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Wednesday, April 27, 2011

Backdoor Bailouts: Banks Play Shell Game With Taxpayer Dollars

The Federal Reserve propped up banks with big infusions of cash during the depths of the financial crisis in 2008 and 2009. Banks that took billions of dollars from the Fed then turned around and loaned money back to the federal government. It was a sweet deal for the bankers. They received interest payments on the government securities that were up to 12 times greater than the Fed's rock bottom rates, according to aCongressional Research Serviceanalysis conducted for Sen. Bernie Sanders.

"This report confirms that ultra-low interest loans provided by the Federal Reserve during the financial crisis turned out to be direct corporate welfare to big banks," Sanders said. "Instead of using the Fed loans to reinvest in the economy, some of the largest financial institutions in this country appear to have lent this money back to the federal government at a higher rate of interest by purchasing U.S. government securities."

The Federal Reserve claimed at the time that the emergency loans were needed so banks could provide credit to small- and medium-sized businesses that desperately needed money to create jobs or to prevent layoffs. "Instead of using this money to reinvest in the productive economy, however, it appears that JPMorgan Chase, Citigroup, and Bank of America used a large portion of these near-zero-interest loans to buy U.S. government securities and earn a higher interest rate at the same time, providing free money to some of the largest financial institutions in this country," Sanders said.

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