San José, CA – In late September massive popular opposition to the Bush administration’s bank bailout plan led to its defeat in Congress on Sept. 29. But behind the backs of the American people, the Federal Reserve and the Treasury, with the cooperation of leading Democrats in Congress, were orchestrating an even larger bailout. Between mid-September when the investment bank Lehman Brothers failed, and the end of October the Federal Reserve quietly lent out more than $1 trillion (one thousand billion) dollars, or almost 40% more than the ‘public’ $700 billion bank bailout.

The U.S. Treasury, under former Goldman Sachs CEO Henry Paulson, borrowed $900 billion, increasing the U.S. government’s total debt from $9.6 to $10.5 trillion between Sept. 18 and Nov. 5. In contrast, the Treasury only borrowed $80 billion in the same period a year ago. The Treasury then went on to lend the money to the Federal Reserve, who used it to lend to banks, money market funds (mutual funds making short term loans to businesses) and other financial institutions. This allowed the Federal Reserve to increase their lending by a trillion dollars.

Unlike the Treasury’s bank bailout plan that was later passed by Congress, there is no oversight or accounting for the Federal Reserve lending. The Federal Reserve was established to be ‘independent’ from the government, meaning that it can operate in secret and without any say-so by elected officials. The five current board members of the Federal Reserve include two former economic advisors to Bush, two former financial industry executives and a career economist at the Fed.

While the Democrats have been telling the people that they are a party of “change” their congressional leadership has gone along with the Treasury/Federal Reserve covert bailout plan. The House of Representatives Financial Services Committee chair, Massachusetts Democrat Barney Frank, has said that the Federal Reserve should not make public more details about their lending, but would not say why. This is the same policy that leading House Democrats had about the war in Iraq, saying that they opposed it and then voting for every funding increase that the Bush administration sent them.

The bottom line is that both the Democrats and the Republicans serve Wall Street. If they can’t get what Wall Street wants in public, they are more than willing to go behind the backs of the people.

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