PBS News Hour Transcript Re $7 TRillion QE-1

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[Reading Liberally Editorial Note = there follows below the PBS News Hour's interview of Bob Ivry of Bloomberg regarding his article 11/27/2011 article in Bloomberg Markets Magazine -- the article itself is also posted on this bulletin board.]

Fed Faces New Scrutiny for Trillions in Assistance to Banks After Crisis

SUMMARY
A report published Monday raises new questions about money that the Federal Reserve provided to banks in the wake of the financial crisis. Judy Woodruff discusses the report with Bob Ivry of Bloomberg News.

TRANSCRIPT

JUDY WOODRUFF: Next, new questions about the money the Federal Reserve provided to banks in the wake of the financial crisis. Bloomberg magazine published a report this week detailing loans made by the Fed in 2008 and 2009, loans that totaled more than a trillion dollars on a single day in December 2008, and more than $7 trillion in loans and other commitments to saving the financial system between 2007 and 2010. The extent of the loans to specific banks wasn't revealed to Congress at the time. The article also says that banks earned billions of dollars of profits on these loans, and that a number of Wall Street firms borrowed money even as they publicly told investors that their financial position was strong. The Fed, meanwhile, has defended the actions, saying that its assistance was critical to saving the financial system. We look at this more closely now with one of the reporters who has been investigating this for Bloomberg News, Bob Ivry. Bob Ivry, thank you very much for being with us.

BOB IVRY, Bloomberg News: Hi, Judy.

JUDY WOODRUFF: What did you learn about the scope of what the Fed did and who the recipients were?

BOB IVRY: It was a lot bigger than we thought, Judy, compared to TARP. TARP was the Treasury program that helped the banks get through a tough time in 2008. And that was lending up to $700 billion. In one day, the Fed had loans out totaling $1.2 trillion. So, that one day in December of 2008 just completely dwarfs the much better known TARP program.

JUDY WOODRUFF: And the recipients?

BOB IVRY: Well, the recipients were saying things that -- in public about the health of their banks. Jamie Dimon, the CEO of J.P. Morgan Chase, and Kenneth Lewis, who was the CEO of Bank of America, both made statements to shareholders at the time about how healthy their banks were. And we can now go back and look at the -- what the -- some of the data that the Fed kept secret for this long and say that both of those banks were borrowing tens of billions of dollars from the Fed at the time.

JUDY WOODRUFF: How much difference did all of these loans make ultimately for these institutions?

BOB IVRY: One -- an economist that we spoke with, Dean Baker, who you might know, said that the banks could be categorized -- put into two categories. One is banks that desperately needed the cash in order to survive. And the others, more healthier, are ones that got below-market-rate loans, and he called it a gift. And we don't blame the banks for taking loans that are below market rate. That's what they do. And that's what you and I certainly would do.
We calculated that the banks that took the below-market-rate loans made -- about 190 banks -- and, together, they made $13 billion from these below-market-rate loans.

JUDY WOODRUFF: Did it allow these banks to survive?

BOB IVRY: Well, the Fed cannot be faulted for acting with great dispatch and with everything in its arsenal to save the financial system. And, like everybody else, I like to get money out when I put the ATM card in the slot. And that's certainly thanks in great part to what the Fed did.
What we're really taking a look at is what happened afterwards and the secrecy that surrounded the loans that they made during this time. They kept that -- they kept the details of the lending from the folks at Treasury who put together TARP. And they -- and nobody that we spoke with, the senators or congressmembers, knew anything about the details of the Fed lending when they were debating and ultimately passed the Dodd-Frank legislation.

JUDY WOODRUFF: Now, we know that you and Bloomberg News went to great lengths to get this information. There was a FOIA, a Freedom of Information, request that went all the way, I gather, to the Supreme Court. But we did at the NewsHour talk to Fed officials today. And they say the extent to which this was hidden, was secret is being overstated here to some extent. They're saying that they made weekly reports about the amount of lending; then, ultimately, the information came out after the Dodd-Frank bill was passed into law.

BOB IVRY: They did disclose the information in aggregate form, meaning that you just got a lump: This particular program, for instance, lent this week this amount of money.
What we didn't know before very recently was that a bank like Morgan Stanley took $107 billion in one day or that Bank of America or Citigroup were borrowing on a single day at their peak almost $100 billion. So, all that is now public. And that's because Bloomberg and Bloomberg News sued the Federal Reserve to get this money and to get this -- the data on the money. And we wouldn't have known this without it. And the Fed and the biggest banks together defended the lawsuit right up to the Supreme Court.

JUDY WOODRUFF: One of the other arguments one hears in defense of the Fed is that it's been their practice to keep the names of institutions they loan to private, because, if it's known that these institutions are weak and depending on this kind of support, it could fundamentally undermine them.

BOB IVRY: Well, two things on that, Judy.
I think that, most of the time, in normal times, if a bank is disclosed as having -- being so weak as to have to go to the lender of last resort, which is the Federal Reserve, in order to get a loan, not being able to get a loan anywhere else, that could be a stigma. That could be a sign of weakness, and counterparties and investors could pull their money. But you had hundreds of banks from three continents around the world accessing the Federal Reserve for emergency loans. And the courts have ruled that the public interest in knowing where taxpayer money went and who it went to and how much it -- went out is -- outweighs any sort of stigma or sign of weakness that could possibly affect the banks.

JUDY WOODRUFF: One other argument one hears in talking to people defending the Fed is that the role of the Federal Reserve, after all, is to be the lender of last resort, to make sure that the banking system in the United States stays strong and healthy, and that it was supporting these banks that were the recipient, after all, of Treasury, of taxpayer money.

BOB IVRY: It is the role of the Federal Reserve to be the lender of last resort and to make sure that banks feel comfortable, if they need it and if they had a short-term money problem, to come to the Fed and to borrow the money. It is the role of a democracy, however, to keep track of where ultimately taxpayer money goes and where it is spent, to whom, and what those people say about it in public. These are publicly, most -- for the most part, publicly traded companies. And if they tell investors, we're healthy, we're doing fine, at the same time that they're in such dire straits that they need hundreds, in some cases, tens of billions of dollars in loans from the Fed, then that's an issue, too.

JUDY WOODRUFF: Bob Ivry, you -- one of the things you write about in the article is the effect all this had -- or didn't have, I should say, on how the Dodd-Frank financial reform legislation turned out. Briefly explain how you saw that.

BOB IVRY: The federal -- the role of the federal government and the Federal Reserve during the crisis was to make the biggest banks even bigger. And we have this problem that's -- the shorthand for it is too big to fail. And that is, they're too big to be allowed to fail. If these banks fail, then the financial system in general around the world is threatened. And so, hence, we would have more bailouts. What the Congress essentially did was not -- vote not to break down the biggest banks into smaller pieces and make them more manageable, but to in essence keep the biggest banks bigger than they were before the crisis. So, the senators and congressmembers that I talked to, some of them said it would have changed the atmosphere of Dodd-Frank debate and maybe made some members of Congress more likely to vote for stronger measures to make sure that we don't have these banks that are too big to fail and whose employees can be victims of moral hazard, meaning that...

JUDY WOODRUFF: Right.

BOB IVRY: ... they take riskier bets because they know that they will be bailed out if they have losses.

JUDY WOODRUFF: Just quickly, interesting that Barney Frank, the chairman of the Banking Committee, said today that he supports what the Fed did. But it's an article with a lot of information in it. Thank you very much for joining, Bob Ivry of Bloomberg News. Thank you.

BOB IVRY: Thanks, Judy. My pleasure.