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This r/badeconomics post avouches:

[JP Morgan] received more than $390 billion in financial assistance from the Fed.

Sanders has repeated this lie for several years. He gets the \$390bn number from Table 8 of this report [p. 131 on the printed page, or 144/266 of the PDF] but forgets to adjust for the length of the loans. Table 9 [p. 132 on the printed page, or 145/266 of the PDF] adjusts for the term of the loan and finds that JP Morgan received about $31 billion in assistance, one-tenth of Sanders' amount. So he's established that he can't read a GAO report.

Why ought Sanders use the term-adjusted borrowing? What's wrong with using the not term-adjusted total transaction amount?

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Example 1. If I repeatedly make 365 one-day \$1 loans to you over the course of 365 days, then the unadjusted loans (or "financial assistance") I make to you are \$365.

However, in effect I've simply lent you \$1 for one year. So, the term-adjusted (or we could say year-adjusted) loans I've made to you are only \$1.

Example 2. Loan A: I make you a one-day \$365 loan.

Loan B: I make you a one-year \$1 loan.

Both Loans A and B are \$1 term-adjusted loans.

But note that they are not obviously exactly equivalent. Most would consider Loan A a bigger favor than Loan B. This though is debatable. But in any case, the point here is that nobody would consider these two Loans to be exactly equivalent.


This is explained in the cited document, paragraph above Table 9 and again in the Note to Table 9. An example is also given on pp. 130–1:

Table 8 aggregates total dollar transaction amounts by adding the total dollar amount of all loans but does not adjust these amounts to reflect differences across programs in the term over which loans were outstanding. For example, an overnight PDCF loan of \$10 billion that was renewed daily at the same level for 30 business days would result in an aggregate amount borrowed of \$300 billion although the institution, in effect, borrowed only \$10 billion over 30 days. In contrast, a TAF loan of \$10 billion extended over a 1-month period would appear as \$10 billion. As a result, the total transaction amounts shown in table 8 for PDCF are not directly comparable to the total transaction amounts shown for TAF and other programs that made loans for periods longer than overnight.


The cited Sanders quote is not obviously "stupid" though, as the Reddit commenter suggests. Example:

Say in an emergency, the Fed has to lend \$10T to Bank A for just one day. By the above procedure, we'd translate into to a term- or year-adjusted loan of \$10T ÷ 365 ≈ \$27.4B.

Say the Fed also lends \$27.4B to Bank B for one year.

It's not clear that the degree of assistance the Fed provided to both banks is equivalent. Most would say that the Fed did Bank A a bigger favor.

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  • $\begingroup$ Sorry - I don't understand your last para. Aren't the loans in your second- and third-last paragraphs the same, as you explained in your first two paragraphs? $\endgroup$ – Ghreu Mar 28 '19 at 2:33
  • $\begingroup$ @Antinatalist: I've added another example and also tried to clarify the last few paragraphs. Please let me know if it is still not clear. $\endgroup$ – Kenny LJ Mar 28 '19 at 2:39
  • $\begingroup$ Thanks again. Can you enlarge on why "Most would say that the Fed did Bank A a bigger favor"? To play devil's advocate, can't I argue that bank B is better off? They have one year to pay off the loan! $\endgroup$ – Ghreu Mar 28 '19 at 2:49
  • $\begingroup$ Mind responding in (by editing) your prior comment pls? Comment chains are more grueling to read. $\endgroup$ – Ghreu Mar 28 '19 at 2:49
  • $\begingroup$ Consider this -- which would be a bigger favor: Lending a friend \$1 for a year or \$365 for a day? This is a bit debatable, but most would say the latter. But even if you disagree with this judgment, everyone would agree that these two loans are not exactly equivalent -- and that is the main point here. $\endgroup$ – Kenny LJ Mar 28 '19 at 3:05

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