Belfast Telegraph

US Fed's lending to Wall St is a nightmare for main street

By Jim Dee

Thanks to gadfly Senator Bernie Sanders of Vermont, the US Federal Reserve Bank was last week finally forced to reveal some details about the trillions of dollars it lent banks and corporations between December 2007 and July 2010 in an effort to avert a global financial apocalypse.

These secretive loans were separate from the controversial $700bn Troubled Asset Relief Program initiated by George W Bush's treasury department, which bailed out the likes of AIG insurance, Citigroup and Bank of America (all but $25bn of which has reportedly been repaid).

Details concerning the Fed's much larger loan spree - some 21,000 transactions in all - were made public because of the stipulation in last summer's Dodd-Frank financial sector reform inserted by Bernie Sanders, America's only avowed socialist senator.

Already vilified by American critics from both the Left and Right for missing the clear warning signs leading to the 2008 economic meltdown, the Fed came in for a fresh blistering criticism last month when it announced plans to buy up $600bn in long-term US treasury notes.

This second round of quantitative easing was condemned by many countries, which accused the US of operating a double standard on currency deflation.

German finance minister Wolfgang Schauble branded the US policy "clueless", while adding that it is "inconsistent for the US to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money".

However, Schauble knows well that the Fed was anything but clueless regarding bankers' concerns - including the German variety - in recent years.

After all, during the aforementioned bailout frenzy, Deutsche Bank got 73 loans totalling about $76bn. But that was nothing compared to the $232bn that Barclays pulled in via 188 loans. Fed figures show that Barclays borrowed $14bn on four consecutive days alone in September 2008.

The biggest winners were American concerns.

According to the website propublica.org, Morgan Stanley got $2 trillion, Citigroup got $2.4trillion; Merrill Lynch roughly $2.2 trillion and Bear Stearns just under $1trillion. Nearly all of these, as well as the foreign loans, were 'overnight' deals at near-zero interest rates. The aim was to limit contagion caused by the imploding mortgage-backed securities that banks bought during the property bubble.

The Fed's sizeable legions of domestic critics see the latest revelations as proof-positive that the US central bank is little more than a secretive corporate welfare dealer.

And the impression that the Fed is far out of touch with ordinary Americans has only been exacerbated by its stated intention to seek the removal of a long-standing provision that helps troubled homeowners.

Since 1968, the Truth in Lending Act has afforded homeowners the ability to cancel illegal loans for up to three years after sale finalisation if buyers weren't given full disclosure when they signed on the dotted line.

The act aims to combat predatory and fraudulent lending practices.

In summing up his views on what ails the Fed, Senator Bernie Sanders has made it clear that he opposes US conservatives' calls to curtail the Fed's employment-boosting mandate and limit its focus solely on controlling inflation. Instead, he wants the Fed retuned so that it prioritises ordinary Americans' needs above those of multinational firms.

Given the mountains of bad Press generated by last week's loan revelations, perhaps a rethink on diluting the Truth in Lending safeguards might be a good starting point.

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