The Federal Reserve: Did Ben Bernanke Lie?

...The Fed, apparently worried about global ripples, reacted by supporting non-US borrowers
...in December 2007.
 
At the same time, the Fed began lending through its Term Auction Facility,
with nearly all of the first $20bn going to several non-US banks.
 
Fed officials have claimed they did not know of the need
for large-scale intervention in the financial markets until autumn 2008.
 
Ben Bernanke, Fed chair, also testified that
“The only way we could have saved Lehman would have been by breaking the law.”
 
Yet the Fed’s new spreadsheets belie these claims.
 
The data show the Fed was lending prolifically abroad in 2007,
and then domestically, to investment banks – including Lehman – in early 2008.
 
...the Fed’s new data show it was well aware of the crisis,
and had the ability to lend tens of billions of dollars,
but it opted to lend primarily to non-US banks.
 
...the data do not support claims about its own timing and impotence.
 
...given who the borrowers were, what collateral they posted,
and what interest rates they paid
– it is now apparent that the Fed took on far more risk,
on less favourable terms, than most people have realised.
 
...The question is not whether the Fed was repaid,
but whether the rate it charged adequately compensated for the risk.
 
The Fed charged low rates, often almost zero per cent.
 
It says these rates were justified because loans were “fully secured”.
 
However, unlike some Fed disclosures, the data include only the face amount of the collateral,
and vague categorical labels.
 
The Fed admits some collateral was inadequate.
 
But without more details we can’t know whether the loans were fully secured,
or whether the Fed, by lending at low rates without adequate collateral,
was effectively gifting money to borrowers around the world.
 
Frank Partnoy