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First Audit Results In The Federal Reserve's Nearly 100 Year History


By Patrick   Follow   Thu, 29 Nov 2012, 1:29am PST   2,270 views   41 comments
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http://beforeitsnews.com/economy/2012/09/first-audit-in-the-federal-reserves-nearly-100-year-history-were-posted-today-the-results-are-startling-2449770.html

The first ever GAO (Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill(HR1207), so that a complete audit would not be carried out.

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pazuzu   Thu, 29 Nov 2012, 1:48am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 2

Patrick c'mon we cannot trust the harvesting of the sheeps labor to common folk. This is best left to top notch sociopaths, and sociopaths prefer to work in secret.

CaptainShuddup   Thu, 29 Nov 2012, 3:22am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 3

The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest.

That's a goddamn lie Iwog told me it was all paid back.

Ben Bernanke (pictured to the LEFT), Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets.

Though I can understand why Iwog would believe him, he is a handsome devil, and they speak the same language, Outofmyassanese.

michaelsch   Thu, 29 Nov 2012, 3:54am PST   Share   Quote   Permalink   Like (3)   Dislike     Comment 4

And they complain about food stamps expenses.

iwog   Thu, 29 Nov 2012, 4:04am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 5

CaptainShuddup says

That's a goddamn lie Iwog told me it was all paid back.

I said nothing of the sort.

CaptainShuddup says

Though I can understand why Iwog would believe him, he is a handsome devil, and they speak the same language, Outofmyassanese.

Wow, mentioned twice in one post in a thread I wasn't participating in. I'm honored!

iwog   Thu, 29 Nov 2012, 4:13am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 6

iwog   Thu, 29 Nov 2012, 4:22am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 7

I dug deeper into the actual audit itself and found numerous misunderstandings and misrepresentations by the article.

For example here's a breakdown of the $16 trillion:

Unless you read the explanation however, these numbers are totally meaningless and DO NOT represent $16 trillion lent by the fed. From the audit:

Table 8 aggregates total dollar transaction amounts by adding the total dollar amount of all loans butdoes not adjust these amounts to reflect differences across programs inthe term over which loans were outstanding. For example, an overnightPDCF loan of $10 billion that was renewed daily at the same level for 30business days would result in an aggregate amount borrowed of $300billion although the institution, in effect, borrowed only $10 billion over 30 days. In contrast, a TAF loan of $10 billion extended over a 1-monthperiod would appear as $10 billion. As a result, the total transactionamounts shown in table 8 for PDCF are not directly comparable to thetotal transaction amounts shown for TAF and other programs that madeloans for periods longer than overnight.

Overnight lending by the federal reserve to banks and governments has ALWAYS been a function of the federal reserve. The only significant difference between now and days past is that the money is essentially at 0%.

Goran_K   Thu, 29 Nov 2012, 4:59am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 8

CaptainShuddup says

they speak the same language, Outofmyassanese.

I've had Iwog on ignore for a while, but I'm glad to see things haven't changed. :)

david1   Thu, 29 Nov 2012, 5:01am PST   Share   Quote   Permalink   Like   Dislike     Comment 9

iwog says

I dug deeper into the actual audit itself and found numerous misunderstandings and misrepresentations by the article.

What, you mean to tell me a Paulbot blogger misrepresented a story about the evil Federal Reserve?

The hell you say.

I had this same conversation on patrick.net a few months back about a (I think was a) Forbes article re: TARP.

That article was the same thing: Banks borrowed money, they paid it back, borrowed again. The article reported the total loaned money, not the maximum loaned at any time.

The maximum risk to the taxpayer at any one time was many times less than $16T.

The audit found that the Federal Reserve made overnight loans to banks? What? Who authorized them to do that?

http://en.wikipedia.org/wiki/Federal_Reserve_Act

Oh.

michaelsch   Thu, 29 Nov 2012, 6:10am PST   Share   Quote   Permalink   Like   Dislike     Comment 10

iwog says

I dug deeper into the actual audit itself

Provide a link pleeeeese!!!!

david1   Thu, 29 Nov 2012, 8:15am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

michaelsch says

iwog says

I dug deeper into the actual audit itself

Provide a link pleeeeese!!!!

If you follow the link in the OP, you have it. He posted a screenshot of it.

Aw fuck it.

http://www.sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf

TechGromit   Thu, 29 Nov 2012, 11:37am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 12

Patrick says

The Federal Reserve should not exist.

Blasphemy! Before the creation of the federal reserve, the country suffered an economic depression / deep recession roughly every 2 to 3 years. One of them as 5 1/2 years long, several others longer than 4 years. Since the creation of the Federal Reserve recessions have been shorter in duration (averaging 1 year) and farther apart (an average of every 6 years).

The Federal Reserve does a lot to stabilize the economy. The federal reserve may not be perfect, but it is certainly better than anything we had before.

Patrick   Thu, 29 Nov 2012, 11:47am PST   Share   Quote   Permalink   Like (4)   Dislike     Comment 13

The Federal Reserve itself caused the latest recession with irresponsibly low interest rates after the dot-com bubble.

I have not seen any convincing evidence that the Federal Reserve has benefitted anyone except bankers.

And just as a matter of principle, central planning of the economy is offensive.

JohnLaw   Thu, 29 Nov 2012, 11:49am PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 14

TechGromit says

Since the creation of the Federal Reserve recessions have been shorter in duration (averaging 1 year) and farther apart (an average of every 6 years).

Like that little recession known as the Great Depression? As I recall, the FED was around back then.

Patrick   Thu, 29 Nov 2012, 11:51am PST   Share   Quote   Permalink   Like (3)   Dislike     Comment 15

Yeah, they weren't too good at preventing the Great Depression either, were they?

Funny I forgot about that one. Myopia.

Bellingham Bill   Thu, 29 Nov 2012, 11:55am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 16

Patrick says

caused the latest recession with irresponsibly low interest rates after the dot-com bubble.

This is incorrect. Rising interest rates of 2006 did not cause the crash, so saying the corresponding cuts were responsible is not getting at the true dynamic going on last decade.

The crash came from all the suicide lending running out of borrowers able to overpay for the houses, ca 2007.

This topped out the home equity withdrawal cycle in 2007, and then Down Goes Frazier.

The Greenspan interest rate cuts certainly got the used home market moving up, but so did the 2001-2003 tax cuts.

That was just the boom. The bubble of 2005-2007 was from the unsustainable suicide lending. Fraud, basically: negative-am borrowing, stated income loans, and qualifying people on the 2 year teaser rates (all lending practices that have been banned now).

The Fed had oversight responsibility here, but nobody cared. The Dems in the minority like Barney Frank didn't cover themselves in glory raising any red flags in protest. Quite the opposite in Frank's case.

Bellingham Bill   Thu, 29 Nov 2012, 12:12pm PST   Share   Quote   Permalink   Like   Dislike     Comment 17

http://research.stlouisfed.org/fred2/graph/?g=dh6

blue shows home values topped out in 1Q06.

but red shows borrowers kept borrowing money through 2007 -- homedebt rose $1.4T in 2006-2007 period, ~$60B per month.

http://research.stlouisfed.org/fred2/graph/?g=dh8

makes it appear that the Fed was overstimulating the economy 2004-2006, but looking at fed rates too (red):

http://research.stlouisfed.org/fred2/graph/?g=dh9

shows that loan rates were decoupled from Fed policy during the bubble years.

The market had a mind of its own.

Patrick   Fri, 30 Nov 2012, 3:36am PST   Share   Quote   Permalink   Like   Dislike     Comment 18

Bellingham Bill says

That was just the boom. The bubble of 2005-2007 was from the unsustainable suicide lending. Fraud, basically: negative-am borrowing, stated income loans, and qualifying people on the 2 year teaser rates (all lending practices that have been banned now).

The Fed had oversight responsibility here, but nobody cared. The Dems in the minority like Barney Frank didn't cover themselves in glory raising any red flags in protest. Quite the opposite in Frank's case.

True, everyone concentrates on the Fed's role in interest rates, but from working at Wells Fargo I remember that they also have oversight over lending standards, and can choose to look the other way or not when banks loosen up lending.

Bellingham Bill   Fri, 30 Nov 2012, 3:44am PST   Share   Quote   Permalink   Like   Dislike     Comment 19

I can't believe somebody "Disliked" my 7:55pm above.

What I said was completely factual on all points.

iwog   Fri, 30 Nov 2012, 3:50am PST   Share   Quote   Permalink   Like   Dislike (2)     Comment 20

Bellingham Bill says

I can't believe somebody "Disliked" my 7:55pm above.

What I said was completely factual on all points.

That and eight bits will buy you a coffee at McDonald's.

You gotta make people laugh here or say something amazingly profound to get the likes. Apocalypsefuck is a professional at it.

Dan8267   Fri, 30 Nov 2012, 5:01am PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 21

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.

That says everything. The entire debt could have been paid back and there would have been more than enough money to eliminate the deficit as well. Instead, we bailed out a few too-big-too-fail banks for getting greedy during the housing bubble that has kept us all renters or fucked borrowers.

And where did the Fed get that $16 trillion from? Was it from producing goods and services? No. They got it from you and me through inflation. They literally stole this $16 trillion from our pocketbooks. That's $53,333 from every man, woman, and child in America. That's $140,060 from every household in America according to the 2010 census.

Geeze, couldn't you do something better with $140K tax free than bail out some old banker? You could buy a house for that. And that's just what the Federal Reserve stole from you this one time. Over your lifetime, they steal the majority of your money. No wonder they don't want to be audited. In other news, rapists cry out against DNA tests.

Dan8267   Fri, 30 Nov 2012, 5:05am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 22

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

These banks should have to pay credit normal 17% credit card rates on those loans and a cash-advancement fee of 4%, just like these banks charge.

iwog   Fri, 30 Nov 2012, 5:23am PST   Share   Quote   Permalink   Like   Dislike     Comment 23

$16 trillion was never lent/given to anyone. It's an aggregate total that is being misused in the political press.

While I agree that Citigroup should have been nationalized and carved up instead of bailed out, they did not in fact receive $2.5 trillion and they have paid most or all of what they did receive back to the fed.

ja   Fri, 30 Nov 2012, 5:40am PST   Share   Quote   Permalink   Like   Dislike     Comment 24

Didn't we decide this was a myth?

http://www.hks.harvard.edu/var/ezp_site/storage/fckeditor/file/pdfs/centers-programs/centers/taubman/PB_housing_2010_final.pdf

Patrick says

The Federal Reserve itself caused the latest recession with irresponsibly low interest rates after the dot-com bubble.

I have not seen any convincing evidence that the Federal Reserve has benefitted anyone except bankers.

And just as a matter of principle, central planning of the economy is offensive.

Patrick   Fri, 30 Nov 2012, 5:44am PST   Share   Quote   Permalink   Like   Dislike     Comment 25

iwog says

While I agree that Citigroup should have been nationalized and carved up instead of bailed out, they did not in fact receive $2.5 trillion and they have paid most or all of what they did receive back to the fed.

Sure looks like Citigroup did in fact receive $2.5 trillion, most of which was via the Primary Dealer Credit Facility:

http://en.wikipedia.org/wiki/Primary_Dealer_Credit_Facility

The creation of the Primary Dealer Credit Facility constitutes the first time in the history of the Federal Reserve that the Fed has lent directly to investment banks, and it reflects the severity of the financial crisis perceived by Federal Reserve Chairman Ben Bernanke.[3] Non-bank institutions such as investment banks exist outside the Fed's regulatory structure. A full detail of the nominal value of loans outstanding through the PDCF is available in the Federal Reserve's public balance sheet.[4]

iwog   Fri, 30 Nov 2012, 5:47am PST   Share   Quote   Permalink   Like   Dislike     Comment 26

Patrick says

Sure looks like Citigroup did in fact receive $2.5 trillion, most of which was via the Primary Dealer Credit Facility:

PDCF loans are overnight loans and the $2 trillion is aggregate. That means if Citigroup borrowed and paid back $10 billion per day for a whole month, it would be counted as $300 billion.

Citibank would have no use for $2.5 trillion since their total liabilities from all sources do not exceed $1.2 trillion. That's what I mean by these numbers being misused.

JohnLaw   Fri, 30 Nov 2012, 5:49am PST   Share   Quote   Permalink   Like (3)   Dislike     Comment 27

iwog says

they have paid most or all of what they did receive back to the fed.

With all due respect, when any of the NY bankers say they "paid it back" they need to change that statement to, "savers were forced to pay it back through financial repression." Until the FED opens it's lending window to the general public who will then be able to borrow unlimited sums at negative real interest rates, the banks did nothing. The public, and especially savers, still pays for their mistakes. As far as I'm concerned banker compensation needs to be capped at USG civil servant wage scales because without the USG and the FED and the taxpayers, most would not even have a job and the remaining would be in an industry a fraction of the size it is today.

All of the NYC money center banks that had to borrow funds from the FED should have been nationalized, held in receivership, bondholders haircuts to all and then resold!

iwog   Fri, 30 Nov 2012, 5:59am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 28

JohnLaw says

With all due respect, when any of the NY bankers say they "paid it back" they need to change that statement to, "savers were forced to pay it back through financial repression."

I agree with you completely that the government and the fed should not be in the business of enriching banks. I think that it's an abomination that the CEO of Citibank is paid millions of dollars a year for doing nothing more than taking free money and charging Americans interest on it.

I just want to make sure we're not feeding the media trolls by insisting $16 trillion was printed up and distributed around the world. It wasn't.

Patrick   Fri, 30 Nov 2012, 6:03am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 29

Ah, I see the explanations now, above and below this table:

http://www.scribd.com/doc/60553686/GAO-Fed-Investigation#outer_page_144

So while the total loans made to Citigroup were indeed $2.5 trillion, most of them were very short. So when you multiply out the days times amounts, Citigroup alone got the equivalent of $58 billion loaned to them at near-zero interest for one year.

For all the banks, the term-adjusted loans were $1.139 trillion for one year, at public expense.

Still very good work if you can get it.

iwog   Fri, 30 Nov 2012, 6:05am PST   Share   Quote   Permalink   Like   Dislike     Comment 30

Patrick says

Still very good work if you can get it.

If someone loaned me $100 billion for a month, I guarantee I would pay it back and never have to work again.

Bellingham Bill   Fri, 30 Nov 2012, 6:09am PST   Share   Quote   Permalink   Like   Dislike     Comment 31

iwog says

If someone loaned me $100 billion for a month,

http://research.stlouisfed.org/fred2/series/DGS1MO

(even 0.16% on $100B is a cool $13M in yield)

iwog   Fri, 30 Nov 2012, 6:11am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 32

Bellingham Bill says

iwog says

If someone loaned me $100 billion for a month,

http://research.stlouisfed.org/fred2/series/DGS1MO

Exactly. You pick up on things pretty quick. ; )

Risk-free return on $100 billion in a single month is just over $13 million. No wonder the banks got solvent in a hurry.

Patrick   Fri, 30 Nov 2012, 6:18am PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 33

It was still a giant gift of money to badly run banks, exactly because they were badly run. That's very ugly.

You might say "it was an emergency and so we should give up our rights and our cash to stay safe" but why is it that when the little guy screws up he goes bankrupt or gets foreclosed on, but when the bankers screw up they get bonuses for it? And no CEO or other high-up banker went to jail at all.

If the banks can flip the coin over and over and it's always "heads we win, tails YOU all lose" then why shouldn't they keep doing that?

I want to see some banker heads on sticks, and the heads of the whole Federal Reserve board too.

Beyond that, I want mortgage lending limited by law to the amounts that could be recovered by renting places out.

Dan8267   Fri, 30 Nov 2012, 6:20am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 34

iwog says

Risk-free return on $100 billion in a single month is just over $13 million. No wonder the banks got solvent in a hurry.

This describes the strategy behind all "financial services" nowadays. Risk free skimming using other people's money.

Patrick   Fri, 30 Nov 2012, 6:27am PST   Share   Quote   Permalink   Like   Dislike     Comment 35

iwog says

I just want to make sure we're not feeding the media trolls by insisting $16 trillion was printed up and distributed around the world. It wasn't.

Technically it was indeed printed up (electronically) and distributed around the world.

But I see your point about most of the $16 trillion loans being short term.

It's the >$1 trillion equivalent for a year that bothers me.

TechGromit   Sun, 2 Dec 2012, 11:30am PST   Share   Quote   Permalink   Like   Dislike     Comment 36

JohnLaw says

TechGromit says

Since the creation of the Federal Reserve recessions have been shorter in duration (averaging 1 year) and farther apart (an average of every 6 years).

Like that little recession known as the Great Depression? As I recall, the FED was around back then.

Just look at the recessions in the 1800's. The long depression (Depression of 1873–79) was far worse then the so called Great depression in Aug 1929 to Mar 1933, it just that's no one is alive today to remember it. Look up the history of recessions and you'll see the the long list of recessions in the 1800's Before the Federal Reserve existed. After the federal reserve was created in 1913, recessions get shorter and farther apart.

Patrick says

The Federal Reserve itself caused the latest recession with irresponsibly low interest rates after the dot-com bubble.

I would disagree. The Federal Reserves contribution to latest recession is minor at best. The main cause was deregulation of the banking system. Which in turn allowed them to write risky loans and push them off to Wall Street investors that were rated as AAA securities. And we all know how that turned out.

What you need to remember is recessions are part of the economy. The Federal reserve wasn't created to eliminate recessions, but to minimize there impacts by making them shorter and not as severe as they were in the past.

marco   Sun, 2 Dec 2012, 11:45am PST   Share   Quote   Permalink   Like   Dislike     Comment 37

"Was there ever a people whose leaders were as truly their enemies as this one?"

-Ernest Hemingway, For Whom the Bell Tolls

"How did you go bankrupt?"
"Two ways. Gradually, then suddenly."

– Ernest Hemingway, The Sun Also Rises

Bellingham Bill   Sun, 2 Dec 2012, 1:40pm PST   Share   Quote   Permalink   Like   Dislike     Comment 38

TechGromit says

Look up the history of recessions and you'll see the the long list of recessions in the 1800's Before the Federal Reserve existed.

TechGromit says

What you need to remember is recessions are part of the economy.

sorta. The first several recessions in my lifetime (until 1991 and 2001) were caused by the Fed trying to stop borrowing from getting too overheated.

Which is odd, since in the micro if every loan is properly vetted why should the Fed care how much people are borrowing?

That's just it, though, the reason things get out of control is that lending goes bonkers and things get pushed out of balance in some sort of feedback loop (people chase stuff on borrowed money, and price moves enable them to borrow more money).

The 1991 recession was something different, but related, in that the 1980s was one helluva debt bubble:

http://research.stlouisfed.org/fred2/graph/?g=dov

I can't really explain the 2001 recession. We'd gotten overcommitted on speculation, and the destruction of the Nasdaq did put a pisser on everyone, which depressed demand. Things were kinda bad, but compared to the early 1990s things were pretty good:

http://research.stlouisfed.org/fred2/graph/?g=dow

shows that the problem was that the growth stopped, not that the absolute fall off was that big.

Thing is, the economy was basically heading into "full employment" in the late 1990s. . . anyone who wanted a job could probably get one.

But the real underlying problem in the economy is the money leaking out of the paycheck economy. That got going in the 1990s with our trade deficit:

http://research.stlouisfed.org/fred2/series/NETEXP

widening, and also Gini starting to take off for some reason:

http://research.stlouisfed.org/fred2/series/GINIALLRH

thomaswong.1986   Sun, 2 Dec 2012, 3:00pm PST   Share   Quote   Permalink   Like   Dislike     Comment 39

Bellingham Bill says

I can't really explain the 2001 recession. We'd gotten overcommitted on speculation, and the destruction of the Nasdaq did put a pisser on everyone, which depressed demand.

The demand for capital goods ended.. the buying of tech products by vast industries globally which started in the 80s and peaked by 2000-2001 and the projected 1000 Billion dollar enterprise ended with vast consolidations.

TechGromit   Sun, 2 Dec 2012, 8:35pm PST   Share   Quote   Permalink   Like   Dislike     Comment 40

Bellingham Bill says

The first several recessions in my lifetime (until 1991 and 2001) were caused by the Fed trying to stop borrowing from getting too overheated.

Which is odd, since in the micro if every loan is properly vetted why should the Fed care how much people are borrowing?

The Federal reserve tries to keep the economy in check by raising or lowering interest rates. When the economy is too sluggish they lower interest rates to try to stimulate the economy, when the economy is booming they raise interest rates to try and slow it down. But your basic question is why slow down a booming economy? The answer is simple, without the fed slowing down the economy, a booming economy will eventually lead to inflation and an economic crash. The Federal reserve job is to balance the economy, to stabilize it. A long line of Economic booms and recessions from the 1800's has taught us that without checks and balances a booming economy (or a economy in a recession) is a bad thing.

taxee   Sun, 2 Dec 2012, 8:36pm PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 41

Debt is a great motivator. Especially for young couples ready to nest. A 30 year mortgage, the length of time a person is commercially viable, was the engine for responsible banking in a growing, resource flush economy. What no one wants to look at is the fact that the low hanging fruit is gone, competition is fierce, and the people in charge are grabbing what they can while their taxes are still the lowest in modern history. They have learned to counterfeit the script and legally launder it for their own benefit while mollifying those who would oppose them with a few crumbs.

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