Federal Reserve Chairman Ben Bernanke shot back in unusually strong terms at news reports it blamed for making "egregious errors" about the size and impact on Americans of the Fed's emergency lending during the 2008 financial crisis.
In a letter to the Senate banking committee, Bernanke released a staff memo that rebuts the portrayals in recent Bloomberg and other news articles that the Fed was aiming to help big banks' profits at the expense of taxpayers.
A Bloomberg Markets Magazine article released Nov. 27 said that big banks reaped an estimated $13 billion of income after the Fed committed $7.7 trillion in funds as of March 2009 to rescuing thefinancial system. A media representative for Bloomberg wasn't immediately available to comment.
Calling the lending numbers in the media "wildly inaccurate," the Fed said total credit outstanding under its liquidity programs was never more than the $ 1.5 trillion peak reached in December 2008.
"To be sure, that is a very large amount, but it was necessary to ensure that the crucial mistake made during the Great Depression--failing to prevent the collapse of the financial system--was not repeated," the Fed said.
The misleading estimates could be based on several mistakes, including double counting some loans, the Fed said. As much of the emergency lending was revolving and made either overnight or for short durations of up to three months, such double counting can lead to a "gross overestimate of the actual amount of lending."
The Fed said that nearly all of the emergency assistance has been fully repaid or is on track to be, something it said wasn't stressed in news articles. The central bank claimed that the loans benefited American taxpayers by generating an estimated $20 billion in interest income for the U.S. Treasury.
At the end of 2010, the Fed was forced by the Dodd-Frank financial law to disclose nearly all of the emergency lending it funneled to different parts of the economy and the financial system during and in the aftermath of the crisis. That was followed by a disclosure in March of this year of the loans made directly to banks under the Fed's discount window, following lawsuits from Bloomberg L.P.'sBloomberg News and News Corp.'s (NASDAQ:NWSA) FOX Business Network.