Wall Street Aristocracy Got $1.2T in Loans

Solvency, not liquidity.

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By Bradley Keoun and Phil Kuntz


Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.



By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.



Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages.



The largest borrower, Morgan Stanley (MS), 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.



“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

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http://www.bloomberg.com/news/2011-0...ret-loans.html

The financial system was insolvent in 2008. The government saved it. Our children, grandchildren and great-grandchildren will pay for it.

If we tip into another recession, it might happen again.

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...bUELLER

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too big to fail sequel.

The Fed is NOT part of the govt. The govt has no control over the Fed.

The Fed IS a private bankers' club, set up by bankers, with secret memberships.

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Originally Posted by Winehole23

If we tip into another recession, it might happen again.

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And Uncle Ben will be there to save them again.

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Originally Posted by SnakeBoy

And Uncle Ben will be there to save them again.

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I would think so. But, after the last debt ceiling scuffle, I wouldn't bet the house on it (pun intended).

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Originally Posted by ElNono

I would think so. But, after the last debt ceiling scuffle, I wouldn't bet the house on it (pun intended).

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That's just was just political posturing. If we see a repeat of the financial meltdown then we'll see '08 Boehner again.

Repugs ain't gonna let any TBTF financial institution go down. The financial sector owns, staffs, and finances the Exec and Legislature (and the Fed).

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Originally Posted by boutons_deux

Repugs ain't gonna let any TBTF financial institution go down. The financial sector owns, staffs, and finances the Exec and Legislature (and the Fed).

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I think you meant polticians, not just "Repugs".

The Repugs are leading the charge to kill CFPB, Wall St regulation, etc, etc, not the Dems.

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The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.



“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”



Bankers didn’t disclose the extent of their borrowing. 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.

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http://www.bloomberg.com/news/2011-1...in-income.html

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They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.



Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs.



Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.

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ibid

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Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking.



“Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.



Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.



Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.



For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.”



Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.

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ibid

This will be all over Fox Repug Propaganda network, they'll "pound (terrorist) fists" on it for weeks and weeks.

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“The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.”

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I don't hear you thanking that evil billionaire Michael Bloomberg for the lawsuit, boutons_bot.

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Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter -- getting loans at below-market rates during a financial crisis -- is quite a gift.”



The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.



The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest.



Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.



The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.

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Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed.



“Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”

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Billionaire Investor Who Compared Taxing The Rich To Nazi Invasions Will Hold Fundraiser For Romney

Last summer, mega-investor and Blackstone CEO Stephen Schwarzman — who has a net worth of about $4.7 billion, according to Forbes — said Democratic efforts to close a pernicious tax provision known as the carried interest loophole was akin to Nazi invasions during World War II. “It’s a war,” Schwarzman said. “It’s like when Hitler invaded Poland in 1939.”

This particular loophole lets private equity executives and hedge fund managers, who are some of the wealthiest people on the planet, pay exceedingly low tax rates. As billionaire investor Warren Buffet explained, “Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as ‘carried interest,’ thereby getting a bargain 15 percent tax rate.”

And it seems that Schwarzman has found his man in the 2012 election: the former private equity executive Mitt Romney:

Stephen Schwarzman, chairman of the world’s largest private-equity firm, will host a fundraiser for Mitt Romney at his Park Avenue apartment next month, a sign that Romney is closing the sale with Wall Street’s wealthiest donors.

The event marks Schwarzman’s inaugural step to help Romney secure the Republican presidential nomination, according to a person familiar with Schwarzman’s plans who spoke on condition of anonymity. He will follow up with efforts to persuade colleagues in the financial industry to get behind Romney’s presidential bid, the person said.

http://thinkprogress.org/economy/201...invade-poland/

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Ha! A hyper-wealthy Jew playing the Nazi card. :lol

more nonsensical hilarity. please go throw yourself in a lake of poison.

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Originally Posted by Winehole23

The financial system was insolvent in 2008. The government saved it. Our children, grandchildren and great-grandchildren will pay for it.

If we tip into another recession, it might happen again.

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Time to seriously break up the big banking groups.

The free market dogmatics wouldn't have any of that big government solution though.

Maybe we need a full out banking collapse. I would seriously consider setting up a pitchfork and torch shop near Wall Street...

That and a good solid rope store.. :hang

I would be all for making the failure of a large bank a capital offense for the CEO, and anybody who covers up for him.


(edit, man that was a good pun. "capital offense"... heh)

Wall Streeters OWN NYPD (pays them $100Ks overtime for private functions which the police get to add to their pension fund). They'd mow your ass down at the sight of torch and pitchfork or the slightest sign of dissenters' violence.

I'd be aiming my pitchfork at you, boss man.

Gfy

eff you, boss man

Bloomberg ain't gonna touch his fellow 0.1% Wall St buddies. And I'm sure he has and will shut down anything his NY AG or Manhattan prosecutors attempt

but he was helpless to prevent his own media company from exposing them.

god you're dim

Does Mayor Bloomberg run Bloomberg news service, eg, the way Murdoch runs his shit media?

keep digging, boss man. you'll need a long, long tunnel the day your wage slaves get wise to your exploitative capitalist ways.

splittin the banks into 2 makes sense...you have one that does what a normal bank does which is lending and deposits, then the other would be high risk investments...just like what the govts are proposing to monopoly companies entities to big to fail

"your exploitative capitalist ways."

I've been repeatedly, vehemently against UCA fucking over employees for 30 years. GFY

admit it. you're a capitalist pig, mr boss man.

your wage slaves hate you

and you hate yourself

why else would you be so disfigured by hate and resentment? it has even taken over your language center.

you probably depise your own employees, even though you love them so much in theory

list of companies which borrowed 100s of billions of dollars at 0% interest, from the USG

http://english.economicpolicyjournal...rrowed-69.html

I'm not sure what to make of this. The govt was handing out 0% money and the banks "only" helped themselves to $618B of it. I would have expected that number to be higher.

me too. it's a feature of the times we live in that any figure under a trillion dollars seems unimpressively large.

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Originally Posted by coyotes_geek

I'm not sure what to make of this. The govt was handing out 0% money and the banks "only" helped themselves to $618B of it. I would have expected that number to be higher.

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Like, all of it.

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Citizens Bank of Pennsylvania $733

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WTF? :lol

Boat payment?

Either that or the board of directors thought it would be funny to finance holding a board meeting at Hooters.

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Originally Posted by coyotes_geek

Either that or the board of directors thought it would be funny to finance holding a board meeting at Hooters.

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Im in.