Fed 2 Trillion Dollar Loan

[El Guapo 8]

This is not goodhttp://www.bloomberg.com/apps/news?pid=206...&refer=home

Fed Defies Transparency Aim in Refusal to Disclose (Update2)By Mark Pittman, Bob Ivry and Alison FitzgeraldEnlarge Image/DetailsNov. 10 (Bloomberg) -- 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.``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''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.''Treasury, Fed, ObamaFederal 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.President-elect Barack Obama's economic adviser, Jason Furman, also didn't respond to an e-mail and a phone call seeking comment from Obama. In a Sept. 22 campaign speech, Obama promised to ``make our government open and transparent so that anyone can ensure that our business is the people's business.''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. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.Sept. 14 DecisionBefore 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, some with lower ratings. The Fed collects interest on all its loans.The plan to purchase distressed securities through TARP called for buying at the ``lowest price that the secretary (of the Treasury) determines to be consistent with the purposes of this Act,'' according to the Emergency Economic Stabilization Act of 2008, the law that covers TARP.The legislation didn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' In a reverse auction, bidders offer to sell securities at successively lower prices, helping to ensure that the Fed would pay less. The measure also included a five-member oversight board that includes Paulson and Bernanke.At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.`We Need Transparency'``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.The Fed lent cash and government bonds to banks, which gave the Fed collateral in the form of equities and debt, including subprime and structured securities such as collateralized debt obligations, according to the Fed Web site. The borrowers have included the now-bankrupt Lehman Brothers Holdings Inc., Citigroup Inc. and JPMorgan Chase & Co.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.Frank Backs Fed``You have to balance the need for transparency with protecting the public interest,'' Talbott said. ``Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.''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. ``If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' Such losses would be acceptable, he said, if the program helps revive the economy.`Unclog the Market'Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc.``I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. ``That would unclog the market very quickly.''TARP's $700 billion so far is being used to buy preferred shares in banks to shore up their capital. The program was originally intended to hold banks' troubled assets while markets were frozen.AIG LendingThe 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.''The Fed has lent at least $81 billion to American International Group Inc., the world's largest insurer, so that it can pay obligations to banks. AIG today said it received an expanded government rescue package valued at more than $150 billion.The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.``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.Ratings CutsUltimately, 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 BailoutSleuth.com, 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).To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net; Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net.Last Updated: November 10, 2008 15:08 EST

[hblask 1]

I keep thinking the federal government won't get worse, and I'm always wrong.

[No_Neck 0]

I keep thinking the federal government won't get worse, and I'm always wrong.

[Loismustdie 0]

I keep thinking the federal government won't get worse, and I'm always wrong.

Less government intervention, how many times do we have to say that? I was for the bailout if it was to be used for what it was intended but what was passed gave these guys way to much play.

[dapokerbum 0]

Less government intervention, how many times do we have to say that? I was for the bailout if it was to be used for what it was intended but what was passed gave these guys way to much play.

So you really believed that there would be NO shenanigans with 700billion and our government. I thought you were smarter than this.And I don't mean this as a slam.

[grocery_mony 8]

What a scam. It wasnt a bailout it was basically a trillion dollar corporate America stick up of the working class of America. Give us the money or society as you know it will fall apart. I support small independent business as much as possible in todays world I wish more people wopuld do the same.

[El Guapo 8]

What a scam. It wasnt a bailout it was basically a trillion dollar corporate America stick up of the working class of America. Give us the money or society as you know it will fall apart. I support small independent business as much as possible in todays world I wish more people wopuld do the same.

But, but.......you're....Canadian?

[grocery_mony 8]

But, but.......you're....Canadian?

Should have put qoutes on that basically thats what Corporate America was saying when they rammed this through.Canada is far from immune. If you guys bailout Detroit we will have to do the same to keep them happy here in Canada.

[85suited 0]

This is exactly why I dont want the government in health care

[akoff 0]

This is exactly why I dont want the government in health care

[Nimue1995 1]

I'd like to remind you all that this is happening under a Republican administration not a Democratic one. Also it looks like there was enough comment from the people to their Senators that they decided to table the discussion of the Auto bailout until December 8th. Guess they figure if all of us are full of turkey and stuffing that we won't mind this mindless idiocy stuffed down our throats too. I really didn't know where I stood on the auto bailout until now. And now like the Wall Street bailout, I'm foursquare against it and will be writing my Senators *sigh* AGAIN. Lol, they may get tired of hearing from me if this keeps up. As for the 2 trillion dollars that we don't know to whom it was loaned, under what terms, I say we need to know and I applaud Mike Bloomberg for filing the suit. I KNEW I liked that guy for a reason . Wish he had ran for President this time around. He'd probably have gotten my vote.

[Loismustdie 0]

So you really believed that there would be NO shenanigans with 700billion and our government. I thought you were smarter than this.And I don't mean this as a slam.

No, I didn't. I didn't like the final draft because of this very thing. No oversight, the power to pretty much do anything. Not a good thing.

[Loismustdie 0]

I'd like to remind you all that this is happening under a Republican administration not a Democratic one. Also it looks like there was enough comment from the people to their Senators that they decided to table the discussion of the Auto bailout until December 8th. Guess they figure if all of us are full of turkey and stuffing that we won't mind this mindless idiocy stuffed down our throats too. I really didn't know where I stood on the auto bailout until now. And now like the Wall Street bailout, I'm foursquare against it and will be writing my Senators *sigh* AGAIN. Lol, they may get tired of hearing from me if this keeps up. As for the 2 trillion dollars that we don't know to whom it was loaned, under what terms, I say we need to know and I applaud Mike Bloomberg for filing the suit. I KNEW I liked that guy for a reason . Wish he had ran for President this time around. He'd probably have gotten my vote.

It's only being tabled so they can approve it when Obama takes office, that way they have an out, because he will be for it.

[Jeepster80125 0]

I'd like to remind you all that this is happening under a Republican administration not a Democratic one. Also it looks like there was enough comment from the people to their Senators that they decided to table the discussion of the Auto bailout until December 8th. Guess they figure if all of us are full of turkey and stuffing that we won't mind this mindless idiocy stuffed down our throats too. I really didn't know where I stood on the auto bailout until now. And now like the Wall Street bailout, I'm foursquare against it and will be writing my Senators *sigh* AGAIN. Lol, they may get tired of hearing from me if this keeps up. As for the 2 trillion dollars that we don't know to whom it was loaned, under what terms, I say we need to know and I applaud Mike Bloomberg for filing the suit. I KNEW I liked that guy for a reason . Wish he had ran for President this time around. He'd probably have gotten my vote.

You're holding republicans only to blame for what's going on with this?Seriously?

[copernicus 0]

You're holding republicans only to blame for what's going on with this?Seriously?

Youre responding to her with a serious question? Seriously?

[Nimue1995 1]

You're holding republicans only to blame for what's going on with this?Seriously?

Okay it was a little jab at you guys. But you have to admit that under Henry Paulson we've had more socialism than much of any administration previously with the possible exception of FDR and LBJ. And Paulson's got more socialism with less oversight than any of them. You all are worried about Obama bringing on socialist ideas. But with Obama you know what you're getting at least. With Bush, I have a feeling that there were quite a number of you that were blindsided by the Bushrino. Of course, I don't expect that any of you will admit that. But it's obvious that there were Republicans that voted for Obama. So somewhere out there, there were a large number of very disillusioned Republicans.

[85suited 0]

Okay it was a little jab at you guys. But you have to admit that under Henry Paulson we've had more socialism than much of any administration previously with the possible exception of FDR and LBJ. And Paulson's got more socialism with less oversight than any of them. You all are worried about Obama bringing on socialist ideas. But with Obama you know what you're getting at least. With Bush, I have a feeling that there were quite a number of you that were blindsided by the Bushrino. Of course, I don't expect that any of you will admit that. But it's obvious that there were Republicans that voted for Obama. So somewhere out there, there were a large number of very disillusioned Republicans.

Do we really need to go thru this again for you?Congress was persuaded to pressure the mortgage industry to provide loans to those it claimed it had been unjustly denied loans in the past – the poor, blacks, et.al. This created the Community Re Investment Act. The mortgage companies were basically told to make loans with lower standards than in the past…or else. If they played ball, unlimited funds would be available from Freddie Mac (FRE) and Fannie Mae (FNM). If they didn’t play ball… well, John Edwards is a great trial lawyer going after those evil big corporationsAt the center of what turned into a highly unsound feeding frenzy were Freddie Mac and Fannie Mae, ostensibly private companies but ones where the leadership were politically appointed. Basically, these two institutions were run by political hacks Franklin Raines and Jim Johnson, both of whom have worked as advisers to Barack Obama this year, feeding the mortgage industry with billions of dollars earmarked for loans to those who previously didn’t qualify for home ownership.Around 2003, Fannie/Freddie admitted that their financial statement couldn’t be relied upon, and it’s not clear that they ever put them in order since. There were several proposals from The White House in recent years to change this system drastically, but efforts to do so were rebuffed by Congress and in particular Chris Dodd and Barney Frank. As long as home prices kept rising, these highly unsound practices didn’t bother most people. In fact, the companies who originated the mortgages managed to sell them to Wall Street firms such as Bear Stearns and Lehman Brothers (LEH), who were looking to obtain higher yields on their proprietary trading portfolios. Leveraging up over 30:1, this became very profitable for those firms, until the bubble burst. Remember, at 30:1 leverage, you are bankrupt at as soon as losses exceed 3%.and Now Bush/Paulson are left to pick up the pieces and institute more socialism

[Nimue1995 1]

There's plenty of blame to go around including Paulson who was head of Goldman Sachs during a great deal of this profiteering. No matter how you slice it, plain greed put us in this position. And all those firms were happy to take a piece of the pie no matter what the risk. Nobody put guns to their heads and told them to make credit default wagers which is the major problem now. Yes some loans may have defaulted but you wouldn't have the cascading effect that is going on now. And I doubt we've seen even the half of it. Now with 2 trillion in mystery loans out there. I know you want to convince me that it's all the fault of Freddie and Fannie and certainly they have a good-sized part in it. But it's not the whole story and you know it.

[FCP Bob 1,312]

I'm going to play Devil's Advocate here for a bit so please bare with me.This type of lending in an financial crisis is exactly what the Federal Reserve system is designed to do as one of it's mandates is to be the lender of last resort for financial institutions. One of the longstanding policies that the Fed has is to keep the names of institutions using them in situations like this private so that there isn't a panic and a run on the bank causing even more problems.I found the following that lists the types of collateral that the Fed excepts for these type of loans and I'm sure there is probably a lot of crap that they are accepting.http://www.frbdiscountwindow.org/cfaq.cfm?...D=21&dtlID=

What collateral is available for pledge at the discount window?The Reserve Banks will consider accepting as discount window collateral any assets that meet regulatory standards for sound asset quality. A listing of the most commonly pledged asset types can be found by clicking on the Collateral Margins Table on this site. Depository institutions should direct questions regarding specific assets to local Reserve Bank staff.How does the Federal Reserve determine lendable value for securities?The Federal Reserve uses market prices when available. A margin is applied to the market price to determine the lendable value. When a market price is not available, a margin is applied to the outstanding balance.May a depository institution pledge asset-backed commercial paper?Reserve Banks accept investment-quality commercial paper. Asset-backed commercial paper is viewed as a particular type of commercial paper and thus is eligible for consideration. Reserve Bank discount window staff may request information on the structure and/or the quality of the underlying assets in order to assign appropriate lendable value.May a depository institution pledge sub-prime mortgages?The Reserve Banks accept performing mortgages. This could include sub-prime mortgages.May a depository institution pledge a structured debt obligation containing sub-prime mortgages in the underlying collateral?Debt obligations containing subprime mortgages are acceptable as collateral if they meet Reserve Bank eligibility requirements, including credit quality and tranche type. AAA-rated collateralized debt and mortgage obligations are examples of eligible structured debt obligations.

[85suited 0]

No matter how you slice it, government intervention into free markets put us in this position.

FYP

[El Guapo 8]

I'm going to play Devil's Advocate here for a bit so please bare with me.This type of lending in an financial crisis is exactly what the Federal Reserve system is designed to do as one of it's mandates is to be the lender of last resort for financial institutions. One of the longstanding policies that the Fed has is to keep the names of institutions using them in situations like this private so that there isn't a panic and a run on the bank causing even more problems.I found the following that lists the types of collateral that the Fed excepts for these type of loans and I'm sure there is probably a lot of crap that they are accepting.http://www.frbdiscountwindow.org/cfaq.cfm?...D=21&dtlID=

I actually agree with you bob, I said this a few weeks ago. This is the exact reason we have a federal reserve banking system.The lack of transparency is the problem here.As for the bailout, the lack of an actual plan is the problem.

[FCP Bob 1,312]

I actually agree with you bob, I said this a few weeks ago. This is the exact reason we have a federal reserve banking system.The lack of transparency is the problem here.As for the bailout, the lack of an actual plan is the problem.

I wonder if some sort of compromise will happen where they provide a lot of information about the collateral and other things without releasing the names of the institutions that have taken out the loans.

[copernicus 0]

I wonder if some sort of compromise will happen where they provide a lot of information about the collateral and other things without releasing the names of the institutions that have taken out the loans.

The institutions' next financial statements will have the information anyway.