The Fed's hidden gift to big banks

Still think keeping your money in BofA or Chase or one of the other big banks is okay? Then read Bob Ivry's, Bradley Keoun's and Phil Kuntz's investigative report for Bloomberg Markets magazine.

You think the $700 billion in loans through the Treasury Department's Troubled Asset Relief Program, or TARP, was the extent of the largesse big banks received? Oh, you trusting soul. The Federal Reserve's contributions dwarfed Treasury's.

Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

The Fed loaned out ten times the amount Treasury did.

The sheer size of the loans and guarantees is bad enough. Worse, though, is how hard the Fed and the banks tried to hide it.

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis.

The question is, would that stigma have been such a bad thing?

While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.

Ben Bernanke and Treasury Secretary Timothy Geithner consistently argued that we couldn't allow certain financial institutions to fail. That might well be true: you can never tell about the path not taken. But we certainly were entitled to know the truth about those institutions' shaky condition when we, through the Treasury and the Fed, started pouring money into them. Neither Treasury nor the Fed was interested in telling us, and the banks were intent on painting the rosiest picture possible.

On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.

The Fed even pretended it was following its own rules about lending.

Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.”

On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds.

These guys made obscene profits -- better than $13 billion worth, by the reporters' calculations -- on the money we loaned them to keep them from destroying our economy. They did it because we let them. We let them get too big, and we let both the Bush and Obama administrations appoint officials who had too close ties to the biggest and least responsible financial firms.

I could go on and on, but that wouldn't be fair to Bloomberg: you need to read the article for yourself. It's shocking.

Then take your money out of the big banks. Whether or not they're currently stable (and I can't judge that), they don't deserve your business. Moreover, we can't afford to let them hold us hostage. We need to give them a glide path toward irrelevance. The way to do that is to pull our money out, a little at a time. If they're going to screw over anyone, let it be the big companies who actually need the scale only a gargantuan bank provides.

Again:

• Big banks don't deserve our business.
• We can't let them hold us hostage.

March into Citibank, Wells Fargo, or one of the other megabanks and move your money out.

Screw them before they screw us (again).