Yet another $13B no one told us about

Via Bloomberg News, we will continue to see the effects of the “extend and pretend” philosophy of propping up failing banks for a very long time. It’s a shame that the European Union isn’t learning from our mistakes, either:

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

4 thoughts on “Yet another $13B no one told us about

  1. When the Federal Reserve Bank was set up less than 100 years ago by Congress, it had three basic tasks. 1) Conduct the nations monetary policy. (That’s a violation of Article I, Section 8:5 of the Constitution.) 2) Oversee the banking and financial system. 3) Maintain employment, keep prices stable, and keep interest rates low. The FED is either in violation of the Constitution or has failed miserably in its assigned tasks.

  2. Somewhat off topic, but in the same realm of fiscal chicanery:

    Zero Hedge comments on the astounding increase in nominal values for all the derivatives (think “credit default swaps,” and other evil spawn) being held all over the world. Absolutely stunning numbers — and Tyler Durden thinks no good will come of this.

    $707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months

    …[T]he Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest ever reported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world’s financial institutions to the BIS for its semi-annual OTC derivatives report titled “OTC derivatives market activity in the first half of 2011.” Indicatively, global GDP is about $63 trillion if one can trust any numbers released by modern governments. Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. Another way of looking at the data is that one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade. And soon we have to pay the mean reversion price.

    What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history. So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows

    Read on to get an idea of notional versus gross market value. Then think about the concluding paragraphs:

    Expect to see gross market value declines persisting even as the now parabolic increase in total notional persists. At this rate we would not be surprised to see one quadrillion in OTC derivatives by the middle of next year.

    And, once again for those confused, the fact that notional had to increase so epically as market value tumbled most likely means that the global derivative pyramid scheme (no pun intended) is almost over.

    Yet another reason to support the Occupy movement.

    Couple interesting comments:

    Sat, 11/26/2011 – 21:04 | 1916504
    Turd Ferguson

    This is incredible! $107T in just the past six months?
    It’s obvious that they don’t even care anymore!
    Everyone knows that the whole system will completely fucking explode before any new CDS would have to be paid off so why care? Sell those fuckers like there’s no tomorrow because, frankly, there isn’t going to be a tomorrow. Get your bonus and party like it’s 1999.

    Sat, 11/26/2011 – 21:07 | 1916509

    Is $707T greater than the value of all the earth and every thing in it combined? What happens when we hit that point – if we haven’t already? We really will need some sort of extra-terresterial cosmic something to add more value to all those imaginary binary digit “money”.

    BTW, how many readers here can say the name of the number this figure represents? It’s almost beyond most people’s capability to even imagine what that figure represents–almost impossible to come up with a comparison.

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