The Free Market Revisted

In a recent blog titled Free market Illusion, the author argued that when the United States government transfers over $17 trillion dollars to the investor class we do not have a free market, we have “Socialism for the rich and austerity for the rest of us.”

The amount was questioned because if our government actually transferred $17 trillion dollars, which is more than the country’s annual GDP and more than the entire national debt, to private entities the argument that our economic system is based on  market principles would be laughable.

Actually $17 trillion is short of the amount of dollars our government actually passed out during the financial crisis.

This is all covered in GAO-11-696 (Available on the Government Accountability  Office web site) showing the nineteen programs and money dispersed by the Federal Reserve Board between December 1, 2007 and July of 2010. The report is staggering and one can understand why the Fed fought making this information public.

Detailed information on each program is specified in each program’s appendix.

Here are some of the highlights of the report:

Appendix XI – Primary Dealer Credit Facility and Credit Extensions for Affiliates of Primary Dealers. (PDCF).

Table 25 shows that this program dispensed $7.3 trillion in loans.

Appendix IX – Dollar Swap Lines with Foreign Banks. Table 24 dispensed $10 trillion dollars.

We’re over $17 trillion already, and we still have seventeen programs to go. If you add up the total amount of money dispersed it would exceed $20 trillion.

But that is not the end of the story. The Fed set up the programs but paid private institutions billions of dollars in fees to run the programs. Morgan Stanley not only received $1.3 trillion in loans from the PDCF program (See Table 25 in the report) but also acted as a vendor for other programs receiving hundreds of millions of dollars in fees.

Non-banking entities were also beneficiaries of these programs. PIMCO, a mutual fund, received $7.3 billion from the Talf program which dispersed over $71 billion (Appendix VII, table 25). PIMCO also was awarded over $100 million in fees for acting as a vendor for the very same program that awarded it $7.3 billion in loans.

If you want to understand how the allocation of capital in our economic system really works download a copy of the report and spend a few minutes looking at the tables and the charts that show the flow of money and the interrelationship between the government and the private sector.