The financial landscape is shifting and changing, and the truth is, no one knows where it or the related exchange traded funds (ETFs) are going to wind up when all is said and done.

As efforts to make repairs are ongoing, one can’t help but wonder: where are the trillions of taxpayer dollars used to bailout financial institutions actually going?

As the Federal Reserve relaxed collateral requirements for new lending, it has distributed more than $1.1 trillion to faltering financial institutions and has refused to disclose the details on which institutions took out these loans, except for the $150 billion given to AIG, report Erik Holm and Stephanie Luke for Bloomberg.  Why hide these transactions? The market has already plummeted and some believe that lack of transparency is one reason for this.  After all, it is the taxpayers who are funding the plans to recover the failing economy, shouldn’t they know exactly how much and where every dollar is being allocated?

On one hand, regulators fear that if investors and traders find out which institutions took the loans, a frenzy of short-selling and additional runs on deposits could result, which was seen in the demise of Bear Stearns, Washington Mutual and Lehman Brothers. On the other hand, regulators state that disclosure of the Fed’s pricing methods is necessary to help alleviate the problems of a dangerously illiquid market, states Adrew Jeffrey at Minyanville Publishing & Multimedia, LLC.

No one wants to see the market take another huge hit. But, it would be just as devastating, if not worse, to hide the truth and have it come back to only haunt us.  Only time will tell if the bailout and taxpayer dollars will help these institutions, their stock prices and indexes that track their sector rebound from a catastrophic year. 

Meanwhile, we’re seeing more and more institutions become traditional banks. Next up on the list is credit card giant American Express (AXP), which can now accept deposits and permanently access financing from the Fed, reports Martin Crutsinger for the Associated Press. If more companies start making these moves, perhaps there will be greater restrictions on how this Fed money can be spent.

The money should be used to free up lending, but many of these institutions are using it to pay off debt, pay bonuses and buy other banks. Many hope that President-Elect Barack Obama can come in and fix this mess, but who knows what it’s going to look like two months from now when he finally takes office?

Financial Select Sector SPDR (XLF) is down 51% for the year and iShares S&P Global Financial Index Fund (IXG) is down 50.6% for the year.

Tags: Federal Reserve, Financial, IXG, Obama, Sector ETFs, XLF