Fed Secretly Bails Out Big Foreign Banks

At the height of the economic crisis when consumers and businesses were starved for credit, the Federal Reserve tossed a lifeline to foreign banks. The agency made a mind-boggling $274.1 billion in loans to non-U.S. institutions and then deliberately concealed the information from the public.

Fed Chairman Ben Bernanke, the bearded banking bungler, orchestrated the lending and then battled for the past two years to keep the loans secret. The U.S. Supreme Court stepped in last week and ordered the information to be released to the public. As a result, Bernanke's already wounded credibility suffered a mortal blow.

In his defense, Bernanke protested weakly that allowing news of the loans to become public would have negatively affected the foreign banks. Perhaps, that could have been argued with some credibility at the time the loans were made. But two years after the fact? That's sheer nonsense.

Moments after the disclosures were made, Texas representative Ron Paul announced plans to hold public hearings on the Fed's decision to shovel out gargantuan loans to foreign banks. In a statement, Paul said he was "deeply disturbed" to learn of the "staggering" size of the loans. Like Paul, most Americans were outraged.

However, the always compliant news media dutifully buried the details. USA Today ran a one-inch brief on the front of its business page. Others in the print cheering section sheepishly followed. What should have been front page coverage became another excuse for the media to remind the public that the loans saved America from the brink of disaster.

The media's argument is hogwash. Branch offices of foreign-owned banks took advantage of the Fed's generous lending program to avoid pumping capital from Europe, Asia and China into their U.S. subsidiaries. In addition, the favorable loans provided the opportunity for foreign banks to double-dip because most received bailout money in their home countries, too.

Unfortunately, what the Fed did was not illegal. The Monetary Control Act of 1980 allows foreign banks with reserves at the Fed to take advantage of what is called a discount-window credit, a policy that allows institutions to borrow money from the central bank at below market rates.

The Fed was quick to point out that all the loans had been repaid with interest in an attempt to justify their actions. Bernanke and other Fed board members seemed perplexed at the idea their methods were being called into question.

However, the Fed's defense fails to address the larger question of how those billions might have otherwise been spent. For example, billions could have been used to bail out U.S. homeowners battling foreclosure. Millions could have been lent to credit-squeezed small businesses that could no longer get loans after the crisis hit. And what about those consumers who couldn't find lending for cars, refrigerators and other goods?

Instead of looking out for taxpayers, the government thumbed its nose at consumers and businesses by taking billions of dollars out of circulation and handing it over to foreign bankers.

Propping up foreign banks has done nothing to restore the American economy. Zero. Nada. Zilch. No amount of news coverage or economic mumbo jumbo will change that fact. That's why Ron Paul is right to demand an explanation from Bernanke on two counts: lending the money in the first place and then hiding the fact.

More Americans need to know what happened behind closed doors. Public airing of the Fed's sleazy behavior is the only way to ensure that Bernanke and the Fed are held accountable for the billions of dollars the central bank oversees.