After years of legal struggle, which went all the way to the Supreme Court, Bloomberg Markets magazine got what could be the scoop of the decade. While Americans were squabbling over the 2008 $700 billion Troubled Assets Relief Program, the Federal Reserve was secretly handing out more than 11 times that amount at a ridiculously low interest rate to the nation’s biggest banks. In fact, TARP distributed far less than its authorized amount: $392 billion.
The $7.77 trillion in loans only recently brought to light were supposed to keep the financial system running, and, by most accountings, they were successful. Not only did banks survive, according to Bloomberg, they made money on the deal. The big problem was — and it is a startling indictment of the ties between Washington and high finance — apparently no one in Congress knew of the loans while new rules intended to prevent subsequent collapses were being debated.
In the Bloomberg piece, the cost of this was made clear: “. . . taxpayers,” the authors said, “paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.” The banks, which argued against disclosing the loans, said that admitting to taking the money might have undermined confidence in them as institutions. This might have been a good thing.
Let’s pause for a moment to consider together just how much money the Fed doled out at .01 percent interest: The $7.77 trillion loaned from its so-called discount window was more than half the value of everything produced in the United States in 2009. Unbelievably, the total is in the ballpark of the value of all the gold ever mined in all of human history at the metal’s 2011 sky-high prices. Consider, too, that the Iraq and Afghanistan wars — combined — have cost $1.1 trillion over the course of the last 10 years.
Perhaps not surprisingly, Ben Bernanke, the Fed’s chairman, having tried to fight disclosure of the loans and commitments, has accused Bloomberg of getting it wrong. In a quibbling letter to House and Senate leaders, he said the reporting was filled with “numerous errors and misrepresentations,” and said that, at peak, the daily loans only reached $1.5 trillion anyway. Congress had access to monthly reports about the total borrowing, he said. Bloomberg has said it stands by its reporting and issued a point-by-point rebuttal of the Fed chairman’s criticisms.
Mr. Bernanke sidestepped the entire issue of whether lawmakers were improperly kept in the dark about this huge handout as they considered the scale of the crisis and possible financial reforms — which did not come. Nor do the chairman’s objections explain why he and the banks sought so long and hard to avoid releasing the details — long after the chance of any hypothetical damage to the banks’ reputations was past.
In retrospect, it would be laughable that the nation was convulsed over the much-smaller TARP if the implications for the credibility of our government were not so serious. Members of George W. Bush’s administration, which inaugurated TARP, were not let in on the Fed’s big secret. The net effect of the clandestine loans is that a real reckoning has never come for the giant banks, which ran up the housing bubble through collateralized debt obligations and other schemes. Inadequate regulations to prevent future financial catastrophes have remained in place because the people who would write new rules — Congress — knew nothing about what was going on.
Not only are the giant banks now too big to fail, they are too big to regulate, according to some of the Fed’s managers. One hopes that, armed with the new information and knowing to what lengths the Fed and the banks went to avoid disclosure, Congress will look again at effective control of the financial industry. Regardless of what is done, however, it is apt to be too late for those Americans who have lost their jobs and their homes.