Most Americans believe that the massive bailout of Wall Street began with the Troubled Asset Relief Program (TARP), authorized by Congress after a second attempt and signed into law by President George W. Bush on October 3, 2008.
What few Americans remember is that a full year before TARP, Ben Bernanke’s Federal Reserve encouraged the largest banks in the U.S., and one foreign bank, to borrow from the Fed’s discount window – a source of borrowing traditionally reserved for desperate banks who cannot obtain cheaper sources of borrowing. The Fed provided the loans as 30-day, renewable loans rather than the traditional one-day loans. This action occurred on or about August 22, 2007. Bernanke writes as follows in his book:
“On Wednesday, August 22, Citi [Citigroup] announced it was borrowing $500 million for 30 days; JPMorgan Chase, Bank of America, and Charlotte, North Carolina-based Wachovia also announced that they had each borrowed $500 million. Our weekly report the next day showed discount window borrowing of $2.3 billion on August 22, up from $264 million a week earlier.”
What Bernanke does not mention in his book, as reported at the time by Reuters and the Financial Times of London, is that a foreign bank, Deutsche Bank of Germany, was at the same time borrowing from the U.S. Fed’s discount window.