“Secret Fed Loans Helped Banks Net $13 Billion” is the Bloomberg News headline. According to the story, the Fed and the big banks also fought for two years to keep this information secret. By taking the loans basically at close to cost free, the banks could then reinvest in anything from US Treasuries to considerably more speculative loans (to hedge funds for example who might be speculating in stocks, gold and/or petroleum). Depending on the risk of the loan/investment made by the banks, they could lock in an arbitrage rate (risk free if invested in US Treasuries, although could incur loss if had to sell before maturity under unfavorable market conditions – also one reason why Fed has tried to significantly reduce such risk by effectively committing to period of extended low rates). Why no Loans to Small Business/Mortgages: The negative side of this though could have been to discourage loans to small businesses and consumers – presumably one of the rationalizations for bailout of such big banks. Loans/funds made available to big banks has not made it through the system to benefit business development or new mortgage lending, when unemployment to depressed home prices might have benefitted. $1.2 Trillion of Fed Loans in One Day! The previously undisclosed loans also had another purpose according to authors of the Bloomberg article Bob Ivry, Bradley Keoun and Phil Kuntz. In just one day , December 5, 2008, the Fed provided $1.2 Trillion to banks/financial institutions. Clearly the loss of confidence globally was pushing the world’s economy beyond recession into probable depression. Perhaps understandably, the same banks and US officials were trying to convey a very different message of calm and confidence when the reality was nothing but … I do not necessarily find the loans objectionable in view of the consequences if the global financial crisis was allowed to spiral all of us into the stone age. Banks have also always stood to benefit from cheap Government money with explicit purpose of strengthening balance sheets through easy money. However, banks do not then stand on solid ground when complaining about the other side of the relationship when the government presses for more job creating loans or activities that will help the public at large as well as help banks realize substantial bonuses. Further, it is understandable why regulations may be tightened, perhaps not always whether motivated appropriately or not. The Fed and US executive/Legislature have to be fearful when $1.2 Trillion has to be firehosed in a matter of 24 hours to keep the acidic crisis from eating through all safeguards including. “To big to fail” has now been in real time and terms evidenced as real risk. Link to Full Bloomberg Article: - www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html By Ambassador Muhamed Sacirbey Facebook – Become a Fan at “Diplomatically Incorrect” Twitter – Follow us at DiplomaticallyX Related Reports at “International Financial Crisis Channel” - diplomaticallyincorrect.org/c/international-financial-crisis