Unknown to most, the politics of redistribution will always benefit certain vested interest groups.
The US Federal Reserve’s actions during the 2008 Lehman crisis should serve as worthy examples.
From the Bloomberg,
Credit Suisse Group AG, Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc each borrowed at least $30 billion in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public.
The $80 billion initiative, called single-tranche open- market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc.
Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 percent that December, when the Fed’s main lending facility charged 0.5 percent.
“This was a pure subsidy,” said Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc. “The Fed hasn’t been forthcoming with disclosures overall. Why should this be any different?”
Until brought to light by the public, politicians tend to look the other way.
Again from the same Bloomberg article, (bold highlights mine)
Congress overlooked ST OMO when lawmakers required the central bank to publish its emergency lending data last year under the Dodd-Frank law.
“I wasn’t aware of this program until now,” said U.S. Representative Barney Frank, the Massachusetts Democrat who chaired the House Financial Services Committee in 2008 and co- authored the legislation overhauling financial regulation. The law does require the Fed to release details of any open-market operations undertaken after July 2010, after a two-year lag.
Conflict of interest is an innate constituency of political distribution.
For instance, Rep Barney Frank admitted that he got his ex-lover a job at the Fannie Mae. So denials like the above should be viewed distrustfully.
Part of the Fed’s recent bailouts included wives of Wall Street bigwigs and Libya’s Gaddafi.
