The Fed Gave Banks Way More Money Than We Previously Knew

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Only if you insist!Photo: Bloomberg/2011 Bloomberg

According to a new Bloomberg report, which came out after a protracted court battle with bailed-out banks for the disclosure of information under the Freedom of Information Act, the Federal Reserve gave banks $13 billion more than had been previously disclosed, if you factor in the advantage the banks got from the below-market interest rates of their governmental lender. As of March 2009, the  sum the Fed had committed to the financial-institution rescue effort since it expanded its lending efforts in 2007 totaled $7.77 trillion, $1.2 trillion of which was pledged on a single day, December 5, 2008. Unlike the money offered to the banks via the much-discussed TARP program, for the Fed money, there were no special hoops companies had to jump through — like limiting executive pay, for instance. JPMorgan, Bank of America, Morgan Stanley, Citigroup, Wells Fargo, and Goldman Sachs got around 63 percent of the Fed's lending to financial institutions over that time period, despite accounting for something more like 50 percent of total pre-collapse industry assets.

Information on which banks received money, at what interest rates, and when, was previously unavailable to the public. The Fed sought to keep those exact details  hazy because of the worry that a stench would attach itself to the bailed-out banks in the eyes of investors, rendering the whole effort far less effective — and the banks were more than happy to go along with that for obvious, similar reasons.

On Nov. 26, 2008, then-Bank of America (BAC)Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.

Just trying to make it look cool for other banks. Obviously! What, you think he actually wanted/needed that money? Jamie Dimon is a motivational borrower, not a regular one. He's like the Oprah of getting bailouts. So that February 26 episode was basically just a way to highlight 48 billion of his Favorite Things.