As Lehman Brothers headed toward bankruptcy in 2008, the New York Federal Reserve Bank, under the direction of now-Treasury Secretary Tim Geithner, reportedly allowed itself to be used as a "warehouse" for Lehman Brothers junk loans.
A report from Anton Valukas, an examiner appointed by the court to investigate how Lehman’s accounting, found clear evidence that the New York Fed knew that Lehman was sending it garbage that it had no intention to market, even though Fed guidelines say it can only accept investment grade bonds.
The move, in fact, created baskets of assets for the specific purpose of selling to the Fed for far more than they were worth, The Huffington Post reports.
Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities, the Post said.
Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.
The revelation provoked immediate comments from Congressman Alan Grayson.
"The Fed legally is forbidden from taking such assets, Grayson said. “There's a legal requirement that the Fed's assets be investment grade."
"The net result of this is we know the Fed knowingly bought assets for more than they were worth — substantially more than they were worth — and actually created a market for garbage that Lehman was more than happy to push on the Fed because they regarded the public as the suckers of last resort," said Grayson.
According to The Wall Street Journal, an appendix to the report says Lehman president Dick Fuld asked GE Chief Executive Jeff Immelt twice in 2008 if the conglomerate would be interested in buying a 20 percent stake in the investment bank.
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