In a recent article posted in the New York times, the Feds are struggling with how to explain to those on Main Street how helping Wall Street is in fact helping Main Street. The apparent circular argument is not lost on those who still can not find employment or get refinanced, although Wall street Banks have been provided funding just for those concerns. According to Gretchen Morgensen of the New York Times :
“FOR the last three years we have been told repeatedly by government officials that funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system, and beneficial to Main Street.
But this has been a hard sell to an increasingly skeptical public. As Henry M. Paulson Jr., the former Treasury secretary, told the Financial Crisis Inquiry Commission back in May 2010, “I was never able to explain to the American people in a way in which they understood it why these rescues were for them and for their benefit, not for Wall Street.”
The American people were right to question Mr. Paulson’s pitch, as it turns out. And that became clearer than ever last week when Bloomberg News published fresh and disturbing details about the crisis-era bailouts.
Based on information generated by Freedom of Information Act requests and its longstanding lawsuit against the Federal Reserve board, Bloomberg reported that the Fed had provided a stunning $1.2 trillion to large global financial institutions at the peak of its crisis lending in December 2008.
The money has been repaid and the Fed has said its lending programs generated no losses. But with the United States economy weakening, European banks in trouble and some large American financial institutions once again on shaky ground, the Fed may feel compelled to open up its money spigots again.
Such a move does not appear imminent; on Friday Ben S. Bernanke, the Fed chairman, told attendees at the Jackson Hole, Wyo., conference that the Fed would take necessary steps to help the economy, but didn’t outline any possibilities as he has done previously.
If the Fed reprises some of its emergency lending programs, we will at least know what they will involve and who will be on the receiving end, thanks to Bloomberg.
For instance, its report detailed the surprisingly sketchy collateral — stocks and junk bonds — accepted by the Fed to back its loans. And who will be surprised if foreign institutions, which our central bank has no duty to help, receive bushels of money from the Fed in the coming months? In 2008, the Royal Bank of Scotland received $84.5 billion, and Dexia, a Belgian lender, borrowed $58.5 billion from the Fed at its peak.