As it turns out, the $700 billion TARP bailout in late 2008 was just an appetizer for Wall Street.  Behind the scenes, the Federal Reserve gave out $1.2 trillion in loans to banks around the world, desperately attempting to maintain liquidity in a system that looked headed for collapse, according to Bloomberg News:

Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress. …

It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.

Bloomberg puts these numbers in perspective by pointing out that the federal deficit for FY2008 was one-third the amount loaned by the Fed.  Here’s another comparison: the amount loaned by the Fed in this program would have ranked it fifteenth in the world for GDP in 2010.  Canada, at 14th with a national GDP of $1.335 trillion, would have only barely outpaced it.

So far, the loans have been good investments.  The Fed has had no defaults, according to Bloomberg, and has retrieved $13 billion in interest payments, making it reasonably profitable.  However, the staggering amount of liquidity generated and the selection of its recipients will further stoke calls for more transparency at the Federal Reserve, and greater control over monetary policy by Congress and the White House.