GAO Audit of Federal Reserve Reveals Over $16 Trillion in Bailout Loans

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The Government Accountability Office (GAO) conducted its first comprehensive audit of the Federal Reserve, revealing some startling facts concerning the lending practices of America’s central bank.  Here are just a few highlightsas pointed out by Vermont Senator Bernie Sanders.

  • Provision of over $16 trillion in financial assistance in the form of bailouts to domestic and foreign banks and businesses
  • Inability or refusal to adequately deal with and mitigate conflicts of interest:

“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.”

  • Outsourcing of loan operations to private, third-party vendors who were themselves recipients of special low-interest-rate 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.”

To read the full report, click here.  Also, a more comprehensive report is due in October of this year.

More of the Same: Brookings Spews Regulation Rhetoric on Capitol Hill

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I cannot help but wonder – and on most days dread with a worrisome fear – when we as individuals will begin to see through the smoke and mirrors that now (and has for some time) places our government in direct opposition to our true interests of liberty and, for most of us, a comfortable living.  This morning I was rereading Milton Friedman’s discussion of the Federal Reserve System and the government’s proper role as a monetary authority.  He states quite succinctly that no government ought to act as sole arbiter of its nation’s economic activity via its currency.  Moreover, the new rallying cry for government involvement is the long-held belief that economic stability, i.e. modest growth and the blunting of the boom-and-bust phenomenon, demands government regulation at every turn of the financial wheel.

“These arguments,” he states, “are thoroughly misleading.  The fact is that the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy….What we urgently need, for both economic stability and growth, is a reduction of government intervention [sic] not an increase” (Capitalism and Freedom, pp. 37-38).

Inherent in the regulatory-rationale is that the market is naturally chaotic, and without government controls, is destined to crash, leaving the fate of millions gasping within the invisible hand once thought to be the bastion of Western democratic principles.  Yet, since Friedman’s declaration against government encroachment upon the economy nearly fifty years ago, we have seen nothing but more of the same in the way of government engineering in economic matters. Moreover, the rationale behind such utterances against liberty have changed little.

Today the Brookings Institute put out in its newsletter a copy of Michael Barr’s (Nonresident Senior Fellow of Economic Studies) testimony to both the House Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Financial Services.  Although addressed to our nation’s elite, his opening statement is nothing less than a testimony to the people that Friedman’s message has been little received.

“Over two years ago, the United States and the global economy faced the worst economic crisis since the Great Depression.  The crisis was rooted in years of unconstrained excess on Wall Street, and prolonged complacency in Washington and major financial capitals around the world.  The crisis made painfully clear what we should have always known–that finance cannot be left to regulate itself; that consumer markets permitted to profit on the basis of tricks and traps rather than to compete on the basis of price and quality, will, ultimately, put us all at risk; that financial markets function best where there are clear rules, transparency and accountability; and that markets break down, sometimes catastrophically, where there are not.”

What I say to this and to any readers out there who feel bound by our leaders’ continued fear-mongering of economic stability is simply that since the era of progressivism, markets have never been left to themselves.  There has always been government interference in the marketplace, whether revealed to the public or not.  Consequently, I am forced to agree with Mr. Barr on one crucial point, that of accountability and transparency.  However, what America needs is not accountability and transparency in the market – left alone, advances in technology have enable consumers to make better informed decisions about products they buy than at any other time in history.  Rather, what America needs is an accountable and transparent legislature not beholden to financial interests, ready to dispense with its redundant regulatory rhetoric meant to whip up a frenzy among a largely ignorant public, and most importantly, one bent on regulating not the economy but themselves.

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