According to the Wall Street Journal’s very abbreviated reporting on the document dump, the Federal Reserve’s loans at the depths of the crisis included the following:
- Goldman Sachs borrowed from the Fed 84 times, to a maximum single amount of $18 Billion. This would be in addition to the TARP bailout funds of $10 Billion and a pass through of bailout money from AIG of perhaps $12.9 Billion.
- Morgan Stanley borrowed from the Fed 212 times up to $60 Billion. Morgan’s TARP bailout was $10 Billion
- JP Morgan borrowed $17.7 Billion in addition to its TARP bailout of $25 Billion, and AIG pass through of some amount (they are lumped into “other”)
- Bank of America borrowed 118 times ranging up to $11 Billion in addition to its TARP bailout of $15 Billion and Merrill’s $10 Billion, and their combined AIG pass through of $12 Billion.
There is better reporting on Huffington Post with what appears will be a live stream of updates.
- Huffington highlights the extreme favorable terms these loans were made on. The annual interest rate for emergency borrowing was 1/10 of 1%.
- 18 Primary Dealers on Wall Street pledged $1.3 Trillion in non investment grade paper to secure Fed borrowings. Rates on these loans were 1/2 of 1% per annum.
- Nine large money market managers tapped the Fed for a total of $2.4 Trillion
So these are a few highlights. What is obvious is that yes, the entire system would have collapsed without a bailout or a resolution authority and there was no time to set up a resolution authority. These firms had to borrow money from the Fed despite the fact that all other firms were borrowing from the Fed and were therefore able to make good on their interbank borrowings, counter party positions, and collateral postings. Even JPM and Goldman chose to borrow even while their clients were being propped up by the Fed. So they were all over leveraged and they were all short cash.
So call it what it is. Wall Street on the dole. This money was cheap, almost free. For comparison’s sake, Warren Buffet invested $5 Billion in Goldman Sachs. This was equity, not debt, and was not secured. So it is not exactly comparable. But Warren negotiated a return of 10% per annum and the right to buy $5 Billion of stock at $115 per share. The profit on the stock was not locked in and I’m not sure what he did with it, but the price of Goldman stock today is $158. So if he flipped it today he would flip 43 million shares at a profit of $43 per share. That is another $1.86 Billion in compensation. So it looks to me like that Goldman money would have cost about 25% per annum. This is very rough math but you get the point. Less than 1% per annum paid to the Fed is a direct subsidy.
So what does that mean for today? It means these banks, their shareholders, and their bondholders owe the American people for their existence. They should act like it.