PRESS RELEASE
Former Fed Governor Blasts Illegal
Bailout of Europe Banking System
Dec. 30, 2011 (EIRNS)—Gerald O'Driscoll, former vice president of the Dallas Federal Reserve, and now at the Cato Institute, said that bailouts of Europe by the Fed are illegal, as EIR has charged about all bailouts of the unregulated financial system, since the bailout policy was begun by the Bush Administration in 2007. O'Driscoll wrote an op-ed in the Wall Street Journal on Dec. 28, titled: "Federal Reserve's Covert Bailout of Europe," that the Fed's unlimited "currency swaps" are simply covert loans, intended to circumvent the law. O'Driscoll asks why the Fed did not just lend to the European banks and the European Central Bank (ECB), but answers his own question by asserting that both the ECB and the Fed "need a fig leaf" to cover up illegal acts.
The Fed, he says, was exposed for its earlier massive bailout of Europe (by the successful Bloomberg suit demanding exposure of the recipients of the 2008-09 bailout). Fed chairman Ben Bernanke thus offered swaps, which are not booked as loans, and do not show up on the Fed's books. As for the ECB, O'Driscoll says that "some European governments" consider an ECB bailout of banks to be illegal. But, O'Driscoll adds, since U.S. banks and money market funds are "curtailing their lending to European banks," the Euro banks and governments have nowhere else to turn—so they use the subterfuge of the swaps. (Of course, the ECB ignored such restrictions in the recent half-billion euro bailout, probably with Fed money.)
In 2008, the Fed officially had about $600 billion in swaps, which were paid down to almost zero by this past Summer, but have now leaped to nearly $100 billion, mostly in December. These official figures are certainly a fraction of the real total.
O'Driscoll writes: "The Fed has no authority for a bailout of Europe." He reports that Sen. Lindsey Graham (R-S.C.), following a meeting between Bernanke on Dec. 14 with angry Senate Republicans, said Bernanke had claimed (lied) that the Fed did not have the "intention or the authority" to bail out Europe.
