Fed Gave Banks Crisis Gains on $80 Billion Secretive Loans as Low as 0.01%

Credit Suisse Group AG (CS), Goldman Sachs Group Inc. (GS) and Royal Bank of Scotland Group Plc (RBS) each borrowed at least $30 billion in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public.

The $80 billion initiative, called single-tranche open- market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc.

Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 percent that December, when the Fed’s main lending facility charged 0.5 percent.

“This was a pure subsidy,” said Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc. “The Fed hasn’t been forthcoming with disclosures overall. Why should this be any different?”

The Federal Reserve Bank of New York, which oversaw ST OMO, posted aggregate data about the program on its website after each auction, said Jeffrey V. Smith, a New York Fed spokesman. By increasing the availability of short-term financing when private lenders were under pressure, “this program helped alleviate strains in financial markets and support the flow of credit to U.S. households and businesses,” he said.
Not in Dodd-Frank

Congress overlooked ST OMO when lawmakers required the central bank to publish its emergency lending data last year under the Dodd-Frank law.

“I wasn’t aware of this program until now,” said U.S. Representative Barney Frank, the Massachusetts Democrat who chaired the House Financial Services Committee in 2008 and co- authored the legislation overhauling financial regulation. The law does require the Fed to release details of any open-market operations undertaken after July 2010, after a two-year lag.

Records of the 2008 lending, released in March under court orders, show how the central bank adapted an existing tool for adjusting the U.S. money supply into an emergency source of cash. Zurich-based Credit Suisse borrowed as much as $45 billion, according to bar graphs that appear on 27 of 29,000 pages the central bank provided to media organizations that sued the Fed Board of Governors for public disclosure.

New York-based Goldman Sachs’s borrowing peaked at about $30 billion, the records show, as did the program’s loans to RBS, based in Edinburgh. Deutsche Bank AG (DBK), Barclays Plc (BARC) and UBS AG (UBSN) each borrowed at least $15 billion, according to the graphs, which reflect deals made by 12 of the 20 eligible banks during the last four months of 2008.
No Exact Amounts

The records don’t provide exact loan amounts for each bank. Smith, the New York Fed spokesman, would not disclose those details. Amounts cited in this article are estimates based on the graphs.

One effect of the program was to spur trading in mortgage- backed securities, said Lou Crandall, chief U.S. economist at Jersey City, New Jersey-based Wrightson ICAP LLC, a research company specializing in Fed operations. The 20 banks -- previously designated as primary dealers to trade government securities directly with the New York Fed -- posted mortgage securities guaranteed by government-sponsored enterprises such as Fannie Mae or Freddie Mac in exchange for the Fed’s cash.

ST OMO aimed to thaw a frozen short-term funding market and not necessarily to aid individual banks, Crandall said. Still, primary dealers earned spreads by using the program to help customers, such as hedge funds, finance their mortgage securities, he said.

http://www.bloomberg.com/news/2011-...gains-on-secretive-loans-as-low-as-0-01-.html

I will only comment: 0.01%. Ha, ha, ha. Fedsters + banksters= America´s downfall.[/b

 

You would think that some of the politicians/civil servants are ashamed at how naive this makes the government look.

The banksters must be laughing at how easy it was to take the government for one massive ride.

When somebody makes a fool out of me, I learn from it AND then do something about it. Proves how gutless and/or bought the political class has really become.

 

Are you kidding? Some of those politician/gov't hacks wrote the book on gaming the system and ripping off the public. No shortage of criminals in either sphere. Fish rots from the head down.

 

next time they will give 880 billion secretive loans with negative interests.
and yet again the american public will be more interested in futbol, hamburgers and celebrity gossips.

 

only when 40% or more USA citizens will be homeless, hungry and without their 50 inch plasmas to watch futbol, they will maybe begin to get angry at gov.

 

the government should have just gauranteed interbank lending. they didn't have to resort to these tactics.

 

What makes me sick is I bet 80%+ of them put those US flags on their lapels, thinking their great patriots.

 

Where did Asiaprop and KrazyKarl go? The planet's two biggest pumpers of GS? The proclaimers of GS's financial prowess and brilliance? As the cloth comes back it reveals GS's brilliance is rooted in its abilities in the subject of thievery.

 

Exactly fucking right, that's the entire problem, no one cares but a few handful of people about whats really going on....its really pathetic to see this kind of news go totally unnoticed by millions of people. As you said more people are interested in such worthless dribble that the real news that's out there such as this news about billions of dollars in secretive loans will continue to go unnoticed just like all the rest of the news about whats really going on behind this biggest bailout in history still unfolds.

 

agree.....