Congress was unaware of $7.77 trillion in secret Fed loans ahead of TARP vote
The Federal Reserve doled out a staggering 7.77 trillion dollars in secret loans in an effort to stabilize banks during the financial crisis — cheap money from the public purse that the banks subsequently lent out at higher rates for a profit of $13 billion dollars, Bloomberg News reports.
Although Bloomberg has been publishing findings from its analysis of over 29,000 pages of documents since August, the true magnitude of the central bank’s intervention during the economic crisis has only come to light in recent days.
“Add up guarantees and lending limits,” the Bloomberg report states, “and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.”
The $7.77 trillion figure is distinct from the money given to banks under the Treasury Department’s $700 billion Troubled Asset Relief Program bailout endeavor, which was approved by Congress.
At the time of TARP’s passage, members of Congress were unaware of the extent of the Fed’s behind-the-scenes lending activity.
Ohio Democratic Sen. Sherrod Brown told Bloomberg that, although the loans were eventually repaid, access to information regarding the loans may have significantly altered the Congress’ approach to TARP.
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” Brown said, referring to Federal Reserve Chairman Ben Bernanke’s insistence in April 2009 that only “sound institutions” received emergency loans.
The report singles out Bank of America and Citigroup as clear exceptions to Bernanke’s statement; though each bank received $45 billion from TARP, they were at the time also being propped up by $91.5 and $99.4 billion dollars in Fed-approved loans, respectively.
The information, the Bloomberg report notes, was also kept from Congress during debate over the Dodd-Frank financial reform bill in 2010.
The revelation about the secret loans comes during a veritable public image crisis for big banks and the Federal Reserve.
While those who identify as tea partiers have always looked upon the Fed with suspicion, the “Occupy” movement has been particularly vociferous about its opposition to what it sees as unfair collusion between the government and the financial sector.
Indeed, eager to tap into the groundswell of anger, several GOP presidential candidates including former Governors Romney and Huntsman have been outspoken in their opposition the bank bailouts, the latter going as far as to state that he would end “too big to fail” by placing caps on bank size.
Congress has taken notice of the report as well. According to The Hill, Maryland Democratic Rep. Elijah Cummings, a ranking member of the House Oversight and Government Reform Committee, sent a letter to Chairman Darrell Issa on Monday asking that the committee investigate the secret loans.
“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” Cummings wrote.