Americans Have Been Bailing Out Foreign Banks for Years ... And We're Getting Ready To Do It Again

George Washington's picture


As the Wall Street Journal points out, the Federal Reserve might open up its "swap lines" again to bail out the Europeans:

Fed is considering whether to reopen a lending program put in place
during the financial crisis in which it shipped dollars overseas
through foreign central banks like the European Central Bank, Swiss National Bank and Bank of England.
The central banks, in turn, lent the dollars out to banks in their home
countries in need of dollar funding. It was aimed at preventing further
financial contagion.


The Fed has felt that it is premature to
reopen this program — which was shut down in February as the financial
crisis appeared to wane — because it wasn’t clear that foreign banks
were in need of dollar funds. Still, trading floors on Wall Street are
abuzz with anticipation today that the Fed might use the program again
as Europe’s problems take on a more global dimension.



The international lending lines are known among central bankers as swaps.


officials believe the swap program was one of its most successful
interventions aimed at stemming a global crisis, when many banks
overseas became strained for dollar funding. In their normal course of
business, they borrowed dollars in short-term lending markets and used
those dollars to finance holdings of long-term U.S. dollar assets, like
Treasury or mortgage bonds. When those markets dried up, the swap lines
helped to prevent overseas bank funding crises in 2008.

officials see the swaps as a low-risk program, because its
counterparties in these loans are foreign central banks, and not
private banks. At a crescendo in the crisis in December 2008, the Fed
had shipped $583 billion overseas in the form of these swaps.

As the BBC's Robert Peston writes:

is talk of the ECB providing some kind of one year repo facility (where
government bonds are swapped for 12-month loans) in collaboration with
the US Federal Reserve.

See this for more information on swap lines.

Indeed, the Federal Reserve has been helping to bail out foreign central banks and private banks for years.

For example, $40 billion in bailout money given to AIG went to foreign banks. Indeed, even AIG's former chief said that the government used AIG "to funnel money to other Institutions, including foreign banks".

As the Telegraph wrote in September 2008:

The Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets.

Congressman Grayson said that the Fed secretly "stuffed" half a trillion dollars in foreign pockets.

(Of course, the Fed won't tell Congress or the TARP overseer - let alone the American people - who got the cash).

And as I pointed out the same month:

A Fact Sheet from the U.S. Treasury says:

financial institutions must have significant operations in the U.S.,
unless the Secretary makes a determination, in consultation with the
Chairman of the Federal Reserve, that broader eligibility is necessary
to effectively stabilize financial markets.

An article from today in Politico explains

a change from the original proposal sent to Capitol Hill, foreign-based
banks with big U.S. operations could qualify for the Treasury
Department’s mortgage bailout, according to the fine print of an
administration statement Saturday night."

Of course, even much of the bailout money which went to American banks ended up being shuttled abroad. As I wrote in March 2009:

Moreover, bailout money that went to Citigroup was loaned to Dubai, bailout money that went to Bank of America China was invested in China, and bailout money given to JP Morgan was invested in India.


And the government is in the process of providing billions more - along with trillions more in guarantees of worthless assets - to sovereign wealth funds and hedge funds.

So not only are Americans bailing out our own too big to fail banks, but we're bailing out foreign mega-banks as well. 

Even though bailing out Europe might make sense if America was flush
with cash, things are different now. As Congressmen Kucinich and Filner
wrote last June:

Our country and this body cannot afford to spend American tax payer dollars to bail out private European banks.

In addition, the U.S. is - of course - also contributing tens of billions of dollars towards the Greek bailout through its contributions to the International Monetary Fund.  Some allege that the U.S. will secretly help bailout of all of Europe.  See this and this.

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nathan1234's picture

The Banks are broke.

Countries are broke

Then the people will be broke ( except those who have gone about making everything broke).

 The kind of democracy we have around the world is putting up assholes as our representaives, who in turn bugger us.

nathan1234's picture

The Banks are broke.

Countries are broke

Then the people will be broke ( except those who have gone about making everything broke).

 The kind of democracy we have around the world is putting up assholes who in turn bugger us.

Pure Evil's picture

I finally have to ask.

Exactly who is the real Vampire Squid?

It seems to me the Federal Reserve is extending its tenticles where ever it can.

Rogue Economist's picture

Goldman owns the Fed, along with the Bank of Rothschild, Warburg, Kuhn, et al.


Kina's picture

The balloon springs a leak, you need to pump more hot air and faster to stop the balloon from sinking. The faster you pump hot air in the bigger the hole gets the more the balloon sinks; thus the need to pump even more hot air in and faster....until finally the hole becomes a rip down the side of the balloon....



dumpster's picture

kina  nice metaphor .. you get it just fine

hardmedicine's picture

please can someone explain this to me>  Are we going to have an inflationary or deflationary depression???  What should I do with the mutual fund in the market?  The piece of real estate that is eating my lunch through taxes?

If it is an inflationary depression doesn't that wipe out any existing debts, including debts on mortgages.... relatively speaking.  What happens with the social security checks is there is inflationary depression?  Won't the retirees revolt?


Anyone?  I know we have some genius economists here.  Anybody really ready SLIDE. 

dumpster's picture

go read williams shadow economics he spells it out.


sinclair spells it out ,

really with all the information available some still think we keep printing to nirvana 


hulk  double lol

Husk-Erzulie's picture

Leave the Mutual Fund alone (unless its bond heavy, you want something that looks more like Buffetts or Gates investments, heavy on transport, commodities, basic consumer goods, real assets like mines etc.).   The market may spill its guts all over the floor but that would be an extreme scenario.  Chances are that if all the debt monetization which is occuring becomes inflationary the market will track inflation.  The notional value of your fund wiil go up (after it tanks in a most frightening manner) but not actually become more valuable.  But there is a good chance it may hold its own and hedge you against inflation.  Real estate is still and always a sound investment however you need to be in a low tax situation.  The big boys do it with things like The Nature Conservancy which controls vast tracts which are low tax or tax defered because they are conservation land.  Many states have tax deferral programs for forest and open space/watershed land, even farm land in some cases.  If you can find real estate like that then you're good.  Commercial or rental property not so good right now especially within an uban municipality which will just tax the hell out of it until they can't any more.  And buy some physical PM, you'll feel better.  Like someone said below, no one really knows how this will play out but if you are thoughtfully diverse and not in cash or bonds and if you can keep cool while the herd is spooking, you should be ok.

silvertrain's picture

 From joe 6 pack here, the guys and gals here in rural eastern us are buying Zoned A1 Agricultural farm land and planting loblolly pine trees and such and declaring them as a "CROP" to get in the low tax bracket.They dont pay squat.Then setting up a homesite..

WaterWings's picture

Awesome! How much different is that then staking a mining claim for the same end?

Husk-Erzulie's picture

Exact-a-mundo.  The town and county tax collectors will hate your guts as will the 3 acre second homers, but they're not in a position to change state laws real quick.  Plus, your forest land is actually in their long term interest, they just find it hard to see that when they are writing their tax check and while the town can't afford hot patch and road salt. :-)

AnAnonymous's picture

Never seen that TV show you have to decide over several doors, one opening on a nice prize, the  others on scrap?

Well, here you are. You are playing the same kind of games, and that in real life. How lucky you are.

No economists know the outcome of current situation. Some will opt for that door, others for another door. Once the event is known, the winners will stand up and mock the losers; claiming they knew and their way is the best.

Hulk's picture

Not an expert here, but I do own real estate around the country. I am "divesting" myself of real estate in the expensive states, California, in my case. California is just a big fucking waste of tax payer dollars. Fucking parasites...

IMHO we are in a deflationary downward spiral, massive collapse of consumer credit to the tune of roughly $10B a month, when $500M was the expected number

moneymutt's picture

Didn't Paulson have strong ties to China?

jbcorwin's picture

Paulson has personally built close relations with China during his career. In July 2008 it was reported by The Daily Telegraph that: "Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country more than 70 times."


Paulson has been described as an avid nature lover.[40] He has been a member of The Nature Conservancy for decades and was the organization's board chairman and co-chair of its Asia-Pacific Council.[8] In that capacity, Paulson worked with former President of the People's Republic of China Jiang Zemin to preserve the Tiger Leaping Gorge in Yunnan province.

Paulson is also on the Board of Directors of the Peregrine Fund; was the founding Chairman of the Advisory Board of the School of Economics and Management of Tsinghua University in Beijing; and, previously served as chairman of the influential trade group, the Financial Services Forum.


Notable among the members of Bush's cabinet, Paulson has said he is a strong believer in the effect of human activity on global warming and advocates immediate action to decrease this effect.[41]


During his tenure as CEO of Goldman Sachs, Paulson oversaw the corporate donation of 680,000 acres (2,800 km2) on the

forested Chilean side of Tierra del Fuego, bringing criticism from Goldman shareholder groups.[42] He further donated to conservancy causes US$100 million of assets from his wealth, and has pledged his entire fortune for the same purpose upon his death.[43]


I assume we're talking Hank here...


dumpster's picture

candy from a baby.. no its a ten year old wanting another cookie before bed

Sudden Debt's picture

Like taking candy of a baby :)

Sudden Debt's picture

Like taking candy of a baby :)


If the federal reserve can create as much fiat currency as it wants out of thin air(or it's electronic equivalent) why should we care if it swaps american pixie dust with foreigh central bank pixie dust?

moneymutt's picture

if the Fed can create money for nothing with no harm to economy...why we would not insist it be used domestically to build valuable commonwealth assets like roads, railroads, redundant satellite networks, Internet pipes,basic science research and reduce tax burden on working people, small businesses...either money for nothing has a hitch and we should be wary or money for nothing had no hitch and it should be used for commonwealth, American citizens, not global elite parasites.

dumpster's picture

this is the reason

helll cant your guys understand




AnAnonymous's picture

Dont want to shatter illusions but when considering the basic definition of money, a medium of goods, a catastrophe of any currency system involved is on the way.


Because with a whole productive system based on a decreasing source of energy, the production of goods perspective is not as good as it used to be.

Once this point is admitted, the objective is not about averting a catastrophe that cant be averted but how to make the best before the catastrophe happens.


If you have a better plan than debt, please feel free to enact it.

Hulk's picture

We got it dumpster. Just sitting around and 

waiting for rigor mortis to set in.

anony's picture

In Mises' epistemology he failed, as he couldn't help but do, to consider the unknown.



dumpster's picture

please mises epistemology he failed lol

yep another one who does not get it. , mises has been spot on. and it is becoming more clear  as time passes

and your background to make that inane statement ,

as if you had this background greater than reismans mises and the whole gaggle of austrian economist,

things are working out just as they foretold 


hulk  lol





Oh regional Indian's picture

In fact, let a real writer, with a truer perspective, say it, for he can say it better and with more authority...

In light of what is below, this is but a dying empire (not sure how much life left) throwing out worth-less (worth less every day) paper to an adversary.... not pretty, especially from an average american's perspective... but true...

"Basically, what Economic Hit Men are trained to do is to build up the American empire. To create situations where as many resources as possible flow into this country, to our corporations, and our government, and in fact we've been very successful...We knew Saudi Arabia was the key to dropping our dependency, or to controlling the situation. And we worked out this deal whereby the Royal House of Saud agreed to send most of their petro-dollars back to the United States and invest them in U.S. government securities...The House of Saud would agree to maintain the price of oil within acceptable limits to us, which they've done all of these years, and we would agree to keep the House of Saud in power as long as they did this, which we've done, which is one of the reasons we went to war with Iraq in the first place...So we make this big loan, most of it comes back to the United States, the country is left with the debt plus lots of interest, and they basically become our servants, our slaves. It's an empire. There's no two ways about it. It's a huge empire. It's been extremely successful...This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people..."

John Perkins, Confessions of an Economic Hitman

AnAnonymous's picture

If I did not observe the same as this guy, I'd read his book.

I dont agree with all of his points but too many are simple basic observations to make them valuable.


calltoaccount's picture

"If I did not observe the same as this guy, "

Pretty obtuse reason for choosing not to read a book by someone who lived it 1st hand in the trenches for two decades.  But sounds like you already know everything about everything. 

AnAnonymous's picture

Not an obtuse reason. I dont need reinforcement. At least not positive.

Huddles never my taste. Guys coming round and yelling they are going to win...

The guy observed same as me. Not that convenient for disproving what I observed.

Being into the heart of the action. His comments are more macro level. Do you need to fight a war to know who wins it?

The recycling of money by Saudi Arabia was an obvious phenomenum to anyone who lent it two minutes of attention. It decreased after 9,11.

Knowing everything about everything: that is a good one. Knowing a few things with certainty. Only that.

Worst in this story is the topic was not knowledge per se but mere observations.


Tense INDIAN's picture

most of the TOP NAZI was illuminati HITLER ( rothschild bloodline)...and Martin Bormaann who controlled everything about the finances of Hitler.....Martin Bormaan was rescued by the MI5 at the end of the war...and offcourse i dont think that Hitler suicide story is true...


so the people who were doing Propanganda then are doing it now....they r the samr

Oh regional Indian's picture

While the gist of the article might be true from a current state of mal-affairs perspective, I think the head-line is a little disingenuous in the larger context.

I think the country that has pretty much screwed the world over for the past century is simply facing it's payback time, is all.

And it is not even conscience driven repatriation to the most screwed but a convenience driven payback to it's fellow world screwers, each and every one of which belong to the anglo-saxon world or and this is a fine but valid point to be made.... were supported/puppetted by it (every dictator that screwed their country on some white-country's business interest behalf and the list is long and mal-odorous).

Not much of the world is going to cry for poor ole ms Amerika having to pay out a little, or even a lot.

jp's picture

TPTB, The Powers,That Be, Are not America. They are simply in control.


That is going to change.

When you ask?

Working on it. Been working on it for while now. 

Are there good people in this country with money? YES INDEED.

Are the poor and middle class starting to come together? YES INDEED

Takes awhile to turn around a really BIG SHIP.

Don't give up on the American People just yet.





moneymutt's picture

While I agree with the gist of your comment, I think we should make a distinction between what is being down by American TPTB/wealthy elite to bolster their friends around the world and what is in the interest of a nation's commonwealth. Much of America's imperialism has not been supported by regular folks nor has it always been in their interest (while I acknowledge Am. middle class thrived from the 50s on, partly because of America's parasitical hold on global wealth, I do believe reg Americans could have done just as well if not better, without taking from others). So many actions of Am regime was done with regular folks money and in their in name, in spite of no real support for it, and usually supported only after powerful elites have lead them with propoganda into something they originally had no interest in doing.

Part of correcting this pattern, is for regular Americans to take control of their nation, not let it be run by insider cronies for their own interests as it has been. These elites are taking the country's money and currency worldwide and helping other elites parasite off regular working folks worldwide. If each nation's peoples investigates what is being done in their name and stops powerful insider games, whole world would be better off.

Not to say perfectly democratic countries aren't capable of doing horrible things, history shows this not the case, but leaving a country's monetary policy and financial actions unexamined, and in the hands of elites, surely is not a better option.


Pure Evil's picture

And, exactly what part of the world is this oppression of which you speak not being perpetrated upon people.

Would you rather live with the wealthy parasitic elites in Zimbabwe, Cuba, North Korea, Iran, China, Saudi Arabia, Russia, Argentian, Venezuela, or Mexico?

Even in the Soviet Union which was supposed to be a workers paradise, there were parasitic elites living off the regular working folks, I believe they were called the Communist Party.

So choose your poison, but choose it wisely. Some poisons kill slowly, while others bring about immediate death.

You may hold a grudge against the wealthy parasitic elites that run the West, but at least they allow the peasantry a few bobbles to keep them happy.

And, can we blame the elites for everything happening? Why are people not held accountable for their own actions? Did anyone hold a gun to anyone's head forcing them to take on more debt than they could pay off? Why are people not responsible for their own financial education and well being? Believe me. Its human nature to be greedy. But, its also human nature to be stupid.

And, if you want to know what real oppression looks like make sure you talk to any remaining Jews that survived the concentration camps of WWWII, or gulag survivors of the Soviet Union, or escapees from North Korean slave labor camps, or even political dissidents in Fidels prisons.

The supply of people willing to leave their hell holes to come live in the West, even with all its problems, is endless.

WaterWings's picture

but at least they allow the peasantry a few bobbles

Which dead peasants?:

But, its also human nature to be stupid.

No. Fuck you. It's human nature to be gullible.

gul·li·ble /?g?l?b?l/ Show Spelled[guhl-uh-buhl] –adjective:

easily deceived or cheated.
Also, gul·la·ble.

1815–25; gull2 + -ible

gul·li·bil·i·ty, noun gul·li·bly, adverb

credulous, trusting, naive, innocent, simple, green.

WaterWings sez: "Gullible is a word invented by liars to make trusting people look stupid.

Isn't that one of the confirmations that the Founding Father's got something right? I'm God damn proud to have been born on this continent. And I intend to fuck up anyone that would intend to cheat me of my natural rights.

Oh regional Indian's picture

I concur MM and in fact made the same point, albeit weakly in a post further down the thread.

Unfortunately, wresting "control" back is:

1. Going to be like taking a piece of your leg back from a pit-bull

2. Back to what? That in fact might be the bigger question.

Collective totalitarianism and totalitarian collectivism is like the snake biting it's own tail, two peas from a pod etc., if you'll excused the hashed metaphors.

ConfederateH's picture

All this talk of the US, through the IMF or any other means, "Bailing out foreign banks" is a canard.  The US is never going to pay back the money it borrowed or stole from the rest of the world through constantly inflating the worlds reserve currency.  In fact, if the US gives a penny of support to any foreign bank it is merely another attempt to keep its reserve currency printing privilege intact for a little longer.

When the current Bretton Woods based world order finally goes tits up, all these debts will be blown to pieces.  Ranting about US bailouts of foreign banks is merely another baaa for the sheeple.

AnAnonymous's picture

I dont think inflating the world's reserve currency is an action to decide over.

On the current course, outside of any monetary consideration, there is no other outcome than inflation.

A Man without Qualities's picture

Erm, George, what you don't seem to understand is this is not taxpayer money.  There is no spare tax payer money, so whatever the Fed is doing is merely providing a loan and getting a foreign currency loan in exchange.  The Treasury bailed out AIG to prevent a default and exposing the truly rotten core that lies at the heart of the US financial system.  The losses would have been far worse for the poor American taxpayer if this had happened. 

dumpster's picture

once again a false premise




jp's picture

It is not only the amount of debt. It is the collective cost of debt both short and long term.

Why do I say this?

Because Inflation and deflation are the true test, not just debt.

The chart that proves that goes back, how long?

Example. If your cost of debt is 1% on the issue and the redemption is 10% are you in a deflation market, or an inflation market?

If the redemption is paid with new printed money and that money is going up in value, are you making money with the new issue at 1%?

Oh and let's say you are going to borrow $2T.

It all goes back to supply and demand. Which is the key factor to inflation and deflation, which has been proven for HOW LONG?

Supply and Demand of WHAT? Oh, I don't know. Seems like they have been keeping records on this for a while now.

Now can you CON the TRADE? You bet your can. Will you get caught?

Oh, they can get caught. In fact they may want to time the catch for the most impact.

Run Bankster!!!! Run!!!!


JimboJammer's picture

This  is  real  bad ...  Tennesee  needs  money  right  now  for  flood

assistance ...   Michigan  and  Florida  needs  hundreds  of  wind  power

units  set  up  by  the  coast-lines ..   Again ...  the  money  goes  to

the  banks....  Impeach  Obama  Now... !

moneymutt's picture

you think this is new and unique to Obama? did you miss the Clinton/Rubin/Greenspan/Repub congress that gave Wall Street everything it ever wanted and the Bush/Paulson/Bernanke/Repub for 6 years and then Dem Congress  for 2 years era that gave banks further license, lie cheat steal and leverage and brought us the original bank bailouts, with TARP only being a small part of taxpayer rip-off...Obama/Geitner are the same problem, but not such a new and unique one that just getting rid of him is the end solution.

Catullus's picture

Sounds like gulag logic to me.


primefool's picture

Great - so when we take vacations to Euroland we can act obnoxious, loud and in general act like we own the joint. Oh - wait - we have always done that!

moneymutt's picture

no, we have not always done that, we mostly did it in the 50s and 60s when economically we gained on them immensely...last few times I've been to Europe, their middle class seemed way better off and more secure than ours...and there seemed much less poverty than in US...

anony's picture

What country are you referring to?

Europe has dramatically different variations from one country to another.

The middle class is better off where?  Italy? Like the middle class in Naples, that hell hole? How? Spain? Scure with 20% unemployment and growing? France? With 35 yr olds having to live with their parents?? In postage stamp apartments? About to epxlode again? You might want to change your avatar Rose-Colored glasses.

How about some specifics?


AnAnonymous's picture

I am pretty unsure about the middle class in Napoli.

Whatsoever, I noticed that only in the US, losers are losers because they deserve.

In many other countries, losers are losers because they oppress.

So when the US come to emancipate an oppressed country, in one night, losers gain a promotion, from losers because oppressed, they grow losers because they deserve.

kaiten's picture

Currency swap is not a bailout, it´s just that - a currency swap.