While most Americans are aware of the $700 billion TARP bank bailouts in 2008 few are aware of the even larger $7.8 trillion discount rate emergency loans the Federal Reserve provided to finance capitalists, including $1.2 trillion on a single day, and that’s largely because while the former was done in broad daylight and in plain sight of the American taxpayer the latter was done overnight through the FED’s discount window and was divulged neither to the average Joe or their elected officials until after the great recession. The FED failed to disclose the total amount and terms of the $7.8 trillion in emergency loans to 700 banks which is why it became the subject of a congressional hearing in 2014.The rescued banks also failed to divulge to their shareholders the extent to which the FED was financing their operations and some even lied about it outright. For instance, JPMorgan CEO Jamie Dimon lied to shareholders, in 2010, about being rescued by the Fed's emergency loans, through their Term Auction Facility (TAF), by telling them they took the emergency loans at the FED’s request and to help motivate other banks to use the program. In a November 26, 2008 letter, then BOA CEO Kenneth Lewis told shareholders that they had “one of the strongest and most stable major banks in the world” without letting them know that BOA had borrowed $86 billion from the FED just during that single day.
Central bankers like to tout the FED as independent from congress and apolitical. While this is true in the sense that the FED does not endorse candidates for office or take any partisan lines it is not true in the fact that it is deferential to and serves a specific set of class interests. The Fed had expanded and created 11 lending facilities to rescue banks in 2008. While the 6 largest banks received $160 billion through TARP they received an additional $460 billion through the TAF and held 63% of the average emergency loan debt of publicly traded banks. The TAF emergency loans came with interest rates as low as 0.01%, interest rates that would never be available to any other class of people. The TAF loans allowed banks to avoid liquidating assets and continue earning interest on them instead; as a result, assets of the 6 biggest banks appreciated 40% after the TAF loans and TARP bailouts. The low interest TAF loans also allowed the banks to generate additional income. Bloomberg estimated that the banks added $13 billion in income as a result of TAF loans and TARP bailouts. The six biggest banks made an additional $4.8 billion in income with Citigroup drawing the most at $1.8 billion. The FED not only financed higher incomes and asset prices but also the acquisitions and mergers of at least three of the largest banks. BOA acquired Merrill Lynch and Countrywide Home Loans while borrowing emergency funds from the FED. By the end of the acquisition BOA held $85 billion in TAF debt. The NY FED financed the JPMorgan acquisition of Bear Stearns to the tune of $59 billion.
The only way to break this cycle would be to limit size and Ted Kaufman (D-DE) and fellow senator Sherrod Brown (D-OH) did introduce the SAFE banking Act, as an amendment to the Dodd-Frank bill, to do such a thing by imposing asset limits. As then senator Kaufman insinuated in an interview "Too big to fail" banks have a lower cost of borrowing because of perceived preferential treatment from the government. This allows them to privatize profits and socialize losses. Despite its “progressive accolades, the Obama admin sided with bankster lobbying group FSF in rejecting legislation limiting the size of the six largest banks and ultimately succeeded in getting the amendment rejected from the final version of the Dodd Frank bill sent to the oval office.
Flash Forward to 2020 and the FED was once again called on to fulfill its century old objective to rescue finance capitalists; however, this time it comes in the form of overnight repo operation (agreements to buy securities and resell them to the original seller plus the overnight rate) that injected $1.5 tillion in capital and lowering the overnight rate to near zero. The FED also nearly doubled their holdings of mortgage backed securities within the span of two years including buying $1 trillion in less than a year. The Fed purchased $1.3 trillion in MBS between 2020 and 2022 increasing its mortgage debt holding from $1.4 trillion to $2.7 trillion. At its peak, MBS were a third of the FED balance sheet. While the FED had begun adding MBS to its balance sheet after the great recession it had never done so at this scale in such a short time frame. The move facilitated an environment of lower mortgage interest that was greatly profitable to property owners who could refinance at lower rates and demand higher prices. It also intensified real estate speculation, within a contracting housing market, devastating renters who were already the most vulnerable to losing their jobs and having their hours cut during the shutdowns. Once again the FED reinforced certain class interests (finance capitalists and property owners) at the expense of the others (lower income renters).