TARP vs. Fed Lending

Is the financial system in even worse shape than we think? The Treasury has been authorized under TARP to spend $700 billion to do whatever it's doing (buying toxic assets? injecting capital? subsidizing AIG boondoggles and bonuses?), but getting lost in the shuffle is the fact that the Fed is also handing out an unprecedented amount of money. Take a look at this graph, which comes directly from the Federal Reserve Bank of St. Louis, and which shows the Total Borrowings of Depository Institutions from the Federal Reserve through November 1 of this year:



Thus far, the Fed has refused to reveal to whom these loans have gone and what it has accepted as collateral. Bloomberg News has filed a lawsuit against the Federal Reserve under the Freedom of Information Act to find out. According to Bloomberg, the loans now exceed $2 trillion.

From Bloomberg's latest article about this:

“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

The Fed stepped into a rescue role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program. The central bank loans don’t have the oversight safeguards that Congress imposed upon the TARP.

Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA.