(Photo: REUTERS/Jason Reed)
The Federal Reserve Board (Fed) secretly committed to over $7 trillion in loans to some of the nation's largest banks. Those banks made $13 billion off those loans. Rep. Elijah Cummings (D-Md.), ranking member of the House Oversight and Government Reform Committee, has requested a hearing with Fed Chairman Ben Bernanke to explain the matter.
After the financial crisis that began in October 2008, the Fed committed to $7.77 trillion in loans for banks, according to Bloomberg News. Neither the Fed nor the banks’ shareholders were informed of the program. The Fed and banks kept the program secret even as banks were reassuring their investors that their companies were not in danger, and lobbying Congress to limit regulations on them.
The information was revealed after Bloomberg LP won a Freedom of Information Act request. The Fed and a coalition of banks fought the request, but he Supreme Court of the United States sided with Bloomberg LP when it declined to hear an appeal in March 2011.
Bloomberg's analysis of those 29,000 pages of Fed documents shows that six banks – Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., and Morgan Stanley – received 63 percent of the loans. Additionally, banks who participated in the program were able to earn $13 billion off the loans because the Fed offered the loans at below-market rates.
Cummings sent a letter on Monday to Rep. Darrell Issa (R-Calif.), chair of the Committee on Oversight and Government Reform, requesting a hearing with Bernanke.
“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” Cummings wrote.
The news comes as protest movements from both sides of the political spectrum, Occupy Wall Street and the Tea Party, have expressed outrage at “crony capitalism,” or government favoritism for large banks. The secretive nature of the program between the Fed and some of the nation's largest banks lends itself to the storyline that the rich and powerful are using government power to protect their own interests at the expense of everyone else.
“This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes [on Bank regulations] now,” Sen. Sherrod Brown (D-Ohio) told Bloomberg News.
Republican presidential candidate and Texas Congressman Ron Paul has been sharply critical of the Fed for being too “secretive.” He frequently calls for an audit of the Fed and would eventually like to abolish it altogether. One of Paul's books is titled End the Fed (2009).
In November 2009, Bernanke testified before Congress about a bill, introduced by Paul, that, if it had passed, would have led to a far reaching audit of the Fed by the General Accounting Office. Bernanke warned at the time that such an audit threatened the independence of the Fed and would be “highly destructive to the stability of the financial system, the dollar and our national economic situation.”