The first top-to-bottom audit of the
Federal Reserve uncovered eye-popping new details about how the U.S.
provided a whopping $16 trillion in secret loans to bail out American
and foreign banks and businesses during the worst economic crisis since
the Great Depression. An amendment by Sen. Bernie Sanders to the Wall
Street reform law passed one year ago this week directed the Government
Accountability Office to conduct the study. "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 Sanders. "This is a clear case of socialism
for the rich and rugged, you're-on-your-own individualism for everyone
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, according to the GAO report. "No agency of the United States
government should be allowed to bailout a foreign bank or corporation
without the direct approval of Congress and the president," Sanders
The non-partisan, investigative arm of
Congress also determined that the Fed lacks a comprehensive system to
deal with conflicts of interest, despite the serious potential for
abuse. In fact, according to the report, the Fed provided conflict of
interest waivers to employees and private contractors so they could keep
investments in the same financial institutions and corporations that
were given emergency loans.
For example, the CEO of JP Morgan
Chase served on the New York Fed's board of directors at the same time
that his bank received more than $390 billion in financial assistance
from the Fed. Moreover, JP Morgan Chase served as one of the clearing
banks for the Fed's emergency lending programs.
In another disturbing finding, the GAO
said that on Sept. 19, 2008, William Dudley, who is now the New York Fed
president, was granted a waiver to let him keep investments in AIG and
General Electric at the same time AIG and GE were given bailout funds.
One reason the Fed did not make Dudley sell his holdings, according to
the audit, was that it might have created the appearance of a conflict
To Sanders, the conclusion is simple.
"No one who works for a firm receiving direct financial assistance from
the Fed should be allowed to sit on the Fed's board of directors or be
employed by the Fed," he said.
The investigation also revealed that
the Fed outsourced most of its emergency lending programs to private
contractors, many of which also were recipients of extremely
low-interest and then-secret loans.
The Fed outsourced virtually all of
the operations of their emergency lending programs to private
contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The
same firms also received trillions of dollars in Fed loans at near-zero
interest rates. Altogether some two-thirds of the contracts that the Fed
awarded to manage its emergency lending programs were no-bid contracts.
Morgan Stanley was given the largest no-bid contract worth $108.4
million to help manage the Fed bailout of AIG.
A more detailed GAO investigation into
potential conflicts of interest at the Fed is due on Oct. 18, but
Sanders said one thing already is abundantly clear. "The Federal Reserve
must be reformed to serve the needs of working families, not just CEOs
on Wall Street."
To read the GAO report, click: here.