“Secrets” of the “Audit” of the “Federal Reserve”
Warning: This post is really boring. I just got sucked into reading a report on the Federal Reserve’s emergency lending programs. I have no impulse control. On the upside, there are worse things that could happen to people with no impulse control.
Ration World and a few others on my dashboard have brought a recent “audit’ of the Federal Reserve to light alleging $16 Trillion in “secret bailouts.” This raised two red flags.
First, $16 Trillion is a lot of money. I might believe one or two trillion. But claiming $16 Trillion in bailouts is a bit like claiming you drove through a school zone at 250 miles an hour. It’s maybe possible. And it would definitely be scandalous if it were true. But … it seems pretty unlikely. At a minimum, it’s worth a bit of investigation.
Second, the chain of links goes back, to knowtoomuch.info, which posts some great stories about banking conspiracies and the dangers of the fluoridation of water. So … right. It’s worth checking the source on this one.
The source is this GAO report and this article by Bernie Sanders.
Like a sucker, I decided to read through most of the report so you don’t have to. Here’s what came up.
- The Fed did a lot of things through a lot of different programs designed to stabilize the financial system and keep interest rates low.
- It worked.
- The Fed did not lose any money on any of these programs.
- Even though the programs weren’t designed to maximize returns, they generally turned a profit.
- The GAO’s recommendations were generally pretty minor. For example, they think some of the vendor contracts should have been bid more competitively. There were no big shockers.
- The Fed had a number of programs on standby in case things got worse that were never used.
Incidentally, the “$16 trillion” number is the total amount of all the loans. Many of those loans were overnight loans. So a year’s worth of over-night $10 billion loans would register as $3.65 trillion in loans, even though only $10 billion was actually at risk. (Sanders would call that a $3.65 trillion bailout. I think a $10 billion bailout would be more accurate.) The total amount of loans outstanding at any given point peaked at $1.2 trillion in 2009. There were also about $1.25 trillion in mortgage backed securities purchased.
Most of these loans were totally unraveled by 2010. It looks like the rest can comfortably be paid off without any nasty surprises. Or, to put it differently, the GAO report that Ron Paul so desperately wanted makes the Fed look pretty awesome for navigating a nearly impossible situation and coming out okay.