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Senator: Why Fed aid to foreign automakers?


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Senator: Why Fed aid to foreign automakers?

By TODD SPANGLER

FREE PRESS WASHINGTON STAFF

WASHINGTON -- Sen. Bernie Sanders of Vermont wants to know why the Federal Reserve spent billions of dollars helping foreign-based automakers during the financial crisis two years ago.

Last week, the Fed released pages and pages of records on its activities during late 2008 and 2009 as the crisis in financial markets gathered steam and credit was frozen. Those records show that the Fed spent nearly $5 billion buying commercial paper -- unsecured, short-term loans usually used by companies to cover accounts receivable, inventories and payroll -- from Mitsubishi and Toyota. The loans matured and were due, typically, in three months.

In a letter sent Monday to Ben Bernanke, chairman of the Fed's Board of Governors, Sanders, an independent who caucuses with the Democrats, voiced his opinion that anyone who has gone through all the records must be "truly shocked by the sheer amount of lending the Fed provided."

He also said it was "especially disturbing" that Wall Street institutions that received the help have returned to profitability while the unemployment rate remains stuck near 10%.

Sanders questioned whether it constituted a conflict of interest that financial institutions with officials who sit on the Fed's regional boards received the loans; he also asked what the Fed was doing loaning money to Mitsubishi and Toyota, as well giving wealthy investors large sums to invest in foreign automobile securities, "at a time when the American automobile sector was on the verge of collapse."

The records also show, however, that the financial arms of U.S. automakers were helped.

The Fed purchased $4.8 billion in commercial paper for Chrysler Financial Services, as well as nearly $9 billion for Ford Credit. The Fed bought $223 million in commercial paper for GMAC.

Read more: Senator: Why Fed aid to foreign automakers? | freep.com | Detroit Free Press http://www.freep.com/article/20101207/BUSINESS01/12070329/Senator-Why-Fed-aid-to-foreign-automakers?#ixzz17QtAGaZ0

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Ford spokeswoman Christin Baker said the two programs "addressed systemic failure in the credit markets, and that neither program was designed for a particular company, or even a particular industry." Ford Credit has disclosed through SEC filings and conference calls with media and investors that it was taking part in both programs.

BMW told Bloomberg that the Fed lending "supported our financial profile and offered us an additional funding source, especially at times when the money markets and capital markets did not function properly and efficiently."

According to the Fed, the commercial paper loans have been paid in full, while some $2 billion remains outstanding on loans for bond investors.

It was a credit thing, not a bailout of the mothership.

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