Dr. Susmit Kumar, Ph.D.
Introductory note: I have explained the 2008 US Housing Bubble Crisis in details in my previous two papers: Stop giving any consideration to Privatization and Consolidation of Public Sector Banks: Needs cleansing and overhaul of the entire financial system and Part IV – US Bogus Market-Driven Economy and RBI’s Functional Autonomy). The US Federal Reserve has functional independency which Mr Viral Acharya, the Deputy Governor of RBI, wants for RBI, US Federal Reserve does not regulate or supervise the financial institutions and in any crisis, it, along with Wall Street bankers and their co-conspirators in US Government, makes sure that investors/bankers do not lose any money and they do not care for the common people at all.
Even after a decade of the 2008 US Mortgage Crisis, the big banks like Citibank hide trillions and trillions of dollars of “toxic” assets with the help of the US Federal Reserve and corrupt politicians. At the onset of the 2008 mortgage crisis, several large banks, including Citibank, were insolvent.
In the aftermath of the 2008 housing crisis, which led to the 2008 Great Recession, the US Congress passed the “Dodd–Frank Wall Street Reform and Consumer Protection Act”. It brought the most significant changes to financial regulation in the US since the regulatory reform that came following the Great Recession. This particular act made changes in the American financial regulatory environment affecting all federal financial regulatory agencies and almost every part of the nation's financial services industry. But slowly and steadily, the Wall Street bankers in cahoots with the US Federal Reserve officials, got rid of nearly all its major financial regulations and reducing their monitoring of banks.
In 2011 (three years after the onset of the 2008 Great Recession), it was reported that major US banks, like Bank of America, had dumped nearly $75 trillion of toxic derivatives to the Federal Deposit Insurance Corporation (FDIC) insured banking institutions (BofA Said to Split Regulators Over Moving Merrill Contracts, Bob Ivry, Hugh Son and Christine Harper, www.bloomberg.com, Oct 18, 2011; Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval, Avery Goodman, Oct 21, 2011). The FDIC is a United States government corporation providing deposit insurance to depositors in US commercial banks and savings institutions. The corporation was created by the 1933 Banking Act, enacted during the Great Depression to restore trust in the American banking system.
The US Federal Reserve had to provide $29 trillion (twice of then US GDP) to large banks, to save the US economy from the collapse ($29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient, Working Paper No. 698, James Andrew Felkerson, University of Missouri–Kansas City, December 2011). Although $6 trillion and $9 trillion are quoted below, the actual amount turned out to be $29 trillion.
The US Fed argued that revealing the information could cause a run on the banks that needed to draw cash at the discount window. The Federal Reserve discount window is how the U.S. central bank lends money to its member banks, aka the Fed's use of credit. Banks take out these overnight loans to make sure they can meet the reserve requirement when they close each night. But under the financial regulatory reform act that was passed in July, 2010, the Fed would have to reveal future discount window transactions following a two-year lag (Fed made $9 trillion in emergency overnight loans, CNNMoney.com, Chris Isidore, December 1, 2010) [But Wall Street bankers and US Federal Reserve officials got rid of it – please read next paragraphs].
During the financial crisis, the US Congress/Government bailed out the big banks with hundreds of billions of dollars in taxpayer money; and that’s a lot of money. But the biggest money for the biggest banks was never voted on by the US Congress. Instead, between 2007 and 2009, the Fed provided over $13 trillion in emergency lending to just a handful of large financial institutions. That’s nearly 20 times the amount authorized in the TARP bailout (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens: March 4, 2015).
Those Fed loans were a bailout too. Nearly all the money went to too-big-to-fail institutions. For example, in one emergency lending program, the Fed put out $9 trillion and over two-thirds of the money went to just three institutions: Citigroup, Morgan Stanley and Merrill Lynch. … Those loans were made available at rock bottom interest rates – in many cases under 1 percent. And the loans could be continuously rolled over so they were effectively available for an average of about two years (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens: March 4, 2015).
One of the key reasons that the Fed wanted to keep this information buried from the public is that Citigroup was insolvent during the period it was receiving loans from the Fed. (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens: March 4, 2015).
There is also growing distrust of how some Fed personnel appear to cozy up to Wall Street. During Federal Reserve Chair Janet Yellen’s appearance before the Senate Banking Committee a week earlier, Senator Warren severely criticized the actions of Scott Alvarez, the General Counsel of the Federal Reserve. Warren said Alvarez had delivered a speech before the American Bar Association challenging Dodd-Frank’s so-called push-out rule that would bar insured depository banks from holding dangerous derivatives and swaps on their books. Not long thereafter, Citigroup slipped a repeal of the provision into the must-pass spending bill that would keep the government running through this September. (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens: March 4, 2015).
Warren noted that the Dodd-Frank legislation was passed in 2010 but the Fed had stalled the implementation of the push-out rule until 2016 – long enough for Citigroup to eventually have it repealed, a feat which it has now accomplished. (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens: March 4, 2015).
During 2000-2006, banks gave home loans to people based on fictitious papers. There were cases of babysitters whose salaries were worthy of college presidents, and of school teachers with incomes rivaling stockbrokers. Bank officers as well as investment bankers made hundreds of millions of dollars in salaries and bonuses because of them. Later, common people lost homes and money in shares whereas hedge funds made a lot of money bringing down the shares of these banks. It all boils down to the fact that the whole mechanism, or dynamics, if you like, created a domino effect, leading taxpayers to pay trillions of dollars for the bankers’ misdeeds and exacerbating the economic recession of the country as well as that of the entire world. Despite having all the documentary proofs, not a single bank official or Wall Street banker went to jail.
The following New York Times article compared the details of prosecutions in two US financial crises:
“Two Financial Crises Compared: The Savings and Loan Debacle and the Mortgage Mess” – New York Times, April 13, 2011
http://www.nytimes.com/interactive/2011/04/14/business/20110414-prosecute.html
“Savings and loan crisis” – Wikipedia [it was a US financial scandal during late 1980s and 1990s in which 1000+ bank officials went to jail]
https://en.wikipedia.org/wiki/Savings_and_loan_crisis
The US Government and the US Federal Reserve had to spend nearly $29 trillion to clean up the financial mess created by investors and bankers in the US, which led to the 2008 Great Recession. But when the US Government allocates a few millions towards the social safety net of middle class and poor, these investors and bankers start to cry foul claiming “Socialism…. Socialism.”
