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How the Banks Received $1.2 Trillion in Secret Loans during Financial Crisis
The Fed’s Secret Liquidity Lifelines [bloomberg.com] reveals when and which banks and other companies (e.g. GE, Ford, Toyota) received over $1.2 trillion in public money between August 2007 and April 2010. Bloomberg News had to aggregate and analyze over 29,000 documents to discover over 21,000 different loans, which can know be analyzed and contrasted with each other.
In practice, the collection of line graphs show the exact dates the loans occurred and were closed for a specific company plus the historical market value of that company. Peak borrowing amounts, borrowing timelines and average balances can be easily compared.
The scope of the Fed’s private lending had previously only been guessed at, but figures obtained under the Freedom of Information Act by Bloomberg News show that the nation’s central banker issued loans to more than 300 institutions between August 2007 and April 2010, including over 100 loans of $1 billion or more.
While the Fed’s loans likely helped to prevent a complete implosion of the global banking system, analysts say they fear the loans may have contributed to an atmosphere of complacency on Wall Street. Banks that received emergency cash infusions during the crisis may now believe the Fed will always be there to bail them out of trouble, the thinking goes.
“It is a classic case of moral hazard,” Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College, told The Huffington Post.
The Federal Reserve itself had argued that the details of its emergency loans should be kept out of the public eye, claiming that the reputations of the firms involved could suffer if they were seen to be taking money from the government in order to stay afloat. Many of the banks that borrowed from the Fed had previously appealed to the Supreme Court to keep those records secret.
However, an invocation of the Freedom of Information Act forced the Fed to release more than 29,000 pages of documents, revealing the extent to which the financial sector relied on Federal Reserve dollars during the worst days of the crisis.