law, which must come to be understood.
And, after it is understood, sufficiently, there must be serious and genuine “consequences” for those who “gamed” the system, almost to its possible destruction … or possibly total destruction, and the untold suffering which has resulted and WILL result, “looking forward” … that such a thing (or things) not be allowed OR ENCOURAGED to happen again.
Bear in mind that the economic destruction has been perfectly in harmony with intentional political “process” corruption AND the deliberate and intentional destruction of the rule of law.
These things, which can and will destroy civil society, and they are NOT little things, they are not measured in terms of one percent differentials, but in other, more awful terms.
DW
No, the mortgages that were going to fail have largely failed, nocompromise, and they’re forced to mark to market at this point. I think that’s what the discrepancy between Table 1 and Appendix I in the GAO audit of the Fed on mortgage agencies is about.
As for TARP, most of the assets in the program are gone. Treasury claims to have recovered 76% of them, and to project to make a “profit” on the overall program. Even if you think that all their remaining assets are worthless, it’s $100B.
Yea… there’s lots of folks to blame but let’s remember which folks walked away with a few extra billion in their pocket and which folk were left holding the bag. Some people are much, much richer thanks to the actions of Geitner, Paulson and Bernenke and the American taxpayers are much, much poorer.
You don’t have to know how to poison someone to know that murder is wrong.
I don’t have to know how taxpayer money was pledged to line the pockets of bankers and other Wall Street executives, but I do know that’s exactly what heppened and that was just plain morally wrong!
Yep, and there was a video somewhere (I just searched but failed, again) of these two guys showing what a ripoff the bad mortgages turned into.
The banks could buy a mortgage for pennies on the dollar, and then when the sell it or foreclose, basically get guarantees on the whole original value. I’m probably not describing it exactly right, my memory is so bad, but it went along those lines somehow.
No way in hell THAT’s right either.
EVERYTHING done by the USG is done in the name of the HAVES and at the expense of the rest of us. I don’t think you can get more morally wrong than that.
DWB, the way to deter future such behavior is by jailing perpetrators, defeating complicit congressmen, and make the investment banks pay a high enough penalty through taxes and insurance that they won’t be inclined to repeat the exercise.
The problem is that to actually do that requires political power. The way to gain political power is by using accurate information to persuade lots and lots of people who are not able to access that information because the media sucks and the Democrats are incoherent.
It’s a long, slow process.
Later, all. My hands hurt from all this typing.
You and I is in much ageements, today, save that I think the Dems deliberately complicit, and Obama chief amongst them.
It IS a long, very slow, process.
However, looking to the planet’s ability to support human life, mayhaps we’ve not time enough to suffer, gladly, the many fools and sociopaths who gravitate to the political class?
People who want to “run” things, probably should not be trusted, in the slightest, by the rest of us who, somehow, MUST find the time to clean up after the idiots, atutes, and pusillanimous fabulists who strut so vigorously upon the false stage of political life, making careers and huge fortunes from what should be short-term “acts”, not pretenses, of actual trust and genuine responsibility.
DW
so we loaned out nealy 16,000,000,000,000 dollars to banksta’s all over the world at about 0% interest while we were simultaneously throwing americans into the streets and to the wolves because they had the misfortune of owning an over priced house or having lost their job while paying 27% interest on a credit card.
how messed up is that?
That’s a mighty presumptuous statement considering we’re about to hit a second wave of increased unemployment. Borders is laying off 3000, Cisco 6500, states are still trying to get their fiscal houses in order, I don’t think we’ve seen the ends of defaults on housing, not without an improvement in jobs.
Shared sacrifice baby!
We’ve got trillions to hand out to banks but we’ve got to cut social security before those 1.8 trillion that they have in IOUs come due.
“and they’re forced to mark to market at this point.”; not accurate. The FASB ruling took care of that.
Re: Misunderstanding as a deliberate policy
This is reminiscent of the card game, Boo-Ray. It’s not quite TEGWAR, but it is expensive to learn. The usual offer to lure a new player is, “You get one free Boo-Ray.”
A player who detects another player breaking a rule immediately shouts “Boo-Ray”, whereupon the play to that point is re-examined. If the player did break a rule, he/she must match the pot. If further review shows that the player did not break a rule, that constitutes a Boo-Ray on the player who shouted, and that player matches the pot.
A new player, on committing their second Boo-Ray, typically takes out a wallet, matches the pot, and nervously asks, “Is anything else a Boo-Ray?”
The veteran players all smile knowingly and say simply, “We’ll let you know.”
http://en.wikipedia.org/wiki/Bourr%C3%A9
http://www.pagat.com/rams/boure.html
In this case, we commoners are the new players, and the MOTUs will let us know when we need to take out our wallets again.
Alright, I will abuse my hands one more time to answer this point about where we are in the foreclosure process.
It is certainly true that an economic downturn will cause an increase in the number of foreclosures. Since 2009, standards for mortgage issuance have risen substantially, and the number of mortgages issued has fallen. Few people stay in a mortgage for the full 15-30 year term. They may refinance or, more usually, they move and buy a new house. Anecdotally, it’s thought that people stay in a mortgage for about 5-7 years. That means that by mid-2011, half the mortgages written in ca. 2005 have already turned over, and many refinancings were done under higher standards. The Fed has already disposed of many/most of the MBS on its books.
Of mortgages written prior to 2009, they have had at least 2 1/2 years to fail. Clearly, the worst of them, the ones written for people who simply didn’t have the income to pay the premium, have already failed. One can see the curve of delinquencies and foreclosures here. The number of foreclosures has stalled because of the robosigner scandal. But we certainly appear to be on the downslope. And ARM resets, a major cause of the crisis are clearly about done.
So, of assets on the Fed’s books, either they were written after higher standards were imposed and are less likely to default, or they were written prior to imposition of higher standards, in which case they have already had years to default. New defaults have crested and are receding, and not because employment has gotten substantially better.
Could the economy get worse and trigger more defaults? Sure. But are those assets on the Fed’s books? Unlikely. The Fed bought MBS mostly at the height of the crisis, and has been disposing of them steadily. Approximately $900B of them remain on the books. They have had time to fail. Something like 20% of them (plus or minus a lot) have failed. But if another 20% failed, that would be $180B lost.
Not $16T.
And now my hands are really, really sore.
excellent analysis -
I agree there were losses despite the zero claimed by the audit – but how to calculate that number is not clear as the round trip of a zero loan into a loan back at 3% to the Fed produces the funds that give you a zero loss.
I like having you posting – explaining MMT – etc.
excellent comment (I wish I could write as clearly)
FASB is for non Gov entities – and the 2007, 08 and 09 versions of 157 maintained fair market despite Congress telling the SEC that fair market need not be required:
FAS Statement 157 includes the following:
Clarity on the definition of fair value;
A fair value hierarchy used to classify the source of information used in fair value measurements (i.e., market-based or non-market based);
Expanded disclosure requirements for assets and liabilities measured at fair value; and
A modification of the long-standing accounting presumption that a measurement date-specific transaction price of an asset or liability equals its same measurement date-specific fair value.
Clarification that changes in credit risk (both that of the counterparty and the company’s own credit rating) must be included in the valuation.
FAS 157 defines “fair value” as: “The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
What it ended was a distressed sale establishing the price for all assets in that category.
Meanwhile GASB 34 applies to government accounting – and requires fair value. I only did the pension liability and surplus calculations for a few non-profit and local government plans where fair market was not in question, so I yield to any who know if FAS 157 has an equivalent under GASB.
In any case, no FASB “change” allowed non fair market accounting at the Fed.
Papau, thanks.
I did look more into the issue, and realize it is more complex than I thought, and basically above my pay grade. First, FASB has changed direction to loosen accounting rules when markets lock up. This Grant-Thornton piece says that alternative measures can be used. This is consistent with what you have posted.
As for the Fed, their accounting handbook says they use fair value for TALF and Maiden Lane I-III, but they use a system of cost modified by marking down/up to a separate account for Agencies…assuming I understood them correctly. This would account for the discrepancy between Table 1 and Appendix I.
What I should have said is not that the securities are held at “mark-to-market,” but at fair value, except in the case of Agencies held by the Fed (and possibly other government entities). And that fair value can always be determined by marking to market, but if it is not because markets are illiquid, defined alternative measures must be used.
Glad to have your obviously professional comments. Thank you. :-)
One politically problematic bailout (among the trillions) went to the city of Stamford, CT (from July 2009 to January 2010). Stamford got $63 million via, I believe, the TALF.
Dan Malloy was Mayor of Stamford at that time, up until January 2010.
In November 2010, Dannel Malloy was elected Governor of CT.
In December 2010, we began learning the first details of these bailouts.
Malloy won the election with a plurality of the vote.
THIS is precisely the type of situation that Chris Dodd was hoping to avoid when he delayed the audit results until after November 2010.
Cenk Uygur is SOOO right… the system is corrupt.
Me too !
What evidence for corruption is there, Tim?
I’m not disputing that there may be, but what you’ve posted is a non sequitur.
TALF was a Fed program, so are you alleging that someone, perhaps Chris Dodd, controls Fed decisions?
Having witnessed the sort of misconceptions we have seen on this message board with the preliminary audit, I’m glad there’s some time before the next election so that we can sort out what the audit actually said before jumping off half-cocked.
Thanks, cbl and Old Fat Guy. I’m glad the posts were helpful.
There are three blogs which stand out in contributing greatly to understanding the mortgage crisis and the financial consequences. Those are Calculated Risk, Econbrowser, and Big Picture. As far as I know, they haven’t yet looked at the audit, but they probably will.
Econbrowser can be tough sledding. It’s written at a high level. But both CR and TBP are easy reads.
There are many other blogs, many good blogs, but almost everyone seems to have an ax to grind. While we should always read skeptically, I find I am able to relax when reading EB, CR and (to a lesser degree) TBP.