The Federal Reserve offers details on the loans it gave to banks
and others at the height of the financial crisis. One program alone
doled out nearly $9 trillion.
The Federal Reserve has lifted its veil of secrecy regarding
special lending programs during the financial crisis, responding to
a mandate from Congress by revealing the specifics of transactions
with firms like Goldman Sachs and Citigroup.
Critics of the Federal Reserve are poring over the data, seeking
red flags regarding potential improprieties. And Congress has asked
its Government Accountability Office to sift through the numbers and
offer its own analysis.
At the same time, it's possible that the release of details will
end up largely vindicating the Fed for the massive financial support
that it gave the economy at a time of severe stress. The emergency
loans, in the view of many finance experts, helped to avert a much
deeper economic slump. And those loans have now been largely paid
back without losses to the central bank.
The numbers are staggering, encompassing more than a dozen
emergency programs set up starting in 2007 or 2008. In one program
alone the Fed doled out nearly $9 trillion in funds to borrowers
such as Morgan Stanley and Merrill Lynch, largely at interest rates
below 1 percent. (This program involved overnight loans, so the
amount of Fed credit outstanding at any single point in time was
Other programs, with longer-term loans also measured in the
trillions of dollars.
The Fed actions were just part of a larger array of government
bailouts for the financial industry, which were deeply unpopular
with most Americans. Rescue programs run outside the Fed included
insurance-style backstops for bank debts and the investments from
the Treasury's $700 billion TARP (Troubled Asset Relief Program).
Despite the public outrage stirred by the actions to prop up
firms like Citigroup and AIG, the Fed's biggest mistakes may have
come before the recession rather than in response to it.
"My view is that the Fed has done an excellent job since the
crisis started, but they didn't do a very good job before the crisis
started," says Pete Kyle, a finance expert at the University of
Maryland. He says the central bank, as a key financial regulator,
should have ensured that US banks had plenty of capital on hand to
weather a storm.
Some other economists echo that view, arguing that the Fed and
other bank regulators should have done much more to safeguard
against a surge in high-risk mortgage lending during the years
leading up to the crisis, at a time when US home prices were