Fed Once-Secret Loan Crisis Data Compiled by Bloomberg Released to Public By Phil Kuntz and Bob Ivry Dec 23, 2011 Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form. To download a zip file of the spreadsheets, go to http://bit.ly/Bloomberg-FedData. For an explanation of the files, see the one labeled “1a Fed Data Roadmap.” The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history. “Scholars can now examine the data and continue the analysis of the Fed’s crisis management,” said Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh and the author of three books on the history of the U.S. central bank. The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO. Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information,
Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data.
Additional Data The Fed later supplied additional data to fill in gaps in its initial response. Bloomberg News is updating an interactive graphic it first published in August to add the new information. Congress required the Fed to post data to its website in December 2010 on six broad-based programs, its assistance to Bear Stearns Cos. and American International Group Inc. (AIG) and more general information on its mortgage-backed securities purchases and so-called foreigncurrency liquidity swaps. Those data were presented in spreadsheets that made it difficult to gauge how much individual banks were borrowing from the various programs on any given day. Some reported totals from media outlets and government studies varied widely. In connection with today’s release, here’s a by-the-numbers explanation of the variations: $1.2 trillion -- The Fed’s actual lending to banks and financial companies at its single-day peak, Dec. 5, 2008, through the seven programs Bloomberg News studied in depth. Emergency measures that targeted specific companies -- Bear Stearns, AIG, Citigroup Inc. and Bank of America Corp. -- were excluded from Bloomberg’s analysis because they were previously disclosed. Loans to these companies from the other seven programs were included. Bloomberg excluded foreign-currency liquidity swaps because names of commercial banks that borrowed under the program haven’t been disclosed to the public. $1.5 trillion -- The Fed’s own number to represent its peak lending. This amount included the foreign-currency liquidity swaps, according to the Fed website. Under the swap lines, the Fed lends dollars to foreign central banks, which in turn lend the money to local banks. Only the names of central banks involved in the transactions have been made public.
The Fed’s tally of peak lending differed from Bloomberg’s in other ways, too. It included the Term Asset-Backed Securities Loan Facility, or TALF, which Bloomberg excluded. That program’s borrowers were investors rather than banks. Also, the Fed didn’t include ST OMO. Bloomberg did, based on a March 7, 2008, news release in which Fed officials said they would use the program “to address heightened liquidity pressures in term funding markets.” $7.77 trillion -- The amount the Fed pledged to rescue the financial industry, according to Bloomberg research that examined announced, implied or actual upper limits on lending and guarantees. This number, which represents potential commitments, not money out the door, was first published in March 2009, when it peaked. “One of the keys to understanding why we’ve avoided another Great Depression, so far, is to see how bold the Fed was in 2008 and 2009,” said Niall Ferguson, a Harvard University history professor. “That boldness consisted of a range of contingency commitments that backstopped the banking system. Just because they weren’t used doesn’t mean they weren’t important.” After Bloomberg included the $7.77 trillion figure in a Nov. 28, 2011, story, some media outlets mischaracterized it as the Fed’s actual lending. The Fed, in a Dec. 6 memo accompanying a letter Fed Chairman Ben S. Bernanke wrote to lawmakers, called those mischaracterizations “wildly inaccurate.” $6.8 trillion -- The potential amount the Fed might have lent if “all eligible program applicants request assistance at once to the maximum permitted under the program guidelines,” according to a July 21, 2009, report by the Treasury Department’s Special Inspector General for the Troubled Asset Relief Program, or TARP. In that report, the officials monitoring the Treasury Department’s $700 billion bailout fund attempted to determine the Fed’s “total potential support” related to the financial crisis. Most of the difference between the TARP watchdog’s tally and Bloomberg’s involves one program, TALF. The inspector general attributed its $900 billion
capacity to the Treasury, which was guaranteeing some of its lending. Bloomberg grouped TALF with the Fed, which created the program. $16 trillion -- The “total transaction amounts” for Fed lending included in a July 21, 2011, study by the Government Accountability Office, a non-partisan investigative agency that reports to Congress. The Fed’s Dec. 6 memo said it was inaccurate to describe that amount as the total of its lending and guarantees, as some websites did. The method the GAO used to produce that total differed from Bloomberg’s approach. Bloomberg built spreadsheets to show each borrower’s daily amounts outstanding, and then found the day on which those amounts peaked. The GAO tallied all cumulative loans to arrive at $16 trillion. Its report noted that the total didn’t reflect how loans’ terms varied under different Fed programs. If a bank borrowed $1 billion overnight for 100 nights, Bloomberg’s analysis would show that the bank had a $1 billion balance at the Fed for 100 days; the GAO method that produced the $16 trillion total would sum up those transactions to $100 billion, even though the bank never owed more than 1 percent of that total. $1.14 trillion -- A different total for Fed lending that the GAO included in the same July 21, 2011, report. The calculation is similar to, not the same as, Bloomberg’s method of arriving at its peak lending figure. The GAO accounted for differences in loan terms by multiplying each loan amount by the number of days the loan was outstanding and then dividing by the number of days in a year. Bloomberg’s figure represents peak lending on a single day. $13 billion -- An estimate of the income that 190 banks could have made from investing the Fed loans they took. To arrive at the figure, Bloomberg found the banks’ taxadjusted net interest margin -- that is, the difference between what they earn on loans and investments and what they pay in borrowing expenses. Such data was available for 190 of the 407 borrowers. That information is included in today’s release. In those cases, Bloomberg multiplied each bank’s net interest margin by its average Fed debt during reporting periods in which they took emergency loans. In that calculation, Bloomberg excluded loans from the AssetBacked Commercial Paper Money Market
Mutual Fund Liquidity Facility because that cash was passed along to money-market funds.
Penalty Rates In its memo, the Fed said it was incorrect to write, as Bloomberg did, that banks “reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.” “Most of the Federal Reserve’s lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentives to exit the facilities as market conditions normalized, and the rates that the Federal Reserve charged on its lending programs did not provide a subsidy to borrowers,” the Fed said. An October 2008 report by Daniel Thornton, a vice president at the Federal Reserve Bank of St. Louis, said the primary credit rate, which is paid by most borrowers from the Fed’s discount window, had been “consistently lower” than the certificate of deposit and Eurodollar rates since March 2008.
‘Generally Low’ Rates that banks paid at the Term Auction Facility, a lending program created in December 2007 to augment the discount window, “have generally been low relative to rates that depository institutions would have had to pay otherwise,” Thornton said in the report. David Skidmore, a Fed spokesman, declined to comment on whether Fed programs provided a subsidy relative to actual market rates during the crisis. Bloomberg’s incomeestimate method isn’t perfect. It assumes that the banks used their Fed loans in the same way they did their other capital, for example. Still, in the absence of precise data, the approach provides an indication of banks’ income from their Fed loans. “The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” said Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia. To contact the reporters on this story: Phil Kuntz in New York at pkuntz1@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net. To contact the editor responsible for this story: Gary Putka at gputka@bloomberg.net.
The Economic Lessons of Bethlehem Llewellyn H. Rockwell, Jr. 1. LewRockwell.com December 24, 2011 At the heart of the Christmas story rests some important lessons concerning free enterprise, government, and the role of wealth in society. Let’s begin with one of the most famous phrases: “There’s no room at the inn.” This phrase is often invoked as if it were a cruel and heartless dismissal of the tired travelers Joseph and Mary. Many renditions of the story conjure up images of the couple going from inn to inn only to have the owner barking at them to go away and slamming the door. In fact, the inns were full to overflowing in the entire Holy Land because of the Roman emperor’s decree that everyone be counted and taxed. Inns are private businesses, and customers are their lifeblood. There would have been no reason to turn away this man of royal lineage and his beautiful, expecting bride. In any case, the second chapter of St. Luke doesn’t say that they were continually rejected at place after place. It tells of the charity of a single inn owner, perhaps the first person they encountered, who, after all, was a businessman. His inn was full, but he offered them what he had: the stable. There is no mention that the innkeeper charged the couple even one copper coin, though given his rights as a property owner, he certainly could have. It’s remarkable, then, to think that when the Word was made flesh with the birth of Jesus, it was through the intercessory work of a private businessman. Without his assistance, the story would have been very different indeed. People complain about the “commercialization” of Christmas, but clearly commerce was there from the beginning, playing an essential and laudable role. And yet we don’t even know the innkeeper’s name. In two thousand years of celebrating Christmas, tributes today to the owner of the inn are absent. Such is the fate of the merchant throughout all history: doing well, doing good, and forgotten for his service to humanity. Clearly, if there was a room shortage, it was an unusual event and brought about through some sort of market distortion. After all, if there had been frequent shortages of rooms in Bethlehem,
entrepreneurs would have noticed that there were profits to be made by addressing this systematic problem, and built more inns. It was because of a government decree that Mary and Joseph, and so many others like them, were traveling in the first place. They had to be uprooted for fear of the emperor’s census workers and tax collectors. And consider the costs of slogging all the way “from Galilee, out of the city of Nazareth, into Judea, unto the city of David,” not to speak of the opportunity costs Joseph endured having to leave his own business. Thus we have another lesson: government’s use of coercive dictates distort the market. Moving on in the story, we come to Three Kings, also called Wise Men. Talk about a historical anomaly for both to go together! Most Kings behaved like the Roman Emperor’s local enforcer, Herod. Not only did he order people to leave their homes and foot the bill for travel so that they could be taxed. Herod was also a liar: he told the Wise Men that he wanted to find Jesus so that he could “come and adore Him.” In fact, Herod wanted to kill Him. Hence, another lesson: you can’t trust a political hack to tell the truth. Once having found the Holy Family, what gifts did the Wise Men bring? Not soup and sandwiches, but “gold, frankincense, and myrrh.” These were the most rare items obtainable in that world in those times, and they must have commanded a very high market price. Far from rejecting them as extravagant, the Holy Family accepted them as gifts worthy of the Divine Messiah. Neither is there a record that suggests that the Holy Family paid any capital gains tax on them, though such gifts vastly increased their net wealth. Hence, another lesson: there is nothing immoral about wealth; wealth is something to be valued, owned privately, given and exchanged. When the Wise Men and the Holy Family got word of Herod’s plans to kill the newborn Son of God, did they submit? Not at all. The Wise Men, being wise, snubbed Herod and “went back another way” – taking their lives in their hands (Herod conducted a furious search for them later). As for Mary and Joseph, an angel advised Joseph to “take the child and his mother, and fly into Egypt.” In short, they resisted. Lesson number four: the angels are on the side of those who resist government. In the Gospel narratives, the role of private enterprise, and the evil of government power, only begin there. Jesus used commercial examples in his parables (e.g., laborers in the vineyard, the parable of the talents) and made it clear that he had come to save even such reviled sinners as tax collectors. And just as His birth was facilitated by the owner of an “inn,” the same Greek word “kataluma” is employed to describe the location of the Last Supper before Jesus was crucified by the government. Thus, private enterprise was there from birth, through life, and to death, providing a refuge of safety and productivity, just as it has in ours.
The Greatest Gift for All Paul Craig Roberts Infowars.com December 24, 2011 Christmas is a time of traditions. If you have found time in the rush before Christmas to decorate a tree, you are sharing in a relatively new tradition. Although the Christmas tree has ancient roots, at the beginning of the 20th century only 1 in 5 American families put up a tree. It was 1920 before the Christmas tree became the hallmark of the season. Calvin Coolidge was the first President to light a national Christmas tree on the White House lawn. Gifts are another shared custom. This tradition comes from the wise men or three kings who brought gifts to baby Jesus. When I was a kid, gifts were more modest than they are now, but even then people were complaining about the commercialization of Christmas. We have grown accustomed to the commercialization. Christmas sales are the backbone of many businesses. Gift giving causes us to remember others and to take time from our harried lives to give them thought. The decorations and gifts of Christmas are one of our connections to a Christian culture that has held Western civilization together for 2,000 years. In our culture the individual counts. This permits an individual person to put his or her foot down, to take a stand on principle, to become a reformer and to take on injustice. This empowerment of the individual is unique to Western civilization. It has made the individual a citizen equal in rights to all other citizens, protected from tyrannical government by the rule of law and free speech. These achievements are the products of centuries of struggle, but they all flow from the teaching that God so values the individual’s soul that he sent his son to die so we might live. By so elevating the individual, Christianity gave him a voice. Formerly only those with power had a voice. But in Western civilization people with integrity have a voice. So do people with a sense of justice, of honor, of duty, of fair play. Reformers can reform, investors can invest, and entrepreneurs can create commercial enterprises, new products and new occupations.
The result was a land of opportunity. The United States attracted immigrants who shared our values and reflected them in their own lives. Our culture was absorbed by a diverse people who became one. In recent decades we have begun losing sight of the historic achievement that empowered the individual. The religious, legal and political roots of this great achievement are no longer reverently taught in high schools, colleges and universities or respected by our government. The voices that reach us through the millennia and connect us to our culture are being silenced by “political correctness” and “the war on terror.” Prayer has been driven from schools and Christian religious symbols from public life. Constitutional protections have been diminished by hegemonic political ambitions. Diversity at home and hegemony abroad are consuming values and are dismantling the culture. There is plenty of room for cultural diversity in the world, but not within a single country. A Tower of Babel has no culture. A person cannot be a Christian one day, a pagan the next and a Muslim the day after. A hodgepodge of cultural and religious values provides no basis for law – except the raw power oof the pre-Christian past. All Americans have a huge stake in Christianity. Whether or not we are individually believers in Christ, we are beneficiaries of the moral doctrine that has curbed power and protected the weak. Power is the horse ridden by evil. In the 20th century the horse was ridden hard. Millions of people were exterminated by National Socialists in Germany and by Soviet and Chinese communists simply because they were members of a race or class that had been demonized by intellectuals and political authority. Power that is secularized and cut free of civilizing traditions is not limited by moral and religious scruples. V.I. Lenin made this clear when he defined the meaning of his dictatorship as “unlimited power, resting directly on force, not limited by anything.” Our government’s drive for hegemony is resurrecting unaccountable power. Christianity’s emphasis on the worth of the individual makes such power as Lenin claimed unthinkable. Be we religious or be we not, our celebration of Christ’s birthday celebrates a religion that made us masters of our souls and of our political life on Earth. Such a religion as this is worth holding on to even by atheists. Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, has been reporting shocking cases of prosecutorial abuse for two decades. A new edition of his book, The Tyranny of Good Intentions, co-authored with Lawrence Stratton, a documented account of how Americans lost the protection of law, has been released by Random House.