The Fed lends $16 trillion dollars?

So a perfunctory audit has revealed that the Fed has lent over $16 trillion to banks and corporations around the world, and the limited information seems to be raising more questions than it answers. Click here to read the story.

Economic evangelists are leaping to Belief-based conclusions, and most of them see the vast expansion of Federal Reserve lending to financial institutions and corporations as a bad thing.

To put this in perspective, this is more than the National Debt, which currently stands at around $14.5 trillion. Or the GDP (total of all economic activity in the US for a year) which is around the $14 trillion mark.

But it may not be all bad. If the interest rate being charged on these loans is 4.5% or more, it would actually be very helpful to the economy, because the Fed would be earning about $740 billion a year on these loans. And if the Fed was the first secured creditor (they get paid back before anybody else), the loans would be very secure. Add to this some stock warrants to seal the deal, and the American people would not have to worry about problems with Social Security for a very long time!

When the Federal Government bailed out Chrysler in 1979, the deal was publicly discussed, the Government became a secured creditor, and also got warrants for stock. When the Government got paid back in 1983, their original $1.5 billion loan guarantees netted a profit of around $660 million, a return of 44% over four years!

In this scenario, I have no problem with Government loans. That $16 trillion would be earning about 11% a year, almost $1.8 trillion.

What's that, you say? The audit doesn't list either the interest rate being charged on these loans, or how they are secured? Or whether there are stock warrants involved?

Federal Investigations and disappearing brains

Gee, why I am not surprised? Put this down to the US powers of investigation, that have been applied to every Federal investigation from the disappearance of John Kennedy's brain to the WTC collapse.

American investigation techniques? Sweep up the evidence, dispose of it with unseemly haste,swear everybody to secrecy, tell an implausible story, and have a bunch of people murmuring, "Nothing to see here, folks .... Move along, move along ...."

How about some transparency and accountability?

See, the big problem I have with the US Government is their lack of transparency. The US Government has all the authority, while the US taxpayer carries all the responsibility. The Federal Government is not reporting to the US people, who will be footing the bill for their actions, of any of the costs and benefits. If any corporation reported to their shareholders in this manner, the directors could be held financially accountable.

This makes a sham of the whole concept of democracy. How can you vote for your representatives when you don't know what they are doing behind closed doors? When they go out of their way to conceal the truth from the electorate?

Any trial requires full disclosure

So I look forward to more information before I make any decision on whether I see this as a good or a bad thing. I am a little suspicious it is not going to work out well. The Federal Government has just written off about $1.3 billion from the latest Chrysler bailout, a bad omen.

So before we jump the gun, let's insist on better investigation, and more accountability. Trust, but verify.

Oh, and if these loans suck, let's get the money back, or renegotiate the terms. Then fire these financial managers in Government, and get them to foot the bill personally.