Fed Opens Books, Revealing European Megabanks Were Biggest Beneficiaries (Details you should see)

NEW YORK -- The Federal Reserve on Wednesday reluctantly opened the books on its monumental campaign to save the financial system in the midst of the recent crisis, revealing how it distributed some $3.3 trillion in relief.

The data revealed that the Fed's aid was scattered much more widely than previously understood. Two European megabanks -- Deutsche Bank and Credit Suisse -- were the largest beneficiaries of the Fed's purchase of mortgage-backed securities. The Fed's dollars also flowed to major American companies that are not financial players, including McDonald's and Harley-Davidson, through unsecured short-term loans.

The measure, initiated in Jan. 2009 to stimulate the flow of credit and keep household borrowing costs low, led the nation's central bank to purchase more than $1.1 trillion in mortgages packaged into the form of securities. The mortgage bonds are backed by Fannie Mae and Freddie Mac, the twin mortgage giants now owned by taxpayers.

Deutsche Bank, a German lender, has sold the Fed more than $290 billion worth of mortgage securities, Fed data through July shows. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.

The data had previously been secret. It was released Wednesday per the recently-enacted law overhauling the federal financial regulation. The Fed, ferociously backed by the Obama administration, fought lawmakers' desire for full disclosure throughout the financial reform debate.

The mortgage purchase program has come under withering criticism by economists and financial experts who believe the Fed's initiative has unnecessarily inflated the housing market, and prevented the cleansing that pretty much all experts believe is necessary for a full economic rebound. However, the program has also been heavily praised for preventing an Armegedon-type situation in which mortgage costs could have skyrocketed, collapsing the housing market and leading to even more foreclosures.

Data released Wednesday shows which Wall Street firms have been the biggest beneficiaries of the Fed's bond buying program. The fact that foreign lenders benefited the most is sure to irk lawmakers.

The Fed effectively telegraphed its intentions to the Street before buying the bonds. Legendary money manager Bill Gross, who oversees more than $1.2 trillion at Pacific Investment Management Co. said last month during a television interview that part of his success over the last 18 months was due to buying securities in front of the Fed, and selling them to the Fed at a premium, allowing him to profit handsomely. Gross runs PIMCO's $252.2 billion Total Return Fund.

Morgan Stanley sold the Fed more than $205 billion in mortgage securities from January 2009 to July 2010, while it's much bigger rival, Goldman Sachs, sold $159 billion. Citigroup, the nation's third-largest bank by assets, sold the Fed nearly $185 billion in mortgage bonds. Merrill Lynch/Bank of America sold about $174 billion.

It's not clear how much these firms profited by engaging in the kind of activity that allowed Gross to profit so well, known as "front running." However, it's abundantly clear that they did turn a profit.

JPMorgan Chase, the nation's second-largest bank by assets, sold the Fed about $153 billion worth of mortgage securities.

Other foreign banks with extensive Wall Street operations also profited from the program.

Barclays, the British firm that took over failed investment bank Lehman Brothers, sold about $123 billion in mortgage bonds. UBS, a Swiss lender, sold about $94 billion. BNP Paribas, a French bank, sold about $67 billion.

Oh the banker apologist arrives did you forget to ping your buddy he hasn’t shown up yet on the thread?

Did you also read how they offloaded (sold)Billions on to us the taxpayers this way? Or did you conveniently ignore that?

You know what I’m not the foreign banks keeper I could care less if they fail they made stupid loans just like our banks did they developed those liars loans, etc. out of greed and should have been allowed to fail. What’s that about the government picking winners and losers I always hear about, how about all the smaller US Banks that failed and are still failing.

“The measure, initiated in Jan. 2009 to stimulate the flow of credit and keep household borrowing costs low, led the nation’s central bank to purchase more than $1.1 trillion in mortgages packaged into the form of securities. The mortgage bonds are backed by Fannie Mae and Freddie Mac, the twin mortgage giants now owned by taxpayers.

The data had previously been secret. It was released Wednesday per the recently-enacted law overhauling the federal financial regulation. The Fed, ferociously backed by the Obama administration, fought lawmakers’ desire for full disclosure throughout the financial reform debate.”

If you insist on calling me an apologist, I’d prefer the term Fed apologist instead of banking apologist. Since usually I find myself defending the Fed against those who think that if the FED would just go away and/or we’d adopt a gold standard that money supply fluctuations, business cycles, inflation and deflation would all go away too, when nothing could be further from the truth.

I don’t approve of everything the banks have done. I’ve railed against their bait and switch credit card policies and their greedy interest rate hikes. I don’t think they really did much bad with regard to mortgages. They played by the set of rules that were being enforced. But the rules were both insufficient and all the rules weren’t being enforced.

Of course the banks operated out of greed. Our entire system pretty much operates out of greed. Government is a necessary evil to set the market place rules and enforce them so the greed doesn’t result in foul play. When government fails, the greed results in bad decisions.

If the rules allow you to outsource to 3rd world countries that pay wages of $2 a day, the last firm to outsource is the firm that goes out of business. No amount of tax cuts is going to help compete against labor wages that low. But you can’t expect individual firms to be the ones to make good policy for the country. That’s an out of business strategy for an individual firm. It has to come from Government.

If the rules allow you to sell 100% mortgages and sell them to the government, then that’s what you do, if you want to stay competitive. If you have an economic downturn and some of those loans go bad, well that’s the risk you took.

But you still have the homes, you still benefited from the economic boost during the construction, when the loans were made. And as long as you haven’t build way more houses than you have residents, so that they become an asset that will just be wasted, then that’s probably not the real problem.

The real problem is what happened to the rest of the economy that too many can’t afford to pay for the loans, when they could afford them when the loan was taken out. Fix that and you’re out of this mess.

Letting a liquidity crisis drive all the banks and all the businesses under isn’t the way out.

" If it really was a risk they took then they should eat the losses not the taxpayers."

The reason banking was regulated after the Great Depression was that it was too central to the economy. A failure in banking took the entire economy down with it. So banking must be regulated to keep it stable. Individual banks would be allowed to fail, but never in mass, and with FED banking of savings deposits so confidence would never erode in banking again.

Our stupid legislators repealed too much of those regulations, so that we could compete globally in banking. Instead of making the rest of the world play by our rules if they wanted to play on our field, we agreed to their rules. That may be the banker's fault to a degree, but it's also the fault of a lazy citizenry and the legislators they elected.

And your wrong you couldn’t fix Liar’s Loans with an improving economy the only way they could end up being good was if the price of houses were to perpetually go up so instead of defaulting they could sell the overpriced house to some other sucker because any one with common sense knows you have to have adequate income to own a home and income was not keeping pace with housing prices even then.

I disagree. Housing prices could have stabilized and it wouldn't have made the mortgages go bad. It's when people got hit by the triple whammy of:

an oil price shock that took money out of their wallets,
the banks raising rates on credit card rates, which took additional money out of their wallets,
the loss of jobs.

That's what made the mortgages go bad. They weren't liars loans. Unless you believe the valuations that they were based on were bad, and so far I haven't seen much evidence of fraud in that area.

I don't like that the banks have been allowed to fail. The number of banks has been dropping since the 1980's. That trend needs to reverse.

I don't agree that we've become a Banana Republic.

Letting them fail just like any other business is exactly what should have happened what makes those greedy pigs any better then any other business that was allowed to go bankrupt? Nothing in fact they are worse all they create is debt nothing productive.

Letting the banks fail because of a drop in consumer confidence leading to a liquidity crisis is just stupid. There is no need for it when the FED can act to stop it. There is no need for the economic disruption that would have followed when consumer confidence continued to fall through the floor and people really started hoarding and not spending.

We don’t need the Fed to create our money and then charge us interest on it further enslaving our children and grandchildren.

Someone has to create our money. I suppose you'd like it to be the Chinese Gold producers? Creating money doesn't enslave us. Out of control govt spending might, but the FED isn't the cause of that.

We don’t need the Banks selling those toxic products to our pension plans either.

When you find a safe investment for pension plans let me know. It's not gold. It's not dollars. It's not bonds, it's not equity. It's not real estate There is no safe investment.

Do you think mortgage-backed securities are free of fraud? Do you think these securities are the triple-A rated risk free investment the big Wall Street banks claim?—NO WAY! The banks are going to be forced to buy back all the toxic mortgage junk they sold. “

I think for the most part they were free of fraud. They were underwritten by mortgages just like they claimed. They weren't free of risk and buyers often did not understand the risk. Especially the risk of an economic downturn on the mortgages.

If you were a buyer of the short term securities that were more equity focused you got a deal. You got a higher rate of return than you could get elsewhere and it worked well for many years. Money market funds loved them.

If you were a buyer of the long term securities and those that relied more on the interest cash flow instead of the principal payments, the super high returns weren't enough to offset the risk, and you got burned.

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