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Here Is Why Jon Kyl Thinks The Fed Should Preserve Its "Going Forward" Secrecy

Tyler Durden's picture




 

On a variety of Senatorial hearing, Jon Kyl was a very vocal opponent of the Fed and the secrecy embedded in the system. Which is why we were pretty amused, if not surprised, by his recent vote against the Vitter amendment. Here is his explanation. We hope you buy it more than us. We also hope you enjoy this the next time Mr. Kyl theatrically crucifies Bernanke for daring to operate blatantly on behalf of bankers, but at least without a shade of hypocrisy.

Dear Mr. ____:
 
Thank you for inquiring about recent votes in the Senate on amendments authorizing audits of the Federal Reserve.
 
First, it is important to note that the Federal Reserve's Board of Governors, the Federal Reserve Banks, and the Federal Reserve System as a whole are already audited annually by an independent outside auditor (currently, Deloitte and Touche).  The Government Accountability Office (GAO) also already audits the supervisory and regulatory functions of the Federal Reserve to the same extent that it audits the supervisory and regulatory functions of other federal banking agencies.
 
Moreover, Congress already has the authority to conduct oversight of the Federal Reserve's operations:  the members of the Federal Reserve Board are, for example, subject to the advice and consent of the Senate; the Fed Chairman testifies regularly before the Congress; and, of course, the Fed was created by an act of Congress and remains accountable to it.
 
What is excluded from the scope of the GAO's existing audit authority is the Federal Reserve's monetary policy deliberations and operations, including open market and discount window operations, and transactions with foreign central banks, foreign governments, and public international financing organizations.  Those activities are excluded in order to preserve the independence and efficacy of the Federal Reserve's monetary policy decisions.  In other words, the exclusion is intended to keep politicians from undermining the Fed's independence and injecting political considerations into the conduct of monetary policy - something that could lead to rampant inflation.
 
The Senate considered two audit-related amendments on May 11, 2010.  The first was an amendment by Senator Bernie Sanders.  The original version of his amendment would have authorized a full GAO audit of the Fed, including its monetary policy operations.  But the administration had indicated that the President might veto it; so, Senator Sanders worked with members of the Banking Committee and the administration to reach a compromise.
 
What they came up with was a modified version of the amendment that would require the Federal Reserve to provide details about the emergency lending programs that it implemented since 2007 in an effort to address the liquidity crisis that gripped the financial markets.  The Fed would be required to provide information about how much money went to borrowers, the dates the assistance was provided, terms of repayment, and the rationale for the creation of the lending programs.  The modified Sanders amendment would also require the GAO to complete an audit within a year, but preserve the exclusion for the Federal Reserve's monetary policy deliberations.  The amendment passed on a vote of 96 to 0.  I supported it.
 
The second amendment was offered by Senator David Vitter and largely tracked the original version of the amendment that Senator Sanders had offered.  It would have permitted the GAO to probe the Fed's monetary deliberations, and it was rejected on a lopsided vote of 37 to 62.  I voted against it.
 
In addition to the concern noted above about injecting political considerations into monetary policy decision-making, I am concerned that a GAO audit of the Fed's open market operations could end up costing taxpayers billions by giving investors a road map to the Fed's trading strategies and the securities it intends to buy.  Armed with information about the securities the Fed intends to buy (that is, information gleaned from an audit), investors could acquire the securities and then sell them to the Fed at a premium.
 
I hope this information is helpful.  If you have any other comments or questions, please don't hesitate to let me know.
 
Sincerely,
 
JON KYL
United States Senator
 
P.S. If you wish to share additional comments about this or any other matter, please visit my website at http://www.kyl.senate.gov/contact.cfm. Do not reply to this email.

h/t Cade

 

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Fri, 05/14/2010 - 13:47 | 352201 Apostate
Apostate's picture

"Blah blah blah blah blah"

Translation: Oh god, oh god, please don't vote me out of office / blackmail me / cause my employees to go Postal.

I mean, they audit the Fed, the government goes kaput. I'm fine with that, of course, but I doubt that they understand the real implications of this. It's what's necessary, but there are so many people conditioned to live in a master/slave environment that... ah me, we'll see what happens. 

Fri, 05/14/2010 - 14:09 | 352277 BlackBeard
BlackBeard's picture

Agreed.  Jon Kyl can suck America's collective dick.

Fri, 05/14/2010 - 14:28 | 352325 fuggetaboutit
fuggetaboutit's picture

the stupidity of this lacks compare

we just had a quarter in which ONE HUNDRED PERCENT of banks made money on ONE HUNDRED PERCENT of all trading days

this guy is worried that if we audit the fed THEN someone will front run them? hey dopey, wake up - american people are being front run daily

Fri, 05/14/2010 - 13:47 | 352203 Mako
Mako's picture

Why do you need to see what the Fed is doing?  They are just telling the lie everyone wants to hear.  You don't need to audit the books to see the lie, it's right there in plain sight.  Everyone is running from the Truth, they don't want the Truth, they just want someone to feed them more lies.

 

What does everyone expect the Fed to do?  Tell everyone the system is unsustainable, heck no, that is the reason you guys built the Fed, to keep telling you the lie.

Fri, 05/14/2010 - 13:55 | 352226 Al Huxley
Al Huxley's picture

+1.  We all know they're lying.  No need to confirm it formally at this point, the market will take care of that.

Fri, 05/14/2010 - 15:25 | 352458 trav7777
trav7777's picture

what if the Fed tells us it's lying...does our head explode?

Fri, 05/14/2010 - 13:47 | 352204 IBelieveInMagic
IBelieveInMagic's picture

Yet another Senator trying to protect the taxpayer from the ... taxpayer! Hypocrisy!!

Fri, 05/14/2010 - 13:49 | 352211 cbaba
cbaba's picture

Or just opposite, we will learn where the FED fucked up and we will hang Bernanke and nationalize FED.

 

Fri, 05/14/2010 - 14:28 | 352327 Gold...Bitches
Gold...Bitches's picture

its not nationalize it - its abolish it.

Fri, 05/14/2010 - 17:16 | 352722 e_goldstein
e_goldstein's picture

indeed.

Fri, 05/14/2010 - 13:51 | 352213 Psquared
Psquared's picture

Uhhh.... under Section 13(3) of the Federal Reserve Act the Fed is not supposed to buy anything that does not carry the FF&C of the US government. So exposing their outright purchase of stocks (probably via an intermediary) would do what harm?

They are not supposed to buy that crap anyway ... so maybe they should consider stopping that shit. (I thought the Vitter Amendment had that as its goal anyway.)

I guess we should assume that Kyl is in favor of the Fed breaking the law??

Fri, 05/14/2010 - 14:17 | 352298 Brett in Manhattan
Brett in Manhattan's picture

If I'm not mistaken, the Fed has a "Dean Wormer" codicil in its rule book, which states that the Fed has unlimited power in times of emergency.

Fri, 05/14/2010 - 14:58 | 352391 roadlust
roadlust's picture

Exactly.  WTF is the Fed "buying stocks" for in the first place??? 

That's the headline in waiting.  Somebody needs to 'splain what the Fed is doing in the markets. 

As a quasi-public entity, the public has a right to know if they are competing with their own government for the solvency of their 401ks. 

Fri, 05/14/2010 - 13:52 | 352216 unwashedmass
unwashedmass's picture

 

they got to him. wonder what they had to use?

 

 

Fri, 05/14/2010 - 13:58 | 352236 Postal
Postal's picture

His mistress?

Fri, 05/14/2010 - 13:53 | 352218 Sudden Debt
Sudden Debt's picture

The FED can keep it's secrecy, BUT SWISS banks can't?!

Fri, 05/14/2010 - 13:59 | 352243 Postal
Postal's picture

Of course. Do as I say, not as I do.

Fri, 05/14/2010 - 13:53 | 352219 doomandbloom
doomandbloom's picture

Bill Clinton Says Goldman did NOTHING wrong!

http://www.cnbc.com/id/37149675

So we have Warren Buffett, Bill supporting GS...Bill gates  may be next.

 

 

Fri, 05/14/2010 - 13:55 | 352225 koaj
koaj's picture

billy blowjob has been in GS pocket since the mexican bailout of 94

Fri, 05/14/2010 - 14:02 | 352254 doomandbloom
doomandbloom's picture

I forgot that his son-in-law(Marc Mezvinsky), is an investment banker at Goldman.

Bill is doing this for his daugther..

Fri, 05/14/2010 - 16:46 | 352648 Psquared
Psquared's picture

You mean Chelsea is married?

Fri, 05/14/2010 - 14:24 | 352315 Brett in Manhattan
Brett in Manhattan's picture

Typical lawyerspeak.

Goldman et al. lobby their asses off to get something made legal that should be illegal viz. deliberately creating a defective security. Then, when they succeed in doing so, they can claim their reprehensive acts were legal.

Fri, 05/14/2010 - 13:54 | 352221 economessed
economessed's picture

So if Gold-men Squid does this by front-running my trade it's legal.  OK.  Got it. 

 

Uhhmm.........wait a minute.....

Fri, 05/14/2010 - 14:02 | 352253 Apostate
Apostate's picture

Bill is just another Arkansas huckster sucked into the Ivy affirmative action program. The only reason whatsoever that they have any credibility is through Rubin's expertise and the complicity of the media in providing free advertising and rationalization for the often half-mad policies of that administration.

His opinion will be whatever is best for him at the moment. Plus, Chelsea is marrying into Goldman. The fact that your average blog nerd even understands what an investment bank does nowadays is just a lead indicator that it's finito and that we need to build anew.

Fri, 05/14/2010 - 15:28 | 352463 trav7777
trav7777's picture

Clitton's been a CIA asset since his time as Arkansas governor.

Fri, 05/14/2010 - 13:58 | 352235 docj
docj's picture

Bullshit.

Fri, 05/14/2010 - 14:00 | 352245 aint no fortuna...
aint no fortunate son's picture

"Armed with information about the securities the Fed intends to buy (that is, information gleaned from an audit), investors could acquire the securities and then sell them to the Fed at a premium."

Yes, but of course of Bernanke's banks do it, no big freaking deal... they're just rebuilding their balance sheets.


Fri, 05/14/2010 - 14:08 | 352262 ZerOhead
ZerOhead's picture

Bullseye anf... don't want anyone else horning in on their masters scam... after all...

selling worthless securities to the Fed is best left to those who do Gods work...

Fri, 05/14/2010 - 14:14 | 352293 Apostate
Apostate's picture

Correct. That's the mindset of the bureaucrat. They have rules. They have to follow those rules. They are doing everything by the book to keep together an orderly machine (that nonetheless causes a great deal of chaos and suffering). They go to sleep easy at night believing that what they're doing is right.

Fri, 05/14/2010 - 14:28 | 352326 mjv
mjv's picture

+1 to you good sir.

Fri, 05/14/2010 - 14:08 | 352274 junkyard dog
junkyard dog's picture

The Fed does not need to be audited because then the investors would know that the Fed has been telling Congress what it intended to purchase and the people would realize that Congress has been making a fortune buying and selling stock to the Fed and the investor people would really get mad at us.

 

Fri, 05/14/2010 - 14:13 | 352290 metastar
metastar's picture

Just another bought-off criminal senator. He says one thing and does another. Vote him out. Get rid of him. He's a bum.

No more democrats. No more republicans. Throw both parties out. Vote for an independent.

Fri, 05/14/2010 - 14:16 | 352297 Apostate
Apostate's picture

Well, voting will be handled by whomever makes the money. You pay a few addled college dorks, throw some talking points their way, bus people to and fro, and done.

Incumbents become too expensive to bribe after a certain extended period of time. You're competing against too many entrenched operatives. 

Fri, 05/14/2010 - 14:26 | 352302 akak
akak's picture

All the disingenuous, elitist arguments made in favor of the Federal Reserve's continued secrecy of operations could just as easily be made in favor of replacing democracy (what is left of it, anyway) in this country with a dictatorship:

 

"The issues are too complex for the peons to grasp"

"Public knowledge of our operations would disrupt the market/society"

"The big decisions are best left in the hands of an elite who are independent of the voters"

"We know better than you"

 

I mean really, wouldn't it be so much better if we left the choosing of our leaders to the self-interested whims of an unelected, unaccountable handful of men who meet and make decisions secretly, independently, behind closed doors, without the "distractions" of public knowledge or "political interference"?  Wouldn't that be so much more efficient?

The Federal Reserve is nothing but an autocratic bankster cabal which effectively controls every branch of our government.  Oh, but in this case, dictatorship is GOOD!

Fri, 05/14/2010 - 14:21 | 352311 anony
anony's picture

Biggest reason Mr. Kyl, is to get rid of the FED and invent a system that doesn't permit the government and the Banks to force Socialism up our collective asses, eating the losses that investment and other banksters have amassed AND permitting them to get even richer.

As I understand it Lord Blankfuckfein is paying $26 mm Cash for new digs in Toontown.  I'm certain this is just a tit on a bull but he did it because WE the public were handed his losses.

Fri, 05/14/2010 - 14:26 | 352318 LoneStarHog
LoneStarHog's picture

Frontrunning the Fed?

Hey, KY, what the hell do you think that Goldman Sucks and the other banksters have been doing, with stocks, bonds, etc?

You stinking single-gene pool political hack!

Fri, 05/14/2010 - 14:41 | 352341 Truth
Truth's picture

What a jerk-off.  that makes hardly any sense.  Let him disclose it and instead of tax payers ponying up for those purchases the market 'participants' can.  Besides, the bigger question looms of why is he intervening in the first place.  Free market my ass!  Speaking off, i just felt something down there.....Exit only Dr Ben!

 

 

Fri, 05/14/2010 - 15:32 | 352474 akak
akak's picture

"Free market my ass!  Speaking of, i just felt something down there.....Exit only Dr Ben!"

Too damned funny!

Fri, 05/14/2010 - 14:39 | 352343 BDig
BDig's picture

"...Armed with information about the securities the Fed intends to buy (that is, information gleaned from an audit), investors could acquire the securities and then sell them to the Fed at a premium."  In other words, people would sell the garbage and the FED would be forced to gobble it up.  Lesson for the day:  efficient markets are BAD!

Could it be bank shares they own - sell treasuries, buy Citigroup?  I wonder just how much bank equity the FED owns.  It would explain why the government is fiercely resisting the pressure to break up the TBTF and why JPM could give two shits about the CFTC in regard to silver trading.

Fri, 05/14/2010 - 14:39 | 352344 legerde
legerde's picture

What about free markets... Why is the Fed engaging in purchases of securities?

Fri, 05/14/2010 - 14:48 | 352363 Astute Investor
Astute Investor's picture

The letter from Kyl is just non-sensical, politico speak.  Let's try not to let the facts get in the way....

"In other words, the exclusion is intended to keep politicians from undermining the Fed's independence and injecting political considerations into the conduct of monetary policy - something that could lead to rampant inflation."

OOPPS!!  Too late Senator!  Inflation c/o the Fed has already reared it's ugly head even without an audit.  $1.00 in 1913 is worth approximately $0.02 today.

"I am concerned that a GAO audit of the Fed's open market operations could end up costing taxpayers billions by giving investors a road map to the Fed's trading strategies and the securities it intends to buy.  Armed with information about the securities the Fed intends to buy (that is, information gleaned from an audit), investors could acquire the securities and then sell them to the Fed at a premium."

I don't know of any financial audit of the future???  The audit would reveal the contents of the Fed B/S at a historical point in time (i.e. after the fact)!  It would also show the purchase of securities in the period prior to the audit date.  It's my understanding of the Ron Paul amendment that the results of the audit would be released 12-months from the audit date.

The financial ignorance of our elected officials is both shocking and sad....

 

 

Fri, 05/14/2010 - 15:44 | 352511 fsudirectory
fsudirectory's picture

Kyl just knows his constituents are too stupid to learn stuff on their own, and the people that will contest him will be ignored by his constituents if they so choose to seek an alternative perspective, and that alone is a big IF.

 

Thats how they play the game, say some random shit that people that like them like, when contested with facts (even video clip of person saying exact opposite 2 days prior), whatever the shit was they said already permeated those that they were targeting and will never be countered.

Fri, 05/14/2010 - 15:39 | 352497 fsudirectory
fsudirectory's picture

So us average people shouldnt be able to front-run the Fed "because we might figure out their strategies" however, GS and the likes are allowed to front-run me and see my trades and trading strategy so they can sell me my securities at a premium.... got it.

 

As long as the average investor gets fucked, Kyl is good with it.

Fri, 05/14/2010 - 15:50 | 352516 akak
akak's picture

Now you're getting the picture!

Yes, when we "little people" do it, it is a crime --- but when the Federal Reserve or the federal government do it, it is "policy", and when their Wall Street cronies do it, it is "accepted industry practice".

Got that now?  Here, let me sum it up for you:

Wall Street, the federal government and the Fed can do no wrong.

The average citizen exists to feed the above entities, as long as he dares not question them or attempt to emulate their actions.

See how simple it all really is!

Fri, 05/14/2010 - 16:18 | 352595 free_as_in_beer
free_as_in_beer's picture

You forgot that the fed is run by bankers.  They are already front running it's activities.

My favorite part: The Fed must retain it's independence from those that allow it to exist (god forbid it was run to benefit the many instead of the few).  Then again:

"When the people find they can vote themselves money, that will herald the end of the republic." Quote by: Benjamin Franklin

Fri, 05/14/2010 - 16:10 | 352573 Ripped Chunk
Ripped Chunk's picture

Kyl should take his own life.  And soon.

Fri, 05/14/2010 - 16:43 | 352643 justbuygold
justbuygold's picture

What happened to the recent ZH article on the extra Trillions the Fed has lent out. It was a great read ! Very damaging to Fed supporters.

....suddenly disspaeared from ZH after being there for about an hour.  Is this web site being censored by the govt as well now ?

Fri, 05/14/2010 - 16:50 | 352662 justbuygold
justbuygold's picture

Waybackmachine....ty.  Maybe Kyl should read this before he spouts off his nonsense drivel....

 

The Bailout of Big American Banks Has Cost Trillions More Than We've Been Told

 

→ Washington’s Blog

Granted, the $700 billion dollar TARP bailout was a massive bait-and-switch.  The government said it was doing it to soak up toxic assets, and then switched to saying it was needed to free up lending. It didn't do that either. Indeed, the Fed doesn't want the banks to lend.

True, as I wrote in March 2009:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
A lot of the bailout money is going to the failing companies' shareholders
Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives"
The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners".

***

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG's credit default swaps and is not even really stabilizing AIG.
But the TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks.

And I'm not referring to the $23 trillion in bailouts, loans, guarantees and other known shenanigans that the special inspector general for the TARP program mentions. I'm talking about more covert types of bailouts.

Like what?

Guaranteeing a Fat Spread on Interest Rates

Well, as Bloomberg notes:

 

“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”
 

The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

 

The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.

 

Harry Blodget explains:

The latest quarterly reports from the big Wall Street banks revealed a startling fact: None of the big four banks had a single day in the quarter in which they lost money trading.

 

For the 63 straight trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) made money trading for their own accounts.

 

Trading, of course, is supposed to be a risky business: You win some, you lose some. That's how traders justify their gargantuan bonuses--their jobs are so risky that they deserve to be paid millions for protecting their firms' precious capital. (Of course, the only thing that happens if traders fail to protect that capital is that taxpayers bail out the bank and the traders are paid huge "retention" bonuses to prevent them from leaving to trade somewhere else, but that's a different story).

 

But these days, trading isn't risky at all. In fact, it's safer than walking down the street.

 

Why?

 

Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What's more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits--by borrowing from the taxpayer and then lending back to the taxpayer.

***

The government's zero-interest-rate policy, in other words, is the biggest Wall Street subsidy yet. So far, it has done little to increase the supply of credit in the real economy. But it has hosed responsible people who lived within their means and are now earning next-to-nothing on their savings. It has also allowed the big Wall Street banks to print money to offset all the dumb bets that brought the financial system to the brink of collapse two years ago. And it has fattened Wall Street bonus pools to record levels again.
Paul Abrams chimes in:

To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives...for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer's voice has entertained a packed stadium. No batter has hit a walk-off double. No "risk"has even been "managed", the current mantra for what big banks do that is so goddamned important that it is doing "god's work".

 

Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.

 

Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.

 

And, stiff criminal penalties should be enacted for those banks that mislead the Fed about the destination of the money they are borrowing. Bernie Madoff needs company.

There is another type of guaranteed spread that allows the giant banks to make money hand over fist. Specifically, the Fed pays the big banks interest to borrow money at no interest and then keep money parked at the Fed itself. (The Fed is intentionally doing this for the express purpose of preventing too much money from being lent out to Main Street. That's just dandy.)

The giant banks are receiving many other covert bailouts and subsidies as well.

Too Big As Subsidy

Initially, the fact that the giant banks are "too big to fail" encourages them to take huge, risky gambles that they would not otherwise take. If they win, they make big bucks. If they lose, they know the government will just bail them out. This is a gambling subsidy.

The very size of the too big to fails also decreases the ability of the smaller banks to compete. And - since the government itself helped make the giants even bigger - that is also a subsidy to the big boys (see this).

The monopoly power given to the big banks (technically an "oligopoly") is a subsidy in other ways as well. For example, Nobel prize winning economist Joseph Stiglitz said in September that giants like Goldman are using their size to manipulate the market:

"The main problem that Goldman raises is a question of size: 'too big to fail.' In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information."

Further, he says, "That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that's why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you're going to trade on behalf of others, if you're going to be a commercial bank, you can't engage in certain kinds of risk-taking behavior."
The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets - making up more than 70% of stock trades - but which also let the program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See this, this, this, this and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).

Goldman also admitted that its proprietary trading program can "manipulate the markets in unfair ways". The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government's blessings.

In addition, the giants receive many billions in subsidies by receiving government guarantees that they are "too big to fail", ensuring that they have to pay lower interest rates to attract depositors.

Derivatives

The government's failure to rein in derivatives or break up the giant banks also constitute enormous subsidies, as it allows the giants to make huge sums by keeping the true price points of their derivatives secret. See this and this.

Toxic Assets

The PPIP program - which was supposed to reduce the toxic assets held by banks - actually increased them, and just let the banks make a quick buck.

In addition, the government suspended mark-to-market valuation of the toxic assets held by the giant banks, and is allowing the banks to value the assets at whatever price they desire. This constitutes a huge giveaway to the big banks.

As one writer notes:

By allowing banks to legally disregard mark-to-market accounting rules, government allows banks to maintain investment grade ratings.

By maintaining investment grade ratings, banks attract institutional funds. That would be the insurance and pension funds money that is contributed by the citizen.

As institutional money pours in, the stock price is propped up ....

Mortgages and Housing

PhD economists John Hussman and Dean Baker (and fund manager and financial writer Barry Ritholtz) say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.

Many also accuse Obama's foreclosure relief programs as being backdoor bailouts for the banks. (See this, this and this).

Foreign Bailouts

The big banks - such as JP Morgan - also benefit from foreign bailouts, such as the European bailout, as they are some of the largest creditors of the bailed out countries, and the bailouts allow them to get paid in full, instead of having to write down their foreign losses.

These are just a few of the secret bailouts programs the government is giving to the giant banks. There are many other bailout programs as well. If these bailouts and subsidies are added up, they amount to many tens - or perhaps even hundreds - of trillions of dollars.

And then there is the cost of debasing the currency in order to print money to fund these bailouts. The cost to the American citizen in less valuable dollars will be truly staggering.

Fri, 05/14/2010 - 18:43 | 352861 Fraud-Esq
Fraud-Esq's picture

I know a guy who was sitting on 200K in cash, no stock who was waiting for the market to crash to historic levels to BUY. He wants to sue the Fed for usurping and interfering with his buying opportunity. Now, he's earning 1% instead. 

Fri, 05/14/2010 - 18:58 | 352898 P-K4
P-K4's picture

What he said - "I am concerned that a GAO audit of the Fed's open market operations could end up costing taxpayers billions by giving investors a road map to the Fed's trading strategies and the securities it intends to buy."

What he really meant - "I am concerned that an audit will reveal how many trillions the Fed's open, closed, secret, offshore, underhanded, slush-funded and waste operations, actually cost the taxpayers. You need a roadmap to find all the securities it bought  based on a strategy of taking orders from the boss."

Fri, 05/14/2010 - 18:59 | 352900 Miles Kendig
Miles Kendig's picture

What passes as considered opinion from the conflicted reasoning of the conservative movement in America today.  Kyl has joined my congress critter in Bobbing for Cork.

Fri, 05/14/2010 - 23:01 | 353149 lexalexander
lexalexander's picture

Though not identical, that wording is remarkably similar to wording in an e-mail I received from my junior senator, Kay Hagan.

Sat, 05/15/2010 - 02:29 | 353348 Grand Supercycle
Grand Supercycle's picture

 

The March 2009 bear market rally ended last week. 

http://tinyurl.com/39ptoac
 
http://www.zerohedge.com/forum/latest-market-outlook-1

Sat, 05/15/2010 - 12:11 | 353630 jd2iv987
jd2iv987's picture

so the fed can sell them everyone else at a premium? good reasoning doucher.

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