By Mark Wachtler
November 30, 2011. Washington. (ONN) In 2008, President Bush, Secretary Paulson and Chairman Bernanke crafted a bank bailout program they termed TARP or the Toxic Asset Relief Program. It was created in the middle of the night, over a weekend, because if they didn’t act by Monday they said, there wouldn’t be an America anymore. With confusion and fear in his eyes, President Bush handed the reins of power to the former CEO of Goldman Sachs. And instead of limiting himself to the $700 billion Congress grudgingly approved, Hank Paulson printed $7 trillion dollars, funneled it through the Federal Reserve and handed it over to the world’s biggest banks with no strings attached and in total secrecy.
Hank Paulson, former Goldman Sachs CEO and architect of the bank bailouts
While watching Whiteout Press’ favorite morning business show, 'In Business with Margaret Brennan' on Bloomberg TV, the show was interrupted by a startling announcement. Bloomberg investigators had uncovered details that the most powerful men in Washington and New York were desperate to keep secret. In fact, Bloomberg had to sue the Federal government for access to the events of 2009 and 2010 regarding the US bank bailout. The Federal Reserve however, insisted all details of the largest bank bailout in the history of the world had to be kept completely secret from the American people.
The government fought releasing the secret details all the way the US Supreme Court. Earlier this year, Bloomberg won their lawsuit. Treasury and the FED weren’t going to surrender to the American people that easy however. The FED turned over 29,000 documents and details of 21,000 transactions made during the time period covered by TARP and the nation’s bank bailout. Attempting to handcuff Bloomberg investigators with an avalanche of documentation, imagine their surprise when Margaret Brennan’s show was interrupted yesterday with the unbelievable news that the bank bailout American’s were led to believe was only $700 billion, was actually $7.77 trillion. According to the NY Fed, the total amount of US currency in circulation in the entire world at the time was only $829 billion.
While the events are difficult to follow for anyone who’s not familiar with the strange way America’s banking and economic system works, not to mention all the government and Wall Street secrecy, here’s a novice’s view of what happened during the panicked early days of America’s economic collapse. When the $700 billion bank bailout authorized by Congress wasn’t going to be anywhere near enough to save banks like Goldman Sachs, JP Morgan, Citigroup and Bank of America, Ben Bernanke and the FED opened up the nation’s discount borrowing window – to the tune of $7.77 trillion dollars.
Republican Presidential candidate Ron Paul (R-TX) could do a much better job of explaining the almost criminal nature of the FED than this Whiteout Press author ever could. With his pledge to abolish the FED, Rep Paul might explain – imagine you Joe Citizen walk into your city hall and ask for a $10 billion dollar loan at zero percent interest. They give you, and only you, that loan because you’re ‘special’. You then loan that $10 billion out to others at 5, 10 or 20 percent yearly interest for things like homes, which are guaranteed by the taxpayers, so there’s no risk of nonpayment. When that $15 or $20 billion is paid back to you, you pay back the FED the original $10 billion and keep the rest.
Instead of loaning that $7.77 trillion to the American people as the American government intended, banks throughout the world took advantage of the US taxpayer and used that money to secretly cover massive losses the banks were suffering from their stupidly investing in their own worthless financial instruments – instruments the banks knew were worthless and doomed to fail. Like a modern day shell game, trillions of dollars floated from one banking institution to another, appearing to fill all balance sheet holes everywhere. Not all the banks used the money to fill holes however. Some used it to make massive profits.
The Bloomberg reporting revealed banks like Barclays, Banco Santander and BNP Parabas made a fortune on the US taxpayer program. Barclays turned their money into a $26.7 billion profit. Banco Santander profited $29.2 billion and BNP Parabas made $17.1 billion.
They weren’t alone. According to Bloomberg’s data, 97 different financial institutions around the globe turned their ‘discount window’ into profits during the two years of the financial crisis. The most suspicious part – the US government insisted on keeping every single transaction a secret. In one day alone at the end of 2008, the Federal Reserve gave out $1.2 trillion dollars to banks – the most on any day before or since.
For those who remember, Bank of America was accused of using its funds not to bailout underwater homeowners, but instead to purchase a bank in China. Bank of America made a profit of $14.2 billion using their ‘special’ discount borrowing privilege. Bank of America wasn’t the only player in the middle of the US financial collapse that made massive profits off the US taxpayer. Wells Fargo made $12.1 billion. JP Morgan made $13.8 billion, Goldman Sachs made $12.7 billion, American Express made $1.4 billion, Discover made $1.4 billion, US Bancorp profited $7.2 billion, HSBC made $11.6 billion, PNC Financial $1.4 billion, Lloyds made $9.6 billion and the list goes on and on.
Not all the banks that made massive profits off the US taxpayers during the peak of the financial crisis were well-known American brands. Foreign banks also made billions in profits, including the National Australia Bank, Bank of Toronto, Mitsubishi, Skandinavista, Chang Hwa, the Israel Discount Bank and dozens more.
Not all banks used the US taxpayers to make billions in extra profits. Some banks tried, and lost.
Among the banks that lost money on the secret loan program were Citigroup, losing $29.3 billion, Royal Bank of Scotland lost $45.3 billion, Credit Suisse lost $4.1 billion, Deutsche Bank lost $433 million, Fifth Third lost $1 billion, Wachovia lost $31.6 billion, Merrill Lynch lost $35.9 billion, Arab Banking lost $77 million, Allied Irish Banks lost $3.4 billion, Morgan Stanley lost $3 billion, Industrial Bank of Korea lost $559 million and the list goes on and on.
Readers can take their pick regarding which aspect of this story to be most angry about. Some will be outraged that for-profit banks are taking advantage of the US taxpayer and making billions in free money. Others will be angry that based on the above list, it appears the US taxpayer is also guaranteeing the profits of foreign banks all over the world. And some will be outraged by the fact that the entire story was kept secret from not only the American people, but also their representative in Congress and even officials at the FED.
Bloomberg asked one longtime critic of giant banks, Rep. Sherrod Brown (D-OH), to comment. “When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” she says, “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”
Bloomberg also quotes other individuals who should have been aware of what was going on, but weren’t. Gary H. Stern, Minneapolis FED Chairman at the time, insists he, “wasn’t aware of the magnitude.” Rep. Brad Miller (D-NC), member of the House Financial Services Committee, says, “TARP at least had some strings attached. With the Fed programs, there was nothing.”
With hindsight being 20/20, Bloomberg looked at some of the biggest emergency borrowers and compared their financial situation with the outlook and forecasts made by the bank’s CEO’s to their shareholders. One such example is Ken Lewis, CEO of Bank of America. On November 26, 2008 he informed shareholders that BofA was, “one of the strongest and most stable major banks in the world.” We’ll let you the reader decide - Bank of America owed the US government a staggering $86 billion on that day.
Another example is JP Morgan Chase’s CEO Jamie Dimon. On March 26, 2010, he reassured his shareholders that JP Morgan didn’t need a bailout and only participated in the program in the beginning, “at the request of the Federal Reserve to help motivate others to use the system.” In reality, JP Morgan was still taking advantage of the emergency program and owed the US government $48 billion dollars more than a year after the program began.
As far as the American people go, the two Representatives of theirs in Congress that should have been made aware of what was going on, weren’t. Both the Republican and Democratic overseers of the massive bank bailout, Rep. Judd Gregg (R-NH) and Rep. Barney Frank (D-MA), both confirmed to Bloomberg they were kept in the dark.
“We were aware emergency efforts were going on” Frank said, “We didn’t know the specifics.” Congressman Frank announced his retirement earlier this week. Rep. Judd Gregg simply responded, “We didn’t know the specifics.” Former Congressman Judd Gregg is now employed by Goldman Sachs.
Most Americans couldn’t explain how banks function or how the bank bailout worked if their lives depended on it. But most assume the US taxpayer loaned billions to banks to save the industry and avoid economic collapse, rampant unemployment and a housing crash. But if one were to take a step back and look at the new landscape, a new picture emerges of what the bank bailout was really about. In the five years from before the crisis in 2006 to after the crisis in 2011, the six largest US banks increased their assets, or money and property they own, from $6.8 trillion dollars to $9.5 trillion.
Dallas Federal Reserve President Richard Fisher summed up the thoughts of many when he called that fact, “un-American”. For more information about the US economic collapse, read the Whiteout Press Special Report, ‘What Caused America’s Economic Collapse’. Special thanks to Bloomberg Marketplace for their detailed reporting.