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The Fed Apparently Thinks It’s Going to Lose $454 Billion on Its Wall Street Bailout

Courtesy of Pam Martens

On Thursday, March 26, in the midst of a growing panic on Wall Street over a lack of liquidity for toxic debt, the Federal Reserve Chairman Jerome Powell did something unprecedented. He appeared live on the Today show. His interviewer, Savannah Guthrie, opened the interview by noting that one writer had said that the Fed can simply conjure money out of thin air. (It can.) Guthrie asked Powell if there was any limit to the amount of money the Fed was willing to put into the economy to keep it afloat. Her question should have been: is there any limit to the amount of money the Fed will conjure out of thin air to keep Wall Street afloat?

Powell said this:

“In certain circumstances like the present, we do have the ability to essentially use our emergency lending authorities and the only limit on that will be how much backstop we get from the Treasury Department. We’re required to get full security for our loans so that we don’t lose money. So the Treasury puts up money as we estimate what the losses might be…Effectively $1 of loss absorption of backstop from Treasury is enough to support $10 of loans.”

Powell was forced to do damage control on Thursday because White House Economic Advisor Larry Kudlow had let the cat out of the bag at a press briefing the Tuesday evening prior that Main Street would be getting less than $2 trillion from the stimulus bill while the Fed would be getting $4 trillion as a result of its ability to leverage its share of the stimulus money, making this actually a $6 trillion stimulus bill. When the final stimulus bill was signed, the Fed got $454 billion of taxpayer money to cover its losses, which it can thus leverage up to $4.54 trillion to buy up the toxic debt that is exploding all over Wall Street.

Speaking to viewers of the Today show, Powell made it sound like the U.S. Treasury putting up taxpayer money at the Fed to absorb losses on Wall Street’s bad bets is the most normal thing in the world and a long-established practice. We’ve been studying the history of the Fed for the past 30 years and we can assure you that this is a brand new, tricked-up rescue plan by the Fed.

During the 2007-2010 financial crisis, which included the implosion of century-old firms on Wall Street in 2008, the Fed, secretly and on its own with no involvement of the U.S. Treasury or Congress, made $29 trillion in loans to Wall Street trading houses, global banks, hedge funds and foreign central banks. The Fed drew such a dark curtain around its operations that Senator Bernie Sanders had to attach an amendment to the Dodd-Frank financial reform legislation of 2010 so that Congress and the American people could finally find out how much the Fed had loaned and to whom it went by ordering a Government Accountability Office audit of the Fed’s “emergency” loans. That audit, which covered only some of the programs, reported $16.1 trillion in cumulative loans made by the Fed. When the Levy Economics Institute included the Fed programs that had been left out of the GAO audit, the tally came to $29 trillion in cumulative loans.


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