Lies and the lying liars who tell them, (Big-bank bailout edition)

Bloomberg has a long article up on its site about its latest findings on the Fed’s lending programs. And the bottom line is everybody close to the process lied like crazy. For instance:

Banks lied during the crisis. The big banks said they were in really good shape even as they were sucking tons of credit from the Fed. The ones that arguably were healthier, like JP Morgan, tried the “they threw me in the br’er patch, I really didn’t want all that money,” in fact stayed in the program well beyond the acute phase of the crisis because it liked getting all that cheap funding. Now this sort of misrepresentation is a securities law violation, but since the regulators presumably winked and nodded and it would be hard to prove damages, no bank executive will be held to account.

Bloomberg also performs the useful task of trying to ascertain how much benefit the banks derived from the cheap funding. They come up with $13 billion, or roughly 23% of profit (they assume typical margins, when it would take a good deal of internal data to make more refined estimates). This is actually a very narrow definition of profit impact. The Fed stepping into the markets to shore up the banks by design stabilized and boosted asset prices, which surely had a significant profit impact.

Regulators lied to Congress. Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.”….

Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark.


Lawmakers knew none of this. They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible…

Find out more at http://www.nakedcapitalism.com/2011/11/quelle-surprise-banks-lied-about-bailout-funds-and-got-13-billion-in-profit-from-them.html