Tuesday, December 4, 2012


Over the past four years I've been pointing to a House committee hearing where Alan Grayson (D-FL) grilled Federal Reserve Chair Ben Bernanke on what happened to half a trillion dollars that the Federal Reserve sent to Europe. Chairman Bernanke's answer was classic. He claimed that he didn't know where half a trillion dollars went after he sent it to the European Central Bank. Nice.

Now you and I know that Europe didn't get access to hundreds of billions of dollars simply because they were stellar creditors in need of temporary operating funds. They got the money to help clean up the mess Wall Street created in Europe's financial centers. Plain and simple.

A classic example of how the Fed's taxpayer backed money made its way through Europe is the bailout case of Dexia bank. Here's the short and sweet of it.

Dexia was originally created in France in 1996 to help fund infrastructure and other municipal project needs (municipal bonds) throughout Europe. Over time Dexia expanded into North America and began purchasing and insuring mortgage-related bonds in the U.S. These markets, as we know, collapsed after 2008, which put a big financial bulls eye on firms like Dexia because they could not find the funds to back their commitments.

This is where the Fed's half a trillion dollars (plus) comes into play.

In a few words, because the banks and other private market players would not lend to Dexia the Federal Reserve began operating as the lender of last resort. The Fed initiated the policy of stuffing Europe's Central Bank with dollars through creative swap and credit programs that surpassed a trillions dollars long ago. Through ECB lending and bailout programs the Fed's money eventually found its way to troubled financial institutions throughout Europe, making it part of the larger bailout effort in the U.S.

The Fed's European bailout program was nothing new to the Federal Reserve.

The Federal Reserve had already created new operating desks to funnel money to troubled financial institutions in the United States, as I pointed out 6 months before the September 2008 market collapse. Creating new "teller windows" for troubled financial institutions picked up steam big time with the creation of the Maiden Lane bailout desks (for Bear Stearns and AIG toxic crap) after the market collapsed in September 2008.

So it really should come as no surprise that the Federal Reserve would continue picking up Wall Street's mess as it spilled over to Europe by making a trillion here, and hundreds of billions there (for short-term funding), available to European financial institutions.

Here's a list of recipients in Europe who had access to $350 billion in low interest short-term Federal Reserve loans ...

So who ultimately got the money that the Fed swapped and lent out? The people who created the financial mess on Wall Street got it, that's who.

- Mark 

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