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Fed lent banks $7.7 trillion in crisis

By Claes Bell, CFA · Bankrate.com
Wednesday, November 30, 2011
Posted: 12 pm ET

Interesting news from Bloomberg this week. Apparently, thanks to a Bloomberg Freedom of Information Act request and subsequent court fight, we now know how much the Federal Reserve lent banks between the beginning of the financial crisis and March 2009: $7.7 trillion. That's trillion, with a "t."

What's more, much of that money was lent out at below-market rates to help ensure banks stayed solvent, leading to $13 billion in additional profit for the banks.

To me, any number as big as $7.7 trillion gets pretty abstract, so I did a little math to put it in more concrete terms. According to my calculations, $7.7 trillion is equal in value to:

  • 199 Warren Buffets.
  • 22 Apples (the multinational corporation, not the fruit).
  • 10 Manhattans (the major metropolitan area, not the cocktail).
  • 71 times the cost of Hurricane Katrina.
  • 76 percent of the value of all the gold mined in human history.
  • About half the entire U.S. national debt.
  • $24,624 for every man, woman and child in the U.S.

You get the idea. Any way you slice it, that's a really big loan!

I was asked a lot during the Bank Transfer Day brouhaha about why people were so sensitive to new fees on their checking accounts and debit cards. I think the astronomical numbers above get to the heart it.

To be fair, the line of credit the Fed extended to banks had to be really big in order to keep the mammoth U.S. banking system afloat, especially since many of the biggest banks had bet many times their actual cash holdings on what turned out to be very poor investments. I think most Americans acknowledge that the bank bailout was a necessary evil; you need only look to what's going on in Europe right now to understand what happens when there's no lender of last resort shoveling money into a banking system during a financial crisis.

But when bankers cash in with big bonuses, or publicly complain about how tough life is because of new regulation, or announce plans to boost checking account fees aimed primarily at less-profitable, low-income customers, it makes people resentful. After all, a lot of Americans probably could have used a massive line of credit with a near-zero-percent rate to be paid back whenever, but there was no Federal Reserve there to make it happen for them.

In exchange for the very special privilege of borrowing near-unlimited sums at preferential rates from America's central bank, Americans expect financial institutions to show a little gratitude and understanding toward the plight of the average consumers these days, and I can't say I blame them.

Now, banks do have to make a profit in order to remain viable businesses, and in the vastly changed regulatory environment they're in today that will probably entail raising checking fees. But I think if they want to get a little bit less toxic in the public relations department, banks need to do so in a way that acknowledges the enormity of the favor American taxpayers did for them, the tough financial situation a lot of folks are in these days and the part the banks played in putting them there.

What do you think? Does the recent memory of the bank bailouts contribute to consumer anger over bank fees? What would you like to see banks do differently?

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5 Comments
Paul Wheeler
December 02, 2011 at 9:47 am

By the way, How come nobody is reacting to this information? Where did the FED get the power to give an amount of taxpayer money equal to half our country's total debt away to a bunch of irresponsible, greedy institutions, thus plunging the struggling middle class further into poverty?

All while the criminals in congress, who set the stage for all this plunder over the past 8 years, remain in power only to punish us more by makeing the middle class sacrifice even more to pay for it. The 99% needs to hold the republicans accountable for this come next November.

Paul Wheeler
December 02, 2011 at 9:35 am

Instead of begging congress to make more money available,lets just take our 8 trillion $ back and use it to bail out the missle class.