Why Is the Fed Bailing Out the World … On Our Dime?


We noted even before the TARP bailout law was signed into law that bailout moneys could flow to foreign banks.

We were right. A large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.

Ron Paul noted in 2011 that essentially 100% of New York Federal Reserve Bank loans went to foreign banks.

A former high-level Federal Reserve official said that the Fed is secretly bailing out Europe.

The Fed has bailed out Gaddafi’s Libyan bank, the Arab Banking Corporation of Bahrain, and the banks of Bavaria, Korea and Mexico … but has shafted normal Americans.

The Financial Times reported in February:

Foreign banks also have a striking amount of cash at the Fed, potentially aggravating the Fed’s PR problem. Analysts at Stone & McCarthy noted recently that there had been a steep increase in foreign banks placing reserves at the Fed and suggested that “US banks may have distaste for the opportunistic arbitrage”, between lower market rates and the interest on reserves, whereas overseas institutions “might not feel encumbered in the same fashion”.

Canada’s TD Bank, Germany’s Deutsche Bank and Switzerland’s UBS each have more than $12bn at the Fed.

Yesterday, Zero Hedge provided an update to this story.  ZH reports that the Fed’s quantitative easing program has injected huge sums into foreign banks:

The latest H.8 report demonstrates, as of the most recently weekly data, the Fed’s policies have led to foreign banks operating in the US holding an all time high amount of reserves, surpassing $1 trillion for the first time, or $1,033 billion to be precise.

This means that, as we expected several months ago, the only recipient of ongoing Fed money printing are not US banks, but foreign banks operating in the US. For those confused about the big picture, here is a chart showing the breakdown of cash held by big and small US banks as well as foreign banks, superimposed to total reserves created by the Fed since the start of the Great Financial Crisis. The correlation is 100%.

And just to prove that ALL the unsterilized cash from both QE2 and QEternity has essentially gone to support offshore banks, here is the conclusive chart showing the change in Fed reserves and cash held by foreign banks:

Finally, tying it all together, here is chart showing cash at US banks vs cash at foreign banks operating in the US. At $1.03 trillion in foreign cash, the Fed’s policies have once again led to more cash being held by foreign banks than all cash held by domestic banks.

We are confident that we speak for all when we say: “Thank you Ben – insolvent foreign banks appreciate your ongoing QE2 and QEternity-funded generosity

In a separate report, ZH notes that Bank of Korea Governor Kim Choong-soo said:

World may face rate risk if U.S. exits from QE

Too bad that quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors. And by causing food and gas prices skyrocket, it takes a bigger bite out of the little guy’s paycheck, and thus makes the poor even poorer.

And it’s a shame that a study of 124 banking crises by the International Monetary Fund foundthat bailing out banks which are only pretending to be solvent  – like most of the big banksharms the economy.

And what a farce that:

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:

  • 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)

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Fed Pours Huge Sums Into Foreign Bank Coffers”

  1. BenE says:

    To be fair QE is not really a bailout although I wish the money didn’t have to pass through institutions that have often shown to be corrupt.

  2. Richard W. Kline says:

    Fed in bed with the oligarchic kleptocracry? It’s their world: we just pay for it.

    There has _never_ been a legitimate economic argument for TARP and QE. The ultra rich had the regulatory brakes taken off the financial system, promptly cracked up the securities vehicle—and then staged a soft coup to takeover what portions of governmental financial machinery they didn’t already have staffed by stooges and have lined their pockets prodigiously ever since. The wealth transfer we have witnessed over the last six years is unprecedented in ambition and chutzpah. Perhaps not ‘the largest’ sudden accreation of wealth from public hands to a private few ever, but for the absolutely freedom of absconcing with vast sums in broad daylight to no productive return whatsover . . . we’re in new territory. This is all going to end well, right? And end well or end ill, the ultrarich have no intention of footing any bill for any of it.

  3. Willy2 says:

    1. It’s – without a shadow of doubt – the same story in Europe. US banks bailed out by the ECB with the LTRO program/money.
    2. Of course, if you put money into the financial system then that money goes into banks. And the banks are not going to invest in losing “assets”, they’re going to bid up the assets that are going up in price. Like copper in 2009 & 2010 silver & gold in 2011

  4. socaljoe says:

    The exorbitant privilege of having a currency that can be created in unlimited quantities has allowed us to postpone the eventual collapse of the western banking system at the expense of the eventual destruction of the currency.

  5. [...] and the federal takeovers of Fannie Mae and Freddie Mac were at the bidding of overseas investors. Here’s a more detailed look at how the bailouts and quantitative easing have helped foreign banks and [...]

  6. MikeR44 says:

    Barry, This is serious. These foreign banks, Central Banks, are now investing in securities and who knows what else that U S Banks are forbidden to do. Where is the justification and / or authorization for the Fed to, in essence, circumvent the laws of the U S?

  7. ERISANation says:

    That must be some kind of big dime. World-wide full faith and credit of Unky Sam.