Bloomberg’s blockbuster story–showing that the Fed was dumping $7.77 trillion into the same banks that Treasury was claiming were solvent to qualify them for TARP–shows a number of different things. It focuses on the $13 billion in profits the banks made off of massive secret loans from the Fed.
The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.
More importantly, IMO, the Bloomberg piece also shows how Ben Bernanke, TurboTax Timmeh Geithner, and Hank Paulson used secrecy to get DC’s bureaucracy–both Congress and Executive Branch officials–to push through his preferred plan to prop up the TBTF banks.
They did this in two ways: first, by keeping details of the Fed’s massive lending secret from the people implementing TARP.
The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view.
The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.
This meant the Fed could hide the fact that the six biggest banks were basically insolvent, and should have been wound down rather than propped up with a strings-free TARP.
The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. Read more