Senator Sanders and the Fed Audit

Senator Bernie Sanders (thank you Vermont) has issued a major statement on how the Federal Reserve Bank engineered $16 trillion to bail out U. S. banks and also foreign banks.  You can see his full report at http://tiny.cc/40u57 .

Senator Sanders writes, "The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study.

He further writes that, "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,"  He notes that, "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."  (emphasis mine).

According to the GAO report  the Federal Reserve Bank unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland.  Sanders comments that,  "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".

The GAO also determined that the Federal Reserve Bank lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. Not only that but,  according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that received emergency loans.

One potential conflict of interest examples was  the CEO of JP Morgan Chase who served on the New York Fed's Board of Directors at the same time that his bank received more than $390 billion in financial assistance from the Fed.  That’s over a third of a trillion dollars!  In addition JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.

The GAO report noted that that on September 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.  Just another disturbing finding.

According to the GAP audit one reason the Fed did not make Dudley sell his holdings was that it might have created the appearance of a conflict of interest.  Really?  Senator Sanders concludes that,  "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.”

The GAO report suggests that “. . . opportunities exist to strengthen polices and processes to manage emergency assistance . . ."  What an understatement.

I expect that Congress, ever on the corporate dole, will find a ways to weasel and waffle its way out of accepting any responsibility for the findings in the GAO report.  In addition the Federal Reserve Bank, which is not Federal at all but is privately owned, has no real responsibility to the American public will most likely ignore the findings of the report.  Nevertheless, I thought that you should know . . .