It seems that the upshot of last week’s revelations that the Fed provided enormous emergency loans to the biggest names on Wall Street is a controversy over whether the Fed loaned out $7.7 trillion, as some outlets have reported.
That’s a shame, because the total amounts loaned out are sort of beside the point. Bloomberg‘s original story, which led off the coverage, reported that the Fed made $7.7 trillion in total commitments for the worst-case scenario, but only lent out $1.2 trillion. Those numbers appear to be accurate.
Now, $1.2 trillion is a lot of money, by any standard, and in comparison to TARP. Yet the dollar amount is not as important as the fact that the Fed gave banks like Goldman Sachs and Citigroup what they needed to stay afloat. If all the banks needed to avoid bankruptcy was $1 million and the Fed gave them that $1 million when no one else would, that $1 million would be hugely significant.
The fact that certain critics have fixated on an overblown loan figure shouldn’t overshadow the real story here, which is that a number of big banks got a lifeline from the Fed that the public, and Congress, didn’t know about until well after the fact.