The Fed's Two Trillion Dollar Scam Makes Madoff Look Like A Piker

by Vincent Gioia
Dec. 26, 2008

As American taxpayers bear the burden of bankrolling multiple financial scams now and into the foreseeable future, the Federal Reserve has refused to disclose the names of recipients or details of assets put up as collateral on two trillion dollars of "emergency" loans given to address the "financial emergency" rushed through congress. The Federal Reserve Bank responded to Bloomberg by saying it's allowed to withhold internal memos as well as other information requested by Bloomberg.

This display of arrogance of power is unprecedented. The government wants taxpayers to take its word for how it's spending an enormous amount of money. How gullible does the Federal Reserve think the American people are; the answer, very gullible or they wouldn't have gotten away with the scam.

What started as $700 billion has grown to $2 trillion. Total Federal Reserve lending exceeded $2 trillion for the first time November 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since September 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA. House Financial Services Committee Representative David Scott, a Georgia Democrat, said Americans had "been bamboozled." Congress may have been bamboozled but it is the American taxpayer who is left holding the bag because of congressional incompetence.

Federal Reserve Bank Chairman Ben Bernanke and Treasury Secretary Henry Paulson said in September they would provide transparency in the $700 billion bailout of the banking system; they also said the money would be used to buy up "toxic mortgages" but the rules changed immediately after Congress gave Bernanke total discretion to distribute the billions of dollars. So now all that Americans can do is complain. Americans have short memories so it is doubtful voters will remember this fiasco in the 2010 congressional elections.

The chances are that the so-called asset-back securities and other paper tied to leveraged buyouts are consumer debt and who knows what other kinds of garbage lies on the banks balance sheets. Yet the Federal Reserve still wants to protect the identities of the banks that are essentially continuing to thrive and expand by buying other banks with American taxpayers' money. That's outrageous.

"Notwithstanding calls for enhanced transparency, the Board must protect against the substantial, multiple harms that might result from disclosure," Jennifer J. Johnson, the secretary for the Federal Reserve Board of Governors, said in a letter e-mailed to Bloomberg News. "In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," she wrote.

Oh really? Maybe the people who provide the cash should get to be the judge of that. And in any case, who, exactly, will be endangered?

Dangerous - for whom? And what is the danger? You mean some fat cats might lose their jobs or their homes? Or some bankers might have to pay more dues for their country clubs?

Congress has put two trillion dollars, about 1/20 of world GDP, under the control of one man, with no checks and no accountability, and we don't know where the money went, or to whom. What we do know is that there has been no visible improvement of the financial problems all this money was supposed to correct. What we can assume is that it's going to the very same people who caused the problem; they will be the ones benefiting. Does this sound like Constitutional government to you? To me, it sounds like a financial dictatorship.

You think Madoff's $50 billion fraud was something? He's a piker compared to these guys.

The Federal Reserve responded to Bloomberg's law suit by saying that there is a trade-secret exemption in the Freedom of Information Act that could be expanded to include potential harm to any of the central bank's customers. But Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle, said that expansion is not contained in the freedom-of- information law.

Furthermore, Trade secrets? A trade secret is something like the formula for Coca Cola. A trade secret is an unpatented business or technical process the release of which would harm the competitive position of the holder. I can't imagine what sort of "trade secrets" might apply to the acquisition of bad debt from poorly managed financial institutions.

The Federal Reserve Bank is a "private" organization, and is NOT a U.S. government agency or entity. Remember how Congress approved about $700 billion but did not require oversight to actually give the money out? This is what happens when you have a for-profit institution that has absolutely ZERO congressional oversight or transparency requirements. And yet people still think the Federal Reserve Bank is a good idea.

The Democrats are in charge and Democrat representative Barney Frank is Chairman of the House Financial Services Committee. In an interview November 6, Barney Frank said "The Fed's disclosure is sufficient and the risk the central bank is taking on is appropriate in the current economic climate." Barney Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York. "I talk to Geithner and he was pretty sure that they're OK. If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' - "Such losses would be acceptable if the program helps revive the economy."

Barney Frank said the Fed shouldn't reveal the assets it holds or how it values them because of the "delicacy with respect to pricing.'' He said such disclosure would "give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.

This is who we have "protecting the public interest."

People seem to forget that those who run the United States government are nothing more than stewards and representatives for the American people. When the President and Congress spend money causing astronomical massive debt they ignore that it is not their personal debt but the collective debt of the American people which is now well over 12 TRILLION DOLLARS and counting.

The so called representatives of the American people in our government just gave out 2 trillion dollars to bailout failing and inefficient private corporations and yet are refusing to specify to the American taxpayers exactly WHO they gave all of our money to in these bailouts; Americans should not stand for it.

Vincent Gioia is a retired patent attorney living in Palm Desert, California