Home > Personal Finance > Bloomberg: The Secret Bailout? Secret Fed Program Lent Big Banks $1.2 Trillion

Comments 0 Comments

At the height of the 2008 financial crisis, the Federal Reserve ran a massive, secret program that gave $1.2 trillion in low-cost loans to the largest banks in America and Europe, according to a report by Bloomberg News.

To put that in perspective, $1.2 trillion is roughly equivalent to the federal debt. It’s roughly the same amount that American homeowners owe on foreclosed and delinquent mortgages, Bloomberg reports.

And it equals roughly one-third of all the assets owned by the Federal Reserve.

[Article: BofA Gets Out of International Credit Card Business: Why?]

“That’s a big number,” says Robert Litan, who served on a commission during the 1990s that probed the causes of the savings and loan scandal, and is now a senior vice president at the Kauffman Foundation. “They loaned out basically a third of their balance sheet. It’s clearly a measure of how much trouble the financial sector was in.”

The secret loan program dwarfs all the other federal bailouts, which themselves were hugely controversial for the amount of money at stake, and for the perception by many voters and political leaders that the bailouts were done with little public input. The perception of unbridled spending to bail out the financial sector was one of the primary motivators for the Tea Party movement.

“So I guess I could see this as a third bailout: Fannie & Freddie, TARP, and then the Fed efforts,” says Paul Kiel, who covers the bailout programs for ProPublica. “Of course, these have occurred alongside one another and sometimes have been interrelated.”

Others say this secret Fed program wasn’t a bailout at all.

“That’s literally why we created the Fed, to be a lender of last resort when there’s no liquidity in the system,” Litan says. “I think the Fed was doing its job.”

[Resource: Get your free personalized Credit Report Card]

The Total Bill: Almost $2 Trillion

The largest bailout, known as the Troubled Asset Relief Program (TARP), used $470 billion to shore up large financial institutions and car companies. That included $85 billion to A.I.G., the behemoth financial company that sold mortgage-backed securities as well as insurance policies in case those securities went sour.

In a report published last year, the Obama administration predicted that the government will lose $17 billion on its TARP investments in car companies, plus another $46 billion on housing programs including the Home Affordable Modification Program. Those losses may be balanced by profits the Treasury made from its loans to financial institutions.

Then there were the bailouts of Fannie Mae and Freddie Mac, the government-backed companies that sell, buy and insure mortgages. Those bailouts will cost taxpayers another $154 billion, according to a report from the companies to Congress.

In the case of its secret lending program, the Fed expects to recoup all the money it lent out. In a statement to Bloomberg, the Fed said it had “no credit losses” on any of its emergency loans, and a report by the Fed’s New York branch said it actually gained a $13 billion profit from interest and fees from the loans.

Regardless of how much will eventually be repaid, the amount of money the Fed and Congress lent out or gave away to prevent a full-blown depression is truly staggering. Between TARP, Fannie and Freddie, and the Fed’s secret loan program, $1.824 trillion was spent to stabilize the economy.

[Featured Product: Looking for credit cards for poor credit]

A Fight for Secrecy »

Image: David Beyer, via Flickr.com

Pages: 1 2

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team