Most Americans believe that the unprecedented Fed bailouts of Wall Street didn’t begin until December of 2007, on the cusp of Wall Street’s financial collapse in 2008. That’s wrong. The Fed’s first massive bailout of Wall Street started on 9/11.
By the closing bell on September 10, 2001, the day before the attacks, the Nasdaq stock market was already in the midst of a full-scale implosion, having lost 66 percent of its market value and wiping out $4 trillion of wealth.
The Wall Street mega banks were in the cross-hairs at the time of then New York State Attorney General Eliot Spitzer for bringing to market Initial Public Offerings of companies that the banks’ own research analysts were internally calling “crap” and “dogs” while the same banks issued buy recommendations on the “dogs” to the unknowing public. One internal email from Jack Grubman, an analyst at Salomon Smith Barney, captured the brazenness of the deception: “Most of our banking clients are going to zero and you know I wanted to downgrade them months ago but got huge pushback from banking.”
The Congressional Research Service indicates that the Fed funneled “$100 billion per day” over a three-day period beginning on 9/11 to Wall Street firms. The consolidated annual reports of the Federal Reserve Banks show that the Fed’s balance sheet grew from $609.9 billion at the end of 2000 to $654.9 billion at the end of 2001 to $730.9 billion at the end of 2002 and $771.5 billion as of December 31, 2003.
According to a report by the St. Louis Fed, these are the numerous ways that the Fed rescued Wall Street following 9/11:
“The Fed held $61 billion of securities acquired under repurchase agreements on Sept. 12, vs. an average of $27 billion on the previous 10 Wednesdays and about $12 billion a year earlier.
“The Fed directly lent funds to banks through the discount window. The $45 billion in discount loans outstanding on Sept. 12 dwarfed the $59 million average of the previous 10 Wednesdays.
“As a regulator, the Federal Reserve—along with the Comptroller of the Currency—urged banks to restructure loans for borrowers with temporary liquidity problems. To assist such restructuring, the Fed made additional funds available.
“The Fed passively extended credit to the economy through its role in clearing checks. When the Fed clears checks, it credits the receiving bank before debiting the bank making the payment. Float describes the amount of money that has been credited to check depositors but has not yet been debited from the check writers. The float totaled almost $23 billion on Sept. 12, for example, some 30 times the average float over each of the 10 previous Wednesdays.”
The Chicago Fed reported that an additional “$90 billion in liquidity” was added by the Fed setting up 30-day dollar swap agreements with the European Central Bank, the Bank of Canada and the Bank of England.
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