GAO audit shows $16 trillion in secret Fed loans

Foreign banks bailed out in secret deals

Washington – A first-ever audit ordered by an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act shows the Federal Reserve made $16 trillion in loans to foreign central banks during the period 2007-2010.

"No agency of the United States government should be allowed to bail out a foreign bank or corporation without the direct approval of Congress and the president," said Senator Bernie Sanders, I-Vt., author of the amendment.

The GAO audit shows that “On numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008. The Federal Reserve Board directed the Federal Reserve Bank of New York (FRBNY) to implement most of these emergency actions...”

"In 2009 and 2010, FRBNY also executed large-scale purchases of agency mortgage-backed securities to support the housing market," the auditors stated in the report.

At that time, U.S. Treasury Secretary Tim Geithner was chairman of the Federal Reserve Bank of New York.

Having found numerous conflicts of interest, the GAO auditors recommended that "Going forward, to further strengthen policies for selecting vendors, ensuring the transparency and consistency of decision making involving the implementation of any future emergency programs, and managing risks related to these programs, the Chairman of the Federal Reserve Board should direct Federal Reserve Board and Reserve Bank staff, as part of the Federal Reserve System's planned review of the Reserve Banks' codes of conduct given their expanded statutory authority under the Dodd-Frank Act, to consider how Reserve Banks' experience managing employee conflicts of interest, including those related to certain nonbank institutions that participated in the emergency programs, could inform the need for changes to the Reserve Banks' conflict policies."

According to a statement released by Sen. Sanders' office, “Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland...

"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sen. Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."