What follows here is an abridgement, interpretation, and simplification of a RollingStone article by Matt Taibbi.
America has two national budgets, one official, one unofficial.
The official budget is on the public record, and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies, and Medicare, plus pensions and bennies for that great untamed "socialist' menace called a unionized public-sector workforce that Republicans are always complaining about. On top of that, at least according to popular legend, we're broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year's retirees from the IRS, the SEC and the Department of Energy.
Most Americans know about this official budget. What they don't know is that there is another budget of roughly equal heft, that is maintained in complete secrecy -- or at least it was until just recently. After the financial crash of 2008, this once-secret budget grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions of dollars to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, this largely secret giveaway eventually rivaled the "official" budget in size -- it became a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat, apparently on the whim of unelected Fed officials, using a seemingly nonsensical and apparently unknowable methodology.
And now, following an act of Congress that has forced the Fed to open its books from the bailout era, this previously secret budget is for the first time becoming (at least partially) a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and are discovering a host of outrages and lunacies in this "other" budget. It is as though someone sat down and made a list of every individual on earth who actually did not need "emergency financial assistance" from the United States government, and then handed each of them a special pass and a key to the back door of the US treasury. Inexplicably, the US Federal Reserve gave billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans, each, to Citigroup and Morgan Stanley, and billions more to a string of individual millionaires and billionaires with Cayman Islands addresses. But what kind of favors were granted in return, and to exactly whom, and how could this not have been some kind of arrangement that broke laws?
If you want to get a true sense of what this "shadow budget" was/is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. Waterfall's haul doesn't seem all that huge -- just nine loans totaling some $220 million, made through a Fed bailout program. That doesn't seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. Through the Waterfall TALF Opportunity, the Federal Reserve handed just two bankster-related individuals low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.
The full name of the program that these privileged individuals took advantage of, TALF, is Term Asset-Backed Securities Loan Facility. But the federal aid they received actually falls under a broader category of bailout initiatives, designed and perfected by Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner, and should be called "giving already stinking rich people gobs of money for no f*cking reason at all." So, if you want to learn how the shadow budget works, and how welfare for the rich works, follow along.
It started out small, with the government throwing a few hundred billion in public money to prop up genuinely insolvent firms like Bear Stearns and AIG. Then came TARP and a few other programs that were designed to stave off bank failures and dispose of the toxic mortgage-backed securities that were a root cause of the financial crisis. But before long, the Fed began buying up every distressed investment on Wall Street, even those that were in no danger of widespread defaults: commercial real estate loans, credit- card loans, auto loans, student loans, even loans backed by the Small Business Administration. In other words, what started off as a targeted effort to stop the bleeding in a few specific trouble spots became a gigantic feeding frenzy. It was "free money for sh*t," says Barry Ritholtz, author of Bailout Nation. "It turned into 'Give us your crap that you can't get rid of otherwise.' "