News of secret Fed bailouts has come out in a recent GAO report. The first audit of the Federal Reserve under the 2011 Wall Street Reform Law reveals the Federal Reserve made secret loans in the amount of $16 trillion.
According to Senator Bernie Sanders’ (I-VT) website, the trillions of dollars went to bail out American and foreign banks and businesses. An amendment by Sanders to that reform law directed the Government Accountability Office to conduct the study. "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," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."
The GAO report revealed that these loans went to banks and corporations in countries from South Korea to Scotland. The non-partisan, investigative arm of Congress also concluded that the Fed has no comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that received emergency loans.
One example cited by the GAO involves the CEO of JP Morgan Chase who served on the New York Fed's Board of Directors at the same time that his bank received more than $390 billion from the Fed. In addition, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.
In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds. The Fed claims one reason they did not make Dudley sell his holdings was that it might have created the appearance of a conflict of interest.
Sanders concluded, "No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed's board of directors or be employed by the Fed."
The investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors who were, in many cases recipients of extremely low-interest and then-secret loans. Private contractors included JP Morgan Chase, Morgan Stanley, and Wells Fargo all of which received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded were no-bid contracts. Morgan Stanley received the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.
The Fed operates without oversight from any branch of government, a situation Sanders would like to see rectified. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said.
Below is a list from the GAO report of the top 18 recipients of emergency funds. The amounts are given in billions of dollars.
Citigroup Global Markets Inc. $1,756.8
Morgan Stanley & Co. Inc. $1,364.4
Merrill Lynch Government Securities Inc. $1,281.8
Bear Stearns & Co., Inc. $ 850.8
Banc of America Securities LLC $ 845.6
Goldman Sachs & Co. $ 433.6
Barclays Capital Inc. $ 410.4
J. P. Morgan Securities Inc. $ 112.3
Lehman Brothers Inc. $ 83.3
Countrywide Financial Corporation $ 75.6
BNP Paribas Securities Corp. $ 66.4
Mizuho Securities USA Inc. $ 42.3
UBS Securities LLC. $ 35.4
Cantor Fitzgerald & Co. $ 28.1
Credit Suisse Securities (USA) LLC $ 1.5
Deutsche Bank Securities Inc. $ 0.5
Daiwa Securities America Inc. $ 0.4
Dresdner Kleinwort Securities LLC $ 0.1
Total $7,389.4
Here is the complete GAO Report
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