23 August 2011

Socialism for the Banksters

Remember TARP and the accompanying bailout?

Paulson's weekend move to collect $700 billion with a three-page proposal with no oversight attached?

Well, that did not include loans given by the Federal Reserve to these same financial institutions. The top 10 got a little over $100 billions of TARP money and they paid that back relatively quickly.

It turns out that, around the same time, the Fed gave them $1.2 trillion in loans and that was kept a secret until now.
The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
Actually, Bloomberg has a lovely interactive chart here.

It wasn't just the Wall Street Galtian overlords who benefited from this largesse:
Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG, which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
Of course other perennial favorites were there as well: Belgium's Dexia and France's Société Générale, both of which teetering towards insolvency, got there shares.

Here is some interesting facts about it.

- The amount lent was 25 times larger than the previous record of $46 billion (the day after September 11).

- The Fed accepted as collateral anything, including stocks and junk level bonds:
Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation. 

Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.  
- The money given to these financial institutions -against bogus collateral- was "about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages."

In other words, they gave to the banks the exact amount for the toxic assets on their books. Banks used that money to replenish their balance sheet and and then they promptly proceeded to foreclose those delinquent properties. To make it faster and more efficient they even created foreclosure mills and went after people with a vengeance, foreclosing in the process even borrowers who were not delinquent.

I guess it never occurred to them to give the money to people to pay off the banks. This way banks would have gotten the same amount and gotten rid of those toxic assets on their balance sheets. People would have been able to get out of those destructive ARM mortgages to own their properties and be able to consume normally. And the economy would not in the toilet.  They could have paid the government over twenty years and that would be that.

But that would have been socialism and we can't have that.

Instead banksters got much richer, people got homeless, unemployment rose, consumption fell and we are about to go into a long recession.

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