The capitalist media is calling it a “backdoor” or “shadow” bailout. But it would be more appropriate to call the massive handouts to large banks (in the U.S., Europe and Asia) and major corporations by the Federal Reserve the Mother of All Bribes.

In documents released by the Fed, it was revealed that Washington’s central bank gave out trillions of dollars in short- and long-term loans with interest rates as low as 0.007 percent ($7 for every $1 million lent).

Among the largest single recipients of this historic handout are Citigroup ($1.8 trillion), Morgan Stanley ($2 trillion), Goldman Sachs ($800 billion) and Bear
Stearns ($1 trillion). Alongside these banks, major corporations like General Electric, McDonald’s, Verizon and Toyota gorged themselves at the trough. Moreover, the Fed sent out over $12 trillion to central and major banks in Europe, Asia and Australia.

All told, across the 11 programs created by the Federal Reserve in the wake of the Panic of 2008 and beginning of the Second Great Depression, $28.38 trillion was lent or given out to U.S. and world capitalism.

To put that number in perspective, the entire annual Gross Domestic Product of the U.S. — the sum total of the value of all things produced in this country — is about $14.26 trillion. The Fed programs ran for two years, and the total amount is for that period. This means that the Federal Reserve
lent or gave out all but about $120 billion of the total value of everything this country produced from Oct. 2008 until Oct. 2010.

(And this is on top of the over $8 trillion handed out by the U.S. Treasury as part of the 2008 “Troubled Asset Relief Program” round of bribery and corporate welfare.)

U.S. Senator Bernie Sanders (I-Vt.), whose legislation led to these revelations, was particularly indignant about the trillions sent to banks in other countries. This self-described “Socialist” (actually, Sanders is just a lukewarm social democrat who is quite comfortable among Democrats) incredulously
asked: “Has the Federal Reserve become the central bank of the world?”

The short answer to his question is no.

There are only two reasons why a central bank makes those kinds of “liquidity swaps” with other central banks: a) the lending country is attempting to dominate the others economically, or b) the lending country is being targeted for economic domination.

In the case of the United States, the systemic crisis that began two years ago has greatly agitated the ruling classes of the other Great Power states. Many of their central banks had been suckered into buying the “credit default swaps” and other forms of repackaged debt created by the Fed to spread around all the toxic assets from the housing bubble.

The American ruling classes were put into a very uncomfortable position by the Panic of 2008, with many central banks wanting to cash out that regifted garbage immediately or else face a snowballing economic crisis of their own (like we’ve seen in the last year in Greece, Ireland, Portugal, Italy and Spain).

In order to avoid the greater crisis that would be associated with other countries calling America’s debt, the Fed agreed to trillions of dollars in “liquidity swaps” with the European Central Bank and Swiss National Bank (and later other banks). The end result was to send the flow of the worldwide U.S. money supply into negative numbers (which kept credit in the U.S. and from the U.S. frozen for months) and, at the same time, loosen up European credit by opening up the U.S. domestic market as a means of expanding the circulation of its currency and credit.

When these short-term “swaps” ended, each central bank paid the other back with interest — that is, at the interest rate each central bank set. What does this mean? It means that the central banks in other countries paid the Fed back at 0.25 percent, while the Fed paid back the other central banks at higher rates.

The Wall Street Journal has hailed the release of these documents, going so far as to thank their “favorite Socialist” (Sanders) for making it happen. For the most part, this is because it explains how the pillars of American capitalism survived the onset of the Panic — and why the credit crisis has lasted until now.

This information is also important for working people, because it exposes the extent to which American capitalism will go to save itself, while telling working people to starve on the streets and “sacrifice,” and the result of the disparity between U.S. economic and political-military power in relation to the other Great Power states (and the client states within the Anglo-American imperialist cartel).

Such revelations will aid workers in better understanding our struggle ahead.