There were so many bailouts going on in 2008 that Congress apparently forgot about some of them.
Bloomberg gets a scoop this morning on details of an $80 billion Federal Reserve lending program that flew under the radar.
Barney Frank, whose name is on the financial reform legislation that forced the Fed to reveal details about its bailout programs, tells reporter Bob Ivry that he didn’t know about the program, which was left out of legislation requiring disclosure. Ivry found the details buried in 29,000 pages of documents the Fed was forced to release after the Supreme Court ruled for Bloomberg in its lawsuit against the central bank.
It was a sweet deal for giant American banks like Goldman Sachs and a notably foreign-dominated list, including UBS, Credit Suisse, Deutsche Bank, and the Royal Bank of Scotland. They borrowed money from the Fed at rates as low as 0.01 percent. Credit Suisse at one point had $45 billion outstanding, while Goldman had $30 billion.
Crucially, the Fed kept this program open even after the other bailout programs were well under way, including TARP:
In March 2008, ST OMO was “desperately needed,” because of the shaken state of short-term credit markets, said Michael Greenberger, a professor at the University of Maryland School of Law in Baltimore and former director of the division of markets and trading at the Commodities Futures Trading Commission. After the Fed created other lending mechanisms and the Treasury Department began distributing money from the Troubled Asset Relief Program in October, ST OMO became “just a way for banks to have at it,” he said.
“At such low interest rates, it’s no longer a rescue, it’s a profit-making enterprise,” Greenberger said. “By December, a lot of money was made off this program.”
You can probably guess who was using the program in December, then:
Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, tapped the program most in December 2008, when data on the New York Fed website show the loans were least expensive. The lowest winning bid at an ST OMO auction declined to 0.01 percent on Dec. 30, 2008, New York Fed data show. At the time, the rate charged at the discount window was 0.5 percent.
Bloomberg reports that Goldman’s ST OMO loans peaked in December 2008 as its borrowing from other Fed programs peaked at $43.5 billion. That means the Fed was lending about $75 billion at one point to Goldman on super-favorable terms, all while giving it a backdoor bailout via AIG and while the Treasury was handing it billions in TARP money.
Ivry couldn’t get precise numbers, though, having to eyeball them from graphs in the Fed’s doc dump.
The records don’t provide exact loan amounts for each bank. Smith, the New York Fed spokesman, would not disclose those details. Amounts cited in this article are estimates based on the graphs.
After getting smacked around by the Supreme Court and Congress for its lack of transparency, the Fed clearly still hasn’t learned its lesson.
Good for Ivry and Bloomberg for shining the light here as best they can.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.