Fed’s $1.6 Trillon Bet

The $700-Billion Wall Street Bailout Was Only the Half of It

By Charles R. Morris 10/14/08 6:01 AM

Amid the clamor over the crisis on Wall Street, the U.S. Treasury’s $700 billion Troubled Asset Rescue Program, or “TARP,” bill and the evolving collapse of the global banking system, little attention has been paid to the extraordinary credit extensions at the Federal Reserve. But these are now without parallel in Fed history, including during the Great Depression.

In the last three weeks, Federal Reserve Chairman Ben S. Bernanke, with the help of Treasury Sec. Henry Paulson Jr., has increased the Fed’s credit extensions by $650 billion — roughly the same amount as the TARP. Taken together with the Fannie Mae/Freddie Mac bailouts, new Fed credits in just the last month or so now amount to some $1.6 trillion. Here’s how they did it.