Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak

Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak
By Bradley Keoun and Craig Torres - Apr 1, 2011 1:19 AM ET

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.
Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.
The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.
“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.
Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.
Bank of America

Those programs also loaned tens of billions of dollars to each of the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. and Morgan Stanley.
The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”
The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed was ordered to release more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.
Public Outrage

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.
“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”
The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount window credit.
David Skidmore, a Fed spokesman, declined to comment.
Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.
The Charlotte, North Carolina-based bank borrowed $29 billion from the discount window on Oct. 6, in the week after it nearly collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.
Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.
Bank of Scotland

Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.
The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)
“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”
Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.
Bank of China
“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.
Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month, while two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.
Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to borrow at least $1.1 billion from the discount window in October 2008.
The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.
Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.
‘Backward-Looking’

Dexia’s outstanding balance at the Fed has been reduced to zero, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.
“This information is backward-looking,” she said. “We experienced a great deal of tension concerning the liquidity of the dollar at the time of the crisis. The Fed played its role as central banker, providing liquidity to banks that needed it.”
Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009. Oliver Gruss, a spokesman for Depfa’s parent company, didn’t respond to requests for comment.
Many foreign banks own large pools of dollar assets --bonds, securities and loans -- funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.
‘Playing With Fire’

“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding -- bingo, you have a liquidity crisis.”
The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.

Where you been for the last two years?

What next news flash....That the government bailed out GM?

What next news flash....That the government bailed out GM? Originally Posted by WTF

Barack Obama: Losing $84 billion big success

Kerry Picket
Published on March 31, 2011

Barack Obama has some 'splaining to do about taxpayers' profitable "investment" in General Motors. It turns out the president is imagining things.
Though Democrats tout the auto bailout as a success, recent reports illustrate the taxpayer cost of the GM auto bailout was substantially larger than the Obama administration and a Congressional Oversight report has owned up to.
"American taxpayers are now positioned to recover more than my administration invested in GM,” President Obama said, according to a piece in USA Today last November. Steven Rattner, former head of the Treasury's auto task force agreed, telling CNN in November: “Recent progress at GM gives reason for optimism that it may be possible for taxpayers to get every penny back.”
In fact, Investor's Business Daily reported that even the White House’s Director of the National Economic Council remarked that the Treasury Department Department had a good chance in "recovering most, if not all, of its investment in" GM.
However, a March 16 Congressional Oversight report, tells a different story. It estimates taxpayers will be out of $25 billion. Additionally, the report points out that “full repayment will not be possible unless the government is able to sell its remaining shares at a far higher price.”
That's only the beginning. Both the White House and the Congressional Oversight report omit the fact that during its bankruptcy, GM got a $45 billion tax break, courtesy of the American people.
GM is driving “away from its U.S.-government-financed restructuring with a final gift in its trunk: a tax break that could be worth as much as $45 billion,” reported The Wall Street Journal last November.

Over one year after the promises President Obama and his administration made about the auto bailout, a February piece on AutoBlog also confirms that GM will also get a $14 billion dollar domestic tax break:

GM will be able to skip its tax tab due to years of massive losses. Companies are typically forgiven a portion of future taxes due to their past losses, but that benefit is typically stripped after an organization goes through bankruptcy.

However, the Obama administration and its allies presently continue to celebrate the success of the auto bailout, regardless of the facts. "I don’t think there’s any doubt that this was a success," said (H/T Detroit News) acting assistant secretary at the Treasury Department Tim Massad, who oversees the TARP program at Treasury, to a House panel on Wednesday.
In Obama's world, success mean taxpayers only lost as much as $84 billion.

Where you been for the last two years?

What next news flash....That the government bailed out GM? Originally Posted by WTF

LOL,
Well, you did ask for it now didn't you?

You know, some of HFCJr's thread starts could actually show the source. Knowing the source can actually give you an idea of the slant with which the article starts.

Can you find it? Generally, yes. It's a PIA. And when you do find it, the source generally discredits itself.

Where you been for the last two years?

What next news flash....That the government bailed out GM? Originally Posted by WTF

I agree. How about we talk about something new like "Defense Spending"?

Can you find it? Generally, yes. It's a PITA. And when you do find it, the source generally discredits itself. Originally Posted by charlestudor2005

There. Fixed that.

You know, some of HFCJr's thread starts could actually show the source. Knowing the source can actually give you an idea of the slant with which the article starts.

Can you find it? Generally, yes. It's a PIA. And when you do find it, the source generally discredits itself. Originally Posted by charlestudor2005

Source credibility is truly in the eyes of the beholder, oh fan of NPR. When in doubt, google it out.

http://www.bloomberg.com/news/2011-0...rs-secret.html

I agree. How about we talk about something new like "Defense Spending"? Originally Posted by Rudyard K

Only when included in cutting government spending. Right wingers hate talking about cutting their own private form of welfare.


Marshall post these things like they are a news flash was my real point.

Marshall post these things like they are a news flash was my real point. Originally Posted by WTF

And someone's constant harping on defense spending, no matter what else was being discussed, was mine.

And someone's constant harping on defense spending, no matter what else was being discussed, was mine. Originally Posted by Rudyard K

And someone's constant harping on WTF constantly harping on defense spending is mine.

And someone's constant harping on WTF constantly harping on defense spending is mine.

Originally Posted by discreetgent

Fair enough. I can't resist taking the easy shot sometimes.

And someone's constant harping on WTF constantly harping on defense spending is mine.

Originally Posted by discreetgent

LOL....

...on a side note dg, you gotta change that avatar, I am constantly wanting to fuc you!

Fair enough. I can't resist taking the easy shot sometimes. Originally Posted by Rudyard K

You take it as well as you dish it out Rudyard, so all is good.


Though to be fair, I bring up Defense spending every time people talk about cutting taxes or smaller government. That is just the way it is going to be as long as I post.

Only when included in cutting government spending. Right wingers hate talking about cutting their own private form of welfare.


Marshall post these things like they are a news flash was my real point. Originally Posted by WTF

Not so!

I think we spend entirely too much money on precision weapons to avoid collateral damage, humanitarian missions and sensitivity training. Napalm is both cheap and effective.

I'm also unsure that aircraft carrier groups do much for actual defense anymore. Especially when the ground troops have ROEs that make getting an air strike way too difficult.

There's also no doubt that tactical nukes are the most bang for the buck you can get. Pop a couple to re-establish the credibility of the nuclear deterrent and we could cut waaaaay back on conventional forces. If you want to cut budgets, you have to look at all of the options.

And lifting the presidential ban on assassinations would go a long way toward simplifying and streamlining many conflicts.