Audit The Fed: A Success through Transpartisan Activism
FDL and its community of activists put a great deal of energy into pushing for passage of a bill requiring the Fed to report on the many bailout programs it adopted. The Fed resisted, aided by the Obama Administration. Jane discussed some of the politics and the work of the coalition here. The bill passed the Senate 96-0. After that vote, the Administration and the Fed were terrified, and piled on the pressure. Eventually Senator Bernie Sanders gave in and a weakened version was folded into the Senate version of the Dodd-Frank financial reform bill. The house resisted and additional provisions were inserted into the compromise.
The victory was important for two reasons. First, the Fed had been invincible despite its incompetence or dereliction in the years preceding the Great Crash. Second, the victory was earned by a coalition that spanned the political spectrum of activists, from libertarians through the uncategorizable Michelle Bachman, to the professional left, including Jamie Galbraith, Richard Trumpka and Andy Stern.
We supported this bill because we thought it would help us to understand the scope of the efforts of the government to salvage banksters from their gambling and theft. The libertarians and others from the right shared that view. The leader of the right, Representative Ron Paul, wanted a detailed and on-going audit of the Fed to aid in his quest to end the Fed. I, for one, don’t share that goal. I just want the Fed to work for all Americans, not just the giant finance companies and the hyper-rich people who control them. Our interests aligned on the need for transparency and the need to audit the activities of the Fed, if not on Paul’s ultimate goal, so working together made good sense.
The Fed reported on the usage of its many programs on December 1. You can see those results for yourself here. The initial release of data did not cause a market crash, as the scaremongers from the opposition predicted. It did show that an enormous amount of money was transferred to Wall Street.
There were interesting nuggets. Remember Steve Schwartzman, billionaire co-founder of hedge fund BlackRock, which went public in 2007 at $31 per share? Schwartzman is the guy who compared the effort to get rid of a huge tax break for him and his fellow hedge fund managers to the “Nazi invasion of Poland”? BlackRock entities, about 110 of them, used the Temporary Asset-Backed Securities Loan Facility to raise $2.8 billion. They used this cheap money to buy asset backed securities, like auto loans and credit card receivables. The Wall Street Journal reports that these purchases resulted in gains as high as 48%, and that returns in the 20-40% range were common. The Sunlight Foundation explains how the subsidy worked:
Bank of America was able to take advantage of the program by not only selling its assets through the program, but also to profit from non-recourse loans made to BlackRock, in which BofA has a seven percent ownership interest. BlackRock received $2.7 billion in loans from the TALF program to purchase assets. At the same time, Bank of America was also able to sell assets through the program to various investors that received more than $2 billion in federally-backed loans in order to do so. In total, $4.8 billion in loans benefited BofA.
Not only will Bank of America potentially profit from the subsidy BlackRock received from the Fed, but it was also able to increase its liquidity by selling its assets to other subsidized borrowers. According to the New York Times, “Federal auditors worried about firms like BlackRock, warning that such firms could use federally guaranteed loans to overpay for assets, creating a potential conflict of interest.”
The Fed took almost all the risk, and there was no reason to cut Schwartzman and his ilk in on the massive profits. But for Schwartzman, massive gifts from the Fed are the natural order of things. HIgher income taxes, on the other hand, are warfare. BlackRock stock was $14.28 when I checked today. The list of Fed beneficiaries will, if nothing else, add new ammunition to our capitalist hypocrisy posts.
Even the Wall Street Journal was grudgingly impressed:
The release of this data on some 21,000 Fed transactions over the last three years is one of the rare useful provisions in Dodd-Frank, but kudos to our favorite Socialist for demanding it.
It made important admissions:
We learn, for example, that the cream of Wall Street received even more multibillion-dollar assistance than previously advertised by either the banks or the Fed. Goldman Sachs used the Primary Dealer Credit Facility 85 times to the tune of nearly $600 billion. Even in Washington, that’s still a lot of money. Morgan Stanley used the same overnight lending program 212 times from March 2008 to March 2009. This news makes it impossible to argue that either bank would have survived the storm without the Fed’s cash.
It’s fun to be right, and it’s fun to win. It’s also fun to produce information that embarrasses the Lords of Finance, who got free money from the Fed and jumped into the gutter to scoop up dimes from their wounded brethren.
In 2011 we’re beginning a new chapter with the FDL Writers Foundation – a new non-profit designed to support the work of talented journalists covering the issues you care about most, like financial reform and Fed transparency. Donate $25 to the FDL Writers Foundation today.