October 28 2008 (LPAC)--A report has come out from the Minneapolis Federal Reserve research section which provides strong ammunition to Congressmen and community bankers who are now angrily accusing Hank Paulson of using the $700 billion bailout to feed small, sound banks to big, unsound ones, and lying to do it. Paulson's continuous "WMD"-like refrain has been that All bank lending has broken down since September, and that only massive Treasury and Fed bailouts could cause banks to resume lending into the economy. The Minneapolis Fed report appears to prove in black and white, in 12 pages of charts, that Paulson lied, to stampede Congress into passing the hated "TARP" bailout.

EIR News Service is still investigating, but the Minneapolis report's conclusions--based on data as recent as Oct. 10--were confirmed in several interviews today with bankers and economists. "It's about time somebody said this," said one university professor of finance. A regional banker said, "This is definitely all about restructuring the banking system, and handing over banks to Paulson's banking allies. Commercial banks are having problems; some are reporting quarterly losses or much less profit; but they are not capital-short, and they are not stopping lending. They are able to raise capital; and they are lowering their asset base" by selling off securities and concentrating in loans. He had talked very recently to a large regional bank, a $12 billion community bank, and a relatively new, $3 billion community bank; this was true of all of them.

One of the report's authors told EIR that "They [Bernanke, the Fed Board] are not relying on their own data at all. The tables on the Fed's own website do not at all show what they are saying. And they say that they don't trust the Fed's own quantitative data [i.e., what the Minnesota Fed researchers put out] because something else is going on. But they have no data showing what they say is going on, and they don't point to any." He said that nonetheless Paulson has been saying publicly, categorically, that bank lending is coming to a stop; and what he's said privately to Congressmen has terrified them. Presented with the proposal that Paulson is telling a "WMD" fable in order to restructure the banking system and try a lunatic bailout of derivatives markets, one of the authors responded: "That is very hard to dispute, as you just said it."

Two of the Fed authors opposed the TARP bailout: "There should be more of a spirit of caution and a need for better data analysis before we spend nearly a trillion dollars."