A Whole Wide World Of Bank Bailouts

Boy, we sure are generous as Americans, taking it on the chin here at home while taxpayers helped to bail out non-US banks.  CNBC and the Financial Times:

More than half of lending under the Fed’s term auction facility – the largest of its crisis programs – went to foreign banks. Details of the varied uses to which they put it may add to political criticism of the Fed.

The Taf was set up in December 2007 to provide one-month loans to creditworthy banks as markets dried up for lending longer than overnight. In August 2008, it began offering three-month loans as well.

Rabobank of the Netherlands and Toronto-Dominion of Canada, two of the only banks in the world with triple A credit ratings, used more than $20 billion in cumulative Taf loans.

Ed Clark, TD chief executive, said that using Taf was logical even though his bank never had a liquidity problem. “That wasn’t how we made a lot of money. But you make a dollar here, you make a dollar there. What’s the spread you make on a billion dollars?” he said.

In the summer of 2008, TD was borrowing $1 billion from TAF at rates of between 2 and 2.5 percent. For that borrowing it used the lowest quality – and hence highest yielding – collateral acceptable to the Fed.

More than 80 percent of its collateral had a triple B credit rating at a time when such bonds yielded about 7 percent. TD could therefore have made a notional gross spread of about $4m a month during 2008.

So not only were the big US banks making money off this scheme, taking worthless commercial paper, giving it to the Fed at face value as collateral, and getting cheap loans back in return, but overseas and Canadian banks were taking advantage of the TAF as well.

Keep in mind this all happened in early 2008, too -- before Obama took office, this was all Hank Paulson's idea -- and ask yourselves why the same Republicans who are looking to make Americans eat billions in spending cuts are the same guys who had no problem giving away taxpayer dollars to banks in Canada and Europe.

Think about that the next time a Bush-era Republican launches into another tirade about how we must control spending.