…I might actually understand what happened in 2008, when the world’s financial system seemed on the brink of collapse and the Fed stepped into the breach, lending what is now understood to be $1.2 trillion to the world’s major financial institutions:
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret. …
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default. …
The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon.
So far, the Fed has done fine on these loans. Officials say there have been “no credit losses.” So maybe it all worked out for the best. George Bush, President at the time, has written about the situation he found himself in, with every economic adviser telling him that the world faced another Great Depression if international banks were not supported (or bailed out) by the United States government. But, as I understand it, that was a separate and smaller matter. I believe his administration had to approve only the much smaller loans or guarantees by the Treasury Department, not the trillion dollar-plus loans from the Fed.
I draw no particular conclusion from the facts that are now coming out about the 2008 banking crisis. It is troubling, however, that we live in an era in which even the best-informed voters can hardly be expected to comprehend the financial complexities with which our government grapples, and in which quasi-governmental agencies not under the control of any elected officials dispose of the American taxpayers’ credit to the tune of more than a trillion dollars.