During the Great Recession, the U.S. Federal Reserve bailed out several major banks twice: the Fed gave the banks bailout loans and grants, then hired them to manage loans and grants given to other financial institutions, as reported by Wall Street on Parade.
For example, investment bank Morgan Stanley received $2.04 trillion in loans from the Fed between 2008 and 2011 and also was paid more than $108 million in for “investment banking advisory services.” The Fed also paid Morgan Stanley 100 cents on the dollar to cover its losses when insurance giant AIG collapsed under the weight of its investment in fraudulent derivatives and took several major banks down with it.
The Fed bailed out Goldman Sachs with $814 billion in cheap loans, then paid it $11.2 million to manage the Fed’s bailout purchases of mortgage-backed securities.
JPMorgan Chase also received $391 billion in below-market-rate loans from the Fed as well as a contract earning it $16.3 million from 2008 to 2010 in management fees for the Fed’s program buying mortgage-backed securities.
The bank has continued to manage that program, earning it an undisclosed amount of additional fees since then – an unusual vote of confidence in a financial institution that has pleaded guilty to three felonies in the last six years.
Chase also helped the Fed run its Primary Dealer Credit Facility, which poured $8.95 trillion in cheap revolving loans into Wall Street’s brokerage houses during the Great Recession. A GAO audit found the Federal Reserve Bank of New York – the Fed’s arm handling the program – did not have contracts with Chase or the Bank of New York Mellon, the two firms handing out the loans.
The two banks were responsible for deciding whether the trading houses seeking the loans were creditworthy and whether their collateral was sound. But the Fed has admitted to government auditors it has no idea how much in fees the two banks collected from the loan recipients to process their requests.
