Due to the Freedom of Information Act (and some concise consolidation of the data by Bloomberg) we now have a clear picture of the extent of loans that were extended to US and foreign banks at the peak of the mortgage crisis. The text that follows came from an article written by John Hayward of Human Events, a self-professed “conservative voice.” Since it is an informal policy of this blog to avoid political opinion, I’ve redacted most of the partisan commentary from Hayward’s article, but retained the factual elements. To me, the last paragraph is the most stunning. The sheer size of the loans, both absolutely and relatively is hard to grasp.
Feel free to draw your own conclusion as to whether the secrecy of these loans was required to insure faith and confidence in the institution to which these loans were awarded. I understand that an economy runs on confidence, but MAN… these were some serious loans!
Bloomberg News reports that the full extent of the loans issued by the Federal Reserve during the mortgage crisis has been made public at last. The list of loan recipients was kept secret until now:
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.
It wasn’t just [U.S. companies, pardon the redaction] sipping at that trillion-dollar bowl:
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 (UBSN), 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.
The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.
As Bloomberg News reporters Bradley Keoun and Phil Kuntz note, the amount of these loans was triple the size of the federal budget deficit in the year they were issued. (The deficit has, in turn, tripled since then.) The $1.2 trillion sum is roughly equivalent to the value of the 6.5 million delinquent and foreclosed mortgages in the United States. It’s over seven times the amount of the $160 billion bank bailout we knew about, while these loans were kept secret. It’s more than “the total earnings of all federally insured banks in the U.S. for the decade through 2010.” Only fourteen nations on Earth have a larger GDP than the amount loaned out by the Fed.
90% of the Federal Reserve’s spending in the name of stability was kept secret from the American public, because “releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs, ” according to the Bloomberg report.