Written on July 25, 2011 by Ann-Marie Murrell
The Federal Reserve has recently had a complete audit and according to Vermont Senator Bernie Sander’s website, one of the big surprises found was the fact that the “U.S. provided $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression.”
Senator Sanders created an amendment to the Wall Street reform law a year ago which directed the Government Accountability Office to conduct the audit.
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sanders. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”Included in the audit findings, the Fed provided trillions of dollars in financial aid from South Korea to Scotland
“No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president,” Sanders said.
The audit also discovered that the Fed “lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse” and provides “conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.
An example Senator Sanders gives is that the CEO of JP Morgan Chase served on the New York Fed’s board of directors “at the same time his bank received more than $390 billion in financial assistance from the Fed.” Also, JP Morgan Chase “served as one of the clearing banks for the Fed’s emergency lending programs.”
Another “surprise” discovered in the audit is that, according to the GAO report, on Sept. 19, 2008, William Dudley, president of the New York Fed, was given a waiver allowing him to keep his investments in AIG and General Electric “at the same time AIG and GE were given bailout funds”. According to the audit, one of the reasons Dudley didn’t have to sell his holdings is because it might have “created the appearance of a conflict of interest.”
“No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed’s board of directors or be employed by the Fed,” Sanders said.
Other information revealed by the audit is that the Fed outsourced most of its emergency lending programs to private contractors, “many of which also were recipients of extremely low-interest and then-secret loans.”
“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo,” Senator Sanders posted on his writes. “The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”
Another more detailed GAO investigation into potential conflicts of interest at the Fed is due on October 18.
As Sanders says, “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”
To read the GAO report, click here.