FOI At Work: Bloomberg Reveals the Chaos, and Huge Numbers, of the Wall Street Bailout

Morgan Stanley Building

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Some great FOI work here by Bloomberg, telling the tale of just how crazy the financial meltdown really was…

Citigroup and Bank of America 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.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress….

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Bloomberg’s First Look At The Fed Data It Sued For….

The Federal Reserve Bank of Chicago is located...

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And, not surprisingly, it’s troubling stuff

U.S. regulators closed Chicago- based Park National Bank in October 2009 when it owed $345 million to one of the lowest-cost lenders in town: the Federal Reserve’s discount window. Park National had been a constant customer at the window for more than 18 months before it failed, records show.

That glimpse into the loan program, gleaned through the Freedom of Information Act, will be expanded this week with an unprecedented view of the secret lifelines the Fed extended to hundreds of banks. Officials plan to release documents that amount to more than 6,000 pages, according to court records. Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC requested the records under FOIA, then sued after the central bank refused to release them.

Without identifying them as of yet, Fed officials say all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest. Cases such as Park National’s show how the lending amounted to a secret public subsidy, with few questions asked.

“Solvency is the big issue,” said Arthur Wilmarth, a professor at George Washington University Law School in Washington. “Was the Fed keeping banks alive when they should have died?”

Banks were able to tap the window for loans at rates below the market after subprime mortgage defaults contributed to record losses for them and credit markets began to seize up.

 

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A Victory for Openness: Fed Ordered to Release Loan Details

In an unprecedented victory for your right to know, the U.S. Supreme Court has ordered that the Federal Reserve must release details of billions of dollars of emergency loans it made to commercial banks as part of the government bailout in 2008.

This decision will give the public insight into secret deals the federal government made with banks and will set a precedent for more transparency in the future.

The Fed has five days to release records sought by Bloomberg LP, the parent organization of Bloomberg News, which had filed a request through the federal Freedom of Information Act (FOIA) for documents relating to the loans.

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