Federal Reserve Audit Uncovers Secret Foreign Bailouts

Thursday, July 28, 2011 12:00 PM by Soren Kreider

During the height of the financial crisis, the Federal Reserve received unprecedented authority to meddle in the economy without any semblance of taxpayer protection or accountability.  Despite Federal Reserve officials’ fierce defense of their complete lack of transparency, holes were poked in the shroud of secrecy this week with the Government Accountability Office audit report on the Federal Reserve’s emergency lending programs.  Their findings are shocking, though unfortunately not entirely surprising.

Buried on page 131 of their 266 page report was the information officials were so eager to hide from the taxpaying public.  As Americans struggled to make ends meet in the midst of financial meltdown, the Federal Reserve was shipping trillions of dollars overseas to foreign banks.  In one year, Fed officials offered indiscriminate loans of $16 trillion to a host of European banks, as well as Wall Street titans like CitiGroup, Bank of America, and Goldman Sachs. The GAO found that 65 percent of those “emergency loan” handouts went to foreign companies and banks.  On behalf of American taxpayers, the Federal Reserve bailed out not only the risky behavior of America’s banking industry, but Europe’s as well.

It’s no wonder Fed officials have resisted transparency reforms so ardently.  If they didn’t blink at sending trillions of dollars overseas, what other risky decisions have they made behind closed doors?  The GAO’s audit only extended to the Fed’s emergency programs and the bulk of the Fed’s policies remain closed to the public.  The fact that even a limited search resulted in such shocking revelations is further evidence that a transparent audit of the Fed, without any special exemptions, is the only way to truly discover what reckless decisions the Fed is making on taxpayer’s behalf. What’s more, the passage of the Dodd-Frank financial regulatory overhaul stands to instill more uncertainty in financial markets while increasing the unaccountable powers of the Fed. Stay tuned for the release of our 2011 Cost of Government Day report (link to 2010 report) that details fully the financial perils posed by Dodd-Frank.

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