Fair Game: Secrets of the Bailout, Now Revealed

It is dispiriting, of course, that we are still learning about the billions provided to various financial firms during the crisis. Another sad element to this mess is that getting the truth requires the legal firepower of an organization as rich as Bloomberg.

But that’s the way our world works. Billions are secretly showered on troubled financial institutions to stave off disaster. Individuals get little or no help.

Here are some of the new figures:

Among all the rescue programs set up by the Fed, $7.77 trillion in commitments were outstanding as of March 2009, Bloomberg said. The nation’s six largest banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — borrowed almost half a trillion dollars from the Fed at peak periods, Bloomberg calculated, using the central bank’s data.

Those six institutions accounted for 63 percent of the average daily borrowings from the Fed by all publicly traded United States banks, money management and investment firms, Bloomberg said.

Numbers for individual companies were equally astonishing. For example, the Fed provided Bear Stearns with $30 billion to see it through its 2008 shotgun marriage with JPMorgan. This was in addition to the $29.5 billion in assets purchased by the Fed from Bear to assist in the buyout by JPMorgan. Citigroup, meanwhile, tapped the Fed for almost $100 billion in January 2009 — its peak during the crisis — and Morgan Stanley received $107 billion in Fed loans in September 2008.

Some may see all this as ancient history or as ho-hum disclosures that confirm what everybody already knew — that our banks were on the precipice and that only hundreds of billions of dollars could save them. The Fed says that the money it lent in these programs was paid back without generating any losses.

But the information is revealing nonetheless. The fact is, investors didn’t know how dire the situation was at these institutions. At the same time that these banks were privately thronging the teller windows at the Fed, some of their executives were publicly espousing their firms’ financial solidity.

During the first three months of 2009, for example, when Citigroup’s Fed borrowing apparently peaked, Vikram Pandit, its chief executive, hailed the company’s performance. Calling that first quarter the best over all since 2007, Mr. Pandit said the results showed “the strength of Citi’s franchise.”

Citi’s earnings release didn’t detail its large Fed borrowings; neither did its filing for the first quarter of 2009 with the Securities and Exchange Commission. Other banks kept silent on these activities or mentioned them in passing with few specifics.

These disclosure lapses are disturbing to Lynn E. Turner, a former chief accountant at the S.E.C. Since 1989, he said, commission rules have required public companies to disclose details about material federal assistance they receive. The rules grew out of the savings and loan crisis, during which hundreds of banks failed and others received government help.

The rules are found in a section of the S.E.C.’s Codification of Financial Reporting Policies titled “Effects of Federal Financial Assistance Upon Operations.” They state that if any types of federal financial assistance have “materially affected or are reasonably likely to have a future material effect upon financial condition or results of operations, the management discussion and analysis should provide disclosure of the nature, amounts and effects of such assistance.”

Given these rules, Mr. Turner said: “I would have expected some discussion in the management discussion and analysis of how this has had a positive impact on these banks’ operating results. The borrowings had to have an impact on their liquidity and earnings, but I don’t ever recall anybody saying ‘we borrowed a bunch of money from the Fed at zero percent interest.’ ”

I asked officials at Citigroup and Morgan Stanley about these disclosures. Jon Diat, a spokesman for Citigroup, said the bank’s disclosures in its quarterly filings with the S.E.C. “were entirely appropriate.” He added that Citi and other financial services firms “utilized numerous government programs that provided significant funding capacity and liquidity support which helped increase the flow of credit into the economy.”

Article source: http://feeds.nytimes.com/click.phdo?i=f900fa9ee73f5e56f0a2f54265298a19