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In Last Bailout, the Fed Outsourced Management to the Banks Being Bailed Out – then Paid them Huge Fees for their Work

Courtesy of Pam Martens

Fed's Agency MBS Program During 2007-2010 Financial Crisis

Fed's Fees Paid on AIG Revolving Credit Facility

By Pam Martens and Russ Martens

Many of the darkest secrets of the Federal Reserve’s bailout of Wall Street banks during the 2007 to 2010 financial crisis are cryptically contained in the government audit of the Fed’s emergency lending programs that was released to the public on July 21, 2011. A careful reading shows that some of the very same Wall Street mega banks that were in desperate need of, and receiving, bailout funds from the Fed were given assignments by the Fed to oversee parts of the bailout. Making the situation even more ludicrous, those same firms were paid huge fees by the Fed for their work. There is good reason to believe that the same plan is in the works for the Fed’s latest bailout.

The audit by the Government Accountability Office (GAO), the nonpartisan watchdog for Congress, shows that during the last financial crisis Morgan Stanley was paid fees of $108,400,327 for “investment banking advisory services” on the AIG revolving credit facility. Morgan Stanley was also the second largest recipient of bailout funds from the Fed, receiving $2.04 trillion in secret, revolving, below-market rate loans from the Fed during the last crisis. (Only Citigroup eclipsed that total, with $2.51 trillion in secret loans from the Fed. See chart below from the GAO audit.) A court order and Dodd-Frank legislation finally forced the Fed to release the names of the recipients and loan amounts.

But the story on Morgan Stanley and AIG doesn’t end there. AIG was the giant insurance company that had become a counterparty to Wall Street’s credit derivatives and securities lending programs. In order to make Wall Street whole on its bets with AIG, the government seized AIG and paid Wall Street 100 cents on the dollar for what AIG owed to Wall Street and global banks – which came out to more than $90 billion. While Morgan Stanley was being paid for its so-called investment banking expertise, it was also collecting 100 cents on the dollar under the AIG bailout. AIG was finally forced to reveal the names of the Wall Street banks that got this behind-the-scenes bailout.

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