Can the Fed Engineer a Soft Landing for the Biggest Bubble Since $12,000 Tulip Bulbs?

Can the Fed Engineer a Soft Landing for the Biggest Bubble Since $12,000 Tulip Bulbs?

 

By Pam Martens and Russ Martens: January 21, 2022 ~

In her 2007 book, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, Anne Goldgar writes that a tulip bulb in 1637 sold for the equivalent of $12,000 in 2007 money. Now think about the tens of millions of dollars that were spent last year for one NFT.  It’s pretty clear that Tulipmania has nothing on the Fed-induced Bubblemania that is currently in the early stages of The Great Unwind.

Goldgar points out that as historians have looked back, the tulip mania of the 1630s in Holland has become a “byword for idiocy.”

At least a tulip bulb is a thing of beauty that reblooms year after year. Bitcoin, called “rat poison squared” by Warren Buffett, one of the smartest investors of all time, is not a thing of beauty, has nothing backing it, and is currently in free fall. After trading as high as $69,355 in November on the CME’s futures market, its front month futures contract closed at $36,725 on the CME today, a dive of 47 percent from its previous high.

Bitcoin was supposed to be the digital replacement for gold – a safe haven in a financial selloff. But Bitcoin, which along with other crypto currencies can be leveraged by hedge funds on a 100 times to 1 basis, closed down 13.94 percent on the CME today while the tech and SPAC bubble known as the Nasdaq stock market, closed down 2.72 percent on the day.

In early July 2019, economist Nouriel Roubini effectively summed up Bitcoin as this era’s “byword for idiocy,” stating the following on Bloomberg News:

“Crypto currencies are not even currencies. They’re a joke…The price of Bitcoin has fallen in a week by how much – 30 percent. It goes up 20 percent one day, collapses the next. It is not a means of payment, nobody, not even this blockchain conference, accepts Bitcoin for paying for conference fees cause you can do only five transactions per second with Bitcoin. With the Visa system you can do 25,000 transactions per second…Crypto’s nonsense. It’s a failure. Nobody’s using it for any transactions. It’s trading one sh*tcoin for another sh*tcoin. That’s the entire trading or currency in the space where’s there’s price manipulation, spoofing, wash trading, pump and dumping, frontrunning. It’s just a big criminal scam and nothing else.”

Today’s unwinding bubble has plenty of folks attempting to pump air back into it as it deflates. Consider the crazy headline that ran at 9:49 a.m. this Tuesday at Bloomberg News. It read: “Tech Stocks Unravel While Banks Are Hot in 2022 Rotation.” The first paragraph of the article read: “Technology stocks are out of favor, while previously shunned bank shares are popular again, as a persistent jump in bond yields is turning markets upside down this year.”

We knew that was a crazy theory so we decided to chart it. (See below.) Since November 1, 2021, shares of Goldman Sachs (which became a bank holding company in 2008) have lost 17 percent; JPMorgan Chase, the biggest bank in the U.S., has lost almost 15 percent, while the tech-laden Nasdaq stock market is down 12 percent. Rotating out of Big Tech into Big Banks is like the definition of insanity: doing the same thing over and over again and expecting a different outcome. You don’t trade one bubble for another bubble and find your way out of this corn maze of bubbles.

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Nomura, JPMorgan and Goldman Sachs Received a Cumulative $8 Trillion from the Fed’s Emergency Repo Loans in Fourth Quarter of 2019

 

Nomura, JPMorgan and Goldman Sachs Received a Cumulative $8 Trillion from the Fed’s Emergency Repo Loans in Fourth Quarter of 2019

By Pam Martens and Russ Martens: January 17, 2022 ~

The Dodd-Frank financial reform legislation of 2010 ordered the Government Accountability Office (GAO), an investigative body for Congress, to audit the Fed’s alphabet soup of emergency lending programs conducted during and after the 2008 financial crisis. The GAO found that a cumulative $16.1 trillion had been pumped out to Wall Street firms by the Fed – at super cheap interest rates. The GAO provided data for the peak amounts outstanding and also a cumulative total.

Why is a cumulative total essential and relevant? Because one institution in 2008, Citigroup, was insolvent for much of the time the Fed was flooding it with cheap loans. (Under law, the Fed is not allowed to make loans to an insolvent institution.) And when an insolvent institution is getting loans rolled over and over by the Fed for a span of two and a half years, at interest rates frequently below one percent when the market wouldn’t loan it money at even double-digit interest rates, it’s highly relevant to know the cumulative tally of just how much Citigroup got from the Fed. According to the GAO, that tally came to $2.5 trillion for just some of these Fed loan programs. (See page 131 of the GAO study here.)

The academic scholars that compiled the Fed’s loans during the financial crisis for the Levy Economics Institute also provided cumulative tallies. Their tally, which included additional Fed bailout programs not included by the GAO, came to $29 trillion.

The largest of the Fed’s emergency loan programs to Wall Street trading houses in 2008 was called the Primary Dealer Credit Facility, or in alphabet-soup-speak, PDCF. It made a cumulative tally of $8.9 trillion over a span of more than two years. Just three Wall Street trading firms received 64 percent of that money: Citigroup, a cumulative $2.02 trillion; Morgan Stanley, a cumulative $1.9 trillion; and Merrill Lynch, a cumulative $1.78 trillion.

Back in 2008 there was no law that forced the Fed to ever reveal the names of the banks that borrowed this money from the Fed and the amounts borrowed. The Dodd-Frank legislation made these disclosures by the Fed the law of the land. But Dodd-Frank set up a two-tier level of disclosures. If the emergency lending program was under Section 13(3) of the Federal Reserve Act, as the Primary Dealer Credit Facility was, the Fed would have to reveal the firm names and amounts borrowed one year after the program had been terminated. But emergency operations conducted through the Fed’s so-called “open market” operations would not have to reveal the names of the firms and amounts borrowed until two years after the loans were made.

Thus, it appears that in 2019 the Fed decided to make astronomical sums available to Wall Street’s trading houses not through a Primary Dealer Credit Facility (which it set up again in March 2020) but through its repo loan open market operations.

The repo loan market is an overnight loan market where banks, brokerage firms, mutual funds and others make one-day loans to each other against safe collateral, typically Treasury securities. Repo stands for “repurchase agreement.”

On September 17, 2019 the overnight loan rate spiked from an average of about 2 percent to 10 percent – signaling that one or more firms were in trouble. So the Fed effectively became the repo loan market on September 17, 2019 and exponentially grew the amount of loans it was making over the following months. Its repo loans lasted until July 2, 2020, by which time it had re-established the alphabet soup list of emergency loan programs from 2008.

The Federal Reserve Board of Governors in Washington D.C., an independent federal agency, outsources the vast majority of its emergency lending programs to the New York Fed, one of 12 privately owned regional Fed banks. The largest shareowners of the New York Fed are the following five Wall Street banks: JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon. Those five banks represent two-thirds of the eight Global Systemically Important Banks (G-SIBs) in the United States. The other three G-SIBs are Bank of America, a shareowner in the Richmond Fed; Wells Fargo, a shareowner of the San Francisco Fed; and State Street, a shareowner in the Boston Fed.

We have now crunched the numbers for the New York Fed’s emergency repo loans for the periods in which it has thus far released the names of the borrowers: the last 14 days of September 2019 and the full fourth quarter of 2019. (The New York Fed is releasing the transaction data on a quarterly basis here. You have to delete the Reverse Repo transactions.)

After crunching the numbers, it now appears that the New York Fed may have intentionally thrown in a dizzying array of term loans to this one-day (overnight) repo loan market in order to disguise the fact that the trading units of the largest banks it supervises were the largest borrowers.

For example, the New York Fed offered one-day repo loans every business day but periodically also added 14-day, 28-day, 42-day and other term loans. Let’s say a trading firm took a $10 billion loan for one-day but on the same day took another $10 billion loan for a term of 14 days. The 14-day loan for $10 billion represented the equivalent of 14-days of borrowing $10 billion or a cumulative tally of $140 billion.

If we simply tallied the column the New York Fed provided for “trade amount” per trading firm, it listed only $10 billion for that 14-day term loan and not the $140 billion it actually translated into.

When we tallied the New York Fed’s “trade amount” column for the fourth quarter of 2019, the New York Fed’s repo loans came to $4.5 trillion. But when we set up a new column that adjusted the loans by the number of days in the term, the Fed’s repo loans for the fourth quarter of 2019 came to $19.87 trillion, or 4.4 times the “trade amount” column.

Just six trading houses received 62 percent of the $19.87 trillion, as illustrated in the chart above. The parents of three of those firms, JPMorgan Chase, Citigroup and Goldman Sachs, are shareowners of the New York Fed. The New York Fed is allowed to electronically create the trillions of dollars it loans at the push of a button.

Below is the chart that shows the understated amounts borrowed using just the New York Fed’s “trade amount” column for the fourth quarter of 2019. Below that we’ve also adjusted the Fed’s repo loans to account for the number of days in the term for the period of September 17, 2019 through September 30, 2019. (The Fed released this transaction data separately at the end of September in 2021.) It shows, convincingly, that from the get-go of the financial crisis in 2019, the same three firms were at the center of the borrowing.

The Fed originally tried to pass the problem off to corporations draining liquidity from the financial system by withdrawing their quarterly tax payments in the fall of 2019. But among the largest depository banks in the country where those quarterly tax payments would be held are Wells Fargo Bank and Bank of America, in addition to JPMorgan Chase and Citigroup’s Citibank. But as the chart below shows, neither Wells Fargo nor Bank of America seem to be having any major liquidity issues. In addition, three of the largest borrowers (Nomura, Barclays and Deutsche) are the trading affiliates of foreign banks. Are we really expected to believe that U.S. corporations are holding their quarterly tax payments with the trading units of foreign banks?

The Fed’s audited financial statements show that on its peak day in 2020 the Fed’s repo loan operation had $495.7 billion in loans outstanding. On its peak day in 2019, the Fed’s repo loans outstanding stood at $259.95 billion. It should be noted that there was no COVID-19 pandemic crisis in the U.S. in 2019. The first case of COVID-19 in the U.S. was reported by the CDC on January 20, 2020.

It’s long past the time for the Senate Banking Committee and the House Financial Services Committee to haul the relevant parties to a hearing, put the witnesses under oath, and get to the bottom of this second clandestine Wall Street bailout by the Fed in the span of 11 years.

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Economist Michael Hudson Says the Fed “Broke the Law” with its Repo Loans to Wall Street Trading Houses

 

Economist Michael Hudson Says the Fed “Broke the Law” with its Repo Loans to Wall Street Trading Houses

By Pam Martens and Russ Martens: January 14, 2022 ~

Economist Michael Hudson

Even within economic circles, there is a growing nervousness that the Federal Reserve, the central bank of the United States – with the power to electronically create money out of thin air, bail out insolvent Wall Street megabanks, balloon its balance sheet to $8.8 trillion without one elected person on its Board while the U.S. taxpayer is on the hook for 98 percent of that, and allow its Dallas Fed Bank President to make directional bets on the market by trading in and out of million dollar S&P 500 futures during a declared national emergency – has carved out a no-law zone around itself.

The latest ruckus stems from the Fed’s release on December 30 of the names of the 23 Wall Street trading houses and the billions they borrowed under its cumulative $11.23 trillion emergency repo loan facility that the Fed launched on September 17, 2019 – four months before the first case of COVID-19 was reported in the United States by the CDC on January 20, 2020. (The $11.23 trillion figure represents the cumulative amounts borrowed from September 17, 2019 to the conclusion of the program on July 2, 2020. The Fed has thus far released the names of the banks and amounts borrowed for the last 14 days of September 2019 and the final quarter of 2019.)

On January 3, Wall Street On Parade published an article titled: There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.

The day after the article ran, we got a call from the well-known economist Michael Hudson. We explored the Fed’s actions in some detail with Hudson since he planned to discuss the article in an interview he had scheduled with Ed Norton on the topic of “What Is Causing So Much Inflation.” (You can watch the program and read the transcript here.)

Hudson is the Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and a prolific author. His most recent books include Super-Imperialism: The Economic Strategy of American Empire; ‘and forgive them their debts’; J is for Junk Economics; Killing the Host, which Wall Street On Parade reviewed here, among numerous others.

In the interview with Hudson, Norton reads the following from the January 3 Wall Street On Parade article:

“The Federal Reserve released the names of the banks that had received $4.5 trillion” – that is trillion with a T – “in cumulative loans in the last quarter of 2019 under its emergency repo loan operations for a liquidity crisis that has yet to be credibly explained.”

Norton notes that among the large borrowers under the Fed’s repo loan facility in 2019 were JPMorgan Chase, Goldman Sachs and Citigroup (it was their trading affiliates) and these were “three of the Wall Street banks that were at the center of the subprime and derivatives crisis in 2008 that brought down the U.S. economy.”

Norton then asks Hudson “why was the Fed giving trillions of dollars to these large Wall Street banks. And why was there a liquidity crisis? That’s unexplained. Why did the Fed refuse to release the names of these banks? And was there a financial crisis before COVID that the U.S. government later was able to blame on COVID, but it was actually a financial crisis in the making?”

What Hudson says next will take your breath away, both for its insightfulness and its candor.

Hudson: “There was actually no liquidity crisis whatsoever. And Pam Martens is very clear about that. She points out the reason that the regular newspapers don’t report it is the loans violated every element of the Dodd-Frank laws that were supposed to prevent the Fed from making loans to particular banks that were not part of a liquidity crisis.

“In her article, she makes very clear by pointing out these three banks, Chase Manhattan, Goldman Sachs – which used to be a brokerage firm – and Citibank, that the Federal Reserve laws and the Dodd-Frank Act explicitly prevent the Fed from making loans to particular banks.

“It can only make loans if there’s a general liquidity crisis. And we know that there wasn’t at that time, because she lists the banks that borrowed money, and there were very few of them…”

Let’s pause here for a moment to expand on this. The Fed is perfectly able to make loans to individual depository banks under its Discount Window. That’s been its role since its creation – as a lender of last resort to depository banks. But beginning with the financial crisis of 2008, with no authority from Congress, the Fed just decided willy nilly that it would bail out the trading houses on Wall Street, even going so far as to funnel tens of billions of dollars to their trading units in London, according to the government audit that was released in 2011.

The Federal Reserve Act has long banned the Fed from making loans without good collateral or to insolvent institutions. But in 2008 the Fed secretly made $2.5 trillion in cumulative loans to Citigroup, when it was insolvent for much of that time. Under the Fed’s 2008 Primary Dealer Credit Facility, it was accepting junk bonds and stocks as collateral at a time when both were collapsing in value. That was certainly not “good collateral.”

In addition, according to the government audit, two-thirds of the $8.9 trillion that the Fed pumped out of its Primary Dealer Credit Facility, went to just three Wall Street trading houses: Citigroup, Morgan Stanley and Merrill Lynch.

So when Congress enacted the Dodd-Frank financial reform legislation in 2010, it specifically required that the Fed could not use its emergency lending programs under Section 13(3) of the Federal Reserve Act to bail out a failing financial institution. It could only offer emergency lending programs to a “broad base” to support the entire financial system.

According to the Federal Deposit Insurance Corporation, as of June 30 of last year there were 4,951 commercial banks and savings associations (depository institutions) in the United States which have federal deposit insurance. But the Fed’s repo loan program in the fall of 2019 and first half of 2020 went to just 23 trading houses on Wall Street. To the rational mind, that doesn’t sound “broad based.”

Hudson explains how that was allowed to happen in the continuing interview:

“Well, what happened, apparently, was that while the Dodd-Frank Act was being rewritten by the Congress, Janet Yellen changed the wording around and she said, ‘Well, how do we define a general liquidity crisis?’ Well, it doesn’t mean what you and I mean by a liquidity crisis, meaning the whole economy is illiquid.

“She said, ‘If five banks need to borrow, then it’s a general liquidity crisis.’ Well, the problem, as she [Martens] points out, is it’s the same three big banks, again and again, and again and again.

“And these are not short-term loans. She [Martens] points out that they were 14-day loans; there were longer loans. And they were rolled over, not overnight loans, not day-to-day loans, not even week-to-week loans. But month after month, the Fed was pumping money into JP Morgan and Citibank and Goldman.

“But then she [Martens] points out that, or at least she told me, that these really weren’t Citibank and Morgan and Chase; it was to their trading affiliates. Now this is exactly what Dodd-Frank was supposed to prevent.

“Dodd-Frank was supposed to protect the depository institutions by trying to go a little bit to restore the Glass-Steagall Act that Clinton and the Obama thugs that came in to the Obama administration all got rid of. [Editor’s Note: We suspect, but can’t say for sure, that Hudson might be thinking about Robert Rubin when he says “Obama thugs.”]

“It was supposed to say, ‘OK, we’re not going to let banks have their trading facilities, the gambling facilities, on derivatives and just placing bets on the financial markets – we’re not supposed to help the banks out of these problems at all.’

“So I think the reason that the newspapers are going quiet on this is the Fed broke the law. And it wants to continue breaking the law.

“And that’s why these Wall Street banks fought so hard to get the current head of the Fed reappointed, [Jerome] Powell, because they know that he’s going to do what [Timothy] Geithner did under the Obama administration. He’s loyal to the New York City banks, and he’s willing to sacrifice the economy to help the banks.”

~~~~~

Since September 18, 2019, the day after the Fed first intervened in the repo loan market, Wall Street On Parade has written more than 150 articles on this subject in real time (archived here), sharing with our readers how the Fed was continuously ramping up this program in terms of both amounts loaned and the duration of the loans.

What started out as one-day (overnight) loans, which is the normal repo market, morphed into 14-day loans, then 42-day loans and 28-day loans under the Fed’s program. There is no other way to look at this than that some of these firms couldn’t get their hands on longer-term loans from any place but the Fed. But instead of allowing the free market to respond, the Fed performed another bailout and went completely against the legislative intent of Congress.

The Fed has now decided to give itself, with no vote in Congress, the right to permanently run its own Standing Repo Facility with a daily loan cap of $500 billion – half a trillion dollars – that it can loan out to the trading houses on Wall Street on any weekday — or every weekday. (On Fridays they will be 3-day loans to cover the weekend.)

The Fed has indicated that it plans to broaden the firms that can borrow under this facility beyond its 24 Primary Dealers. Two additional eligible borrowers that it named in late December were Goldman Sachs Bank USA and Citigroup’s Citibank, the federally-insured affiliates of two of its existing Primary Dealers. These two Wall Street institutions would thus be able to gobble up more of the $500 billion daily bucket because they could make twice the amount of daily loan requests.

Why would these two Wall Street firms need a quick feeding tube directly from the New York Fed’s electronically created money machine? According to the latest report from the Office of the Comptroller of the Currency, for the third quarter of 2021, Goldman Sachs Bank USA had $387 billion in assets versus $48 trillion (yes, trillion) in notional (face amount) derivatives. Citibank had $1.7 trillion in assets versus $44 trillion in notional derivatives.

Citibank’s parent, Citigroup, blew itself up in 2008 on subprime debt and derivatives and became a 99-cent stock in the spring of 2009. The Fed secretly resuscitated it despite its insolvency.

The Federal Reserve Board of Governors is an independent federal agency. The U.S. President nominates the Board members and the U.S. Senate Banking Committee confirms them. But the 12 regional Federal Reserve banks are privately owned by the banks in their regions. The Fed Board of Governors outsources the bulk of its functions to the Federal Reserve Bank of New York (New York Fed).

Just as the bulk of the Fed’s emergency lending programs of 2008 were outsourced to the New York Fed, its emergency repo loan facility of 2019-2020 was also carried out by the New York Fed, and the new $500 billion Standing Repo Facility will also be conducted by the New York Fed.

Conveniently, the New York Fed’s largest shareholders are JPMorgan Chase, Citigroup, Morgan Stanley, Goldman Sachs and Bank of New York Mellon. The banks that own the New York Fed elect two-thirds of the Board of Directors of the New York Fed. The New York Fed also supervises the bank examiners that are stationed at these megabanks. (Read what happened to former New York Fed bank examiner Carmen Segarra when she tried to write a negative examination report of Goldman Sachs.)

The New York Fed also sponsors “advisory committees” where the banks criminally-charged with rigging markets get to determine “best practices” for their segment of the markets. If this sounds too Orwellian even for this era of crony-capitalism, read the gory details here.

For just how tone deaf the Fed has become to the sensibilities of the average American, read our article: Despite Its Five Felony Counts, the Federal Reserve Has Entrusted $2 Trillion in Bonds to JPMorgan Chase.

Unfortunately, instead of being the gatekeepers of our democracy, the mainstream media continues its news blackout of this story. It’s a shocking and disturbing and shameful surrender to powerful interests.

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Dallas Fed, Home to the Largest Trading Scandal in Fed History, Quietly Runs a Help-Wanted Ad for a New General Counsel and Ethics Officer

 

Dallas Fed, Home to the Largest Trading Scandal in Fed History, Quietly Runs a Help-Wanted Ad for a New General Counsel and Ethics Officer

By Pam Martens and Russ Martens: December 24, 2021 ~

Robert Kaplan, Former President of the Dallas Fed

The Dallas Fed has not publicly announced the retirement or dismissal of its General Counsel, Sharon Sweeney. And yet, it is currently running a help-wanted ad to replace her. Sweeney is still listed as General Counsel on the Dallas Fed’s website. We placed a call to the bank’s media contact this morning to clarify the details and left a message. We’ll update this article if we receive further information.

Sweeney has been with the Dallas Fed for the past 36 years. She doubles as the Dallas Fed’s Ethics Officer and put her signature to former Dallas Fed President Robert Kaplan’s outrageous financial disclosure forms, year after year. Those forms indicated that Kaplan was trading in and out of S&P 500 futures contracts in “over $1 million” trades – even in 2020 when he sat as a voting member of the Fed’s Open Market Committee and was privy to sensitive, market moving operations of the Fed to deal with plunging markets and business closures as a result of the pandemic. Kaplan also made “over $1 million” trades in numerous individual stocks. (See Kaplan’s financial disclosure forms from 2015 through 2020 here.)

After news of Kaplan’s trading went viral this year, he stepped down on September 27. The same day, the President of the Boston Fed, Eric Rosengren, also stepped down. Rosengren had been trading in and out of real estate investment trusts in 2020.

S&P 500 futures allow an individual to trade almost around the clock from Sunday evening to Friday evening, while stock exchanges in the U.S. are open only on weekdays from 9:30 a.m. to 4:00 p.m. ET. S&P 500 futures gave Kaplan access to making directional bets on where the market would go after the stock market closed, which is typically when the Fed makes market-moving announcements. The most popular and liquid S&P 500 futures contract is the E-mini. A trader can get as much as 95 percent leverage on this contract – far more than the 50 percent leverage that is available for stock trades.

Kaplan is a sophisticated Wall Street veteran who worked at Goldman Sachs for 22 years, rising to the rank of Vice Chairman. As such, he would have certainly understood that the type of trading he was doing could subject him to an investigation for insider trading as well as removal from his job. But instead of avoiding all trading activity, Kaplan jumped in with both feet according to his financial disclosure form for 2020.

The year 2020 presented a prime opportunity for a nimble trader to make huge gains (or losses) in the stock market from short-term trading. As a result of the lockdowns from the pandemic, GDP fell by 31.4 percent in the second quarter of 2020– the largest decline on record. At numerous times during 2020, the Fed was making dramatic market-moving announcements of interest rate cuts and the creation of a multitude of emergency lending facilities and emergency measures. From January 1, 2020 through April 30, 2020, based in no small part on these Fed announcements, the S&P 500 Index gyrated from down 30 percent in late March to up 10 percent by the end of April.

Adding to suspicions surrounding Kaplan, and Sweeney who signed off on his trading disclosures, was the fact that Kaplan failed to follow the specific instructions on his financial disclosure forms and provide the date of each trade. Where the purchase date or sell date should have been indicated, Kaplan simply placed the word “multiple.”

Wall Street On Parade requested the specific dates of Kaplan’s trades from the Dallas Fed. They declined to provide them. We filed a Freedom of Information Act (FOIA) request with the Federal Reserve Board of Governors. After stonewalling us, it eventually said it did not possess the trading information.

The mere hint that a Federal Reserve Bank President was trading in S&P 500 futures contracts should have sent its General Counsel/Ethics Officer racing to its Board of Directors to report this serious matter. And yet, Kaplan’s financial disclosure forms show he was able to get away with this type of trading since joining the Dallas Fed as its President in 2015.

The new help-wanted ad the Dallas Fed posted this week for a new General Counsel indicates these desired character traits:

“Leads with a clear set of values, demonstrates integrity in all situations and is a role model of ethical conduct

“Expertise with current and evolving legal issues and trends in banking, financial regulation, payments, technology and governance and ethics…”

The ad also states this: “OUR BANK has one of the most recognizable brands around the world.” That is true now, thanks to Kaplan and Sweeney, but not in a good way.

To date, there has been no word that the Securities and Exchange Commission or Justice Department is involved in the investigation of Kaplan’s trading. Federal Reserve Chair Jerome Powell has indicated that he referred the Fed’s trading scandal to the Fed’s Inspector General. Unfortunately, the Fed’s Inspector General reports to the Fed’s Board of Governors and he can be terminated by them with a two-thirds vote. That’s not what the American people will accept as an “independent” investigation.

Making this trading scandal all the more urgent for the Justice Department is the fact that there is significant reason to believe that two mega banks on Wall Street, both of which are supervised by the Fed, may have been involved in the trading by Kaplan and former Boston Fed President Rosengren. See our report: New Documents Show the Fed’s Trading Scandal Includes Two of the Wall Street Banks It Supervises: Goldman Sachs and Citigroup.

https://wallstreetonparade.com/2021/12/dallas-fed-home-to-the-largest-trading-scandal-in-fed-history-quietly-runs-a-help-wanted-ad-for-a-new-general-counsel-and-ethics-officer/

A Bloomberg Column Says the Macho Culture and Risk-Taking on Wall Street Is Dead – in the Same Year that It Blew Up Archegos with 85 Percent Margin Loans

 

A Bloomberg Column Says the Macho Culture and Risk-Taking on Wall Street Is Dead – in the Same Year that It Blew Up Archegos with 85 Percent Margin Loans

By Pam Martens: December 22, 2021 ~

Two interesting things happened this week just one day apart. On Monday, the Office of the Comptroller of the Currency, the regulator of national banks, released its quarterly report on “Bank Trading and Derivatives Activities” which documented insane levels of risk at four federally-insured banks, which have merged themselves with Wall Street’s trading casinos to form Frankenbanks. The very next day, an opinion columnist at Bloomberg News, Jared Dillian, wrote a column lamenting the “loss of risk-taking” on Wall Street which he appears to blame on “excessive compliance and regulation.” The column was given the pity-party title: “The Wall Street That I Once Knew No Longer Exists.”

Compare these two very disparate views of the reality on Wall Street today. The OCC’s report shares this:

“The total notional amount of derivative contracts held by banks in the third quarter increased by $978.0 billion (0.5 percent) to $184.5 trillion from the previous quarter…The four banks with the most derivative activity hold 89.3 percent of all bank derivatives….”

So let that sink in for a moment. Four banks, out of the thousands that exist in the U.S., hold 89.3 percent of $184.5 trillion in derivatives – or an unfathomable $164 trillion in the same derivatives that blew up Wall Street in 2008, requiring the largest bailout of Wall Street in U.S. history.

Those four banks are JPMorgan Chase with $52.3 trillion in notional (face amount) derivatives; Goldman Sachs Bank USA with $48.3 trillion in notional derivatives (versus just $387 billion in assets); Citibank with $44.37 trillion in notional derivatives; and Bank of America with $19.6 trillion in notional derivatives.

Citibank’s parent is Citigroup, which blew itself up with derivatives and off-balance-sheet debt in 2008 and became a 99-cent stock in early 2009. It was resuscitated with then secret revolving loans from the Fed totaling a cumulative $2.5 trillion over more than two years according to a subsequent audit conducted by the Government Accountability Office.

The trading house, Goldman Sachs, the parent of Goldman Sachs Bank USA, would have also likely failed in 2008 had its billions of dollars in derivatives with the giant insurer AIG not been bailed out by the U.S. government taking over AIG and paying Goldman Sachs and numerous other banks 100 cents on the dollar for these dubious deals with a counterparty that was not reserving for losses.

JPMorgan Chase is the bank whose Chairman and CEO, Jamie Dimon, was hauled before the U.S. Senate in 2012 to explain how his bank had used depositors’ money from its federally-insured bank to gamble in derivatives in London and lose $6.2 billion in what became infamously known as the London Whale scandal. The U.S. Senate’s Permanent Subcommittee on Investigations released a 300-page report on that insane level of risk-taking at a hearing on March 15, 2013. At that hearing, the late Senator John McCain made the following remarks:

“Traders at JPMorgan’s Chief Investment Office, the CIO, adopted a risky strategy with money they were supposed to use to hedge, or counter, risk. However, even the head of the CIO could only provide a ‘guesstimate’ as to what exactly the portfolio was supposed to hedge. And JPMorgan’s CEO Jamie Dimon admitted that the portfolio had ‘morphed’ into something that created new and potentially larger risks. In the words of JPMorgan’s primary Federal regulator, it would require ‘‘make-believe voodoo magic’ to make the portfolio actually look like a hedge.

“Top officials at JPMorgan allowed these excessive losses to occur by permitting the CIO to continually breach all of the bank’s own risk limits. When the risk limits threatened to impede their risky behavior, they decided to manipulate the models. Disturbingly, the bank’s primary regulator, the OCC, failed to take action even after red flags warned that JPMorgan was breaching its risk limits. These regulators fell asleep at the switch and failed to use the tools at their disposal to effectively curb JPMorgan’s appetite for risk. However, JPMorgan actively impeded the OCC’s oversight. The CIO refused to release key investment data to the OCC and even claimed that the regulator was trying to ‘destroy’ the bank’s business.”

Did JPMorgan Chase rein in its macho/risk-taking culture after the London Whale episode of 2012-2013? Not according to federal prosecutors. JPMorgan Chase admitted to two felony counts brought by the U.S. Department of Justice in 2014 for ignoring serious money laundering warning signs for decades with the Bernie Madoff business account it held that was at the center of his Ponzi scheme. In 2015 the bank admitted to another felony charge for its traders’ role in rigging foreign exchange markets. In September 2020 the bank admitted to two more felony charges as a result of its traders engaging in “tens of thousands of instances of unlawful trading in gold, silver, platinum, and palladium…as well as thousands of instances of unlawful trading in U.S. Treasury futures contracts and in U.S. Treasury notes and bonds…” according to Justice Department prosecutors.

The macho risk-taking was so extreme in the rigging of the precious metals markets that for the first time that veterans on Wall Street can remember, three traders at JPMorgan Chase were charged under the Racketeer Influenced and Corrupt Organizations Act (RICO) statute, which is typically used to charge members of organized crime.

It should also be noted that this week marks the 9-month anniversary of the family office hedge fund, Archegos Capital Management, blowing up as a result of a handful of Wall Street banks providing it with as much as 85 percent margin loans through ginned up derivative contracts that disguised the true owner of heavily concentrated stock positions. That matter remains under investigation by the Securities and Exchange Commission and, potentially, other regulators.

No one with even a remote understanding of the brazen crimes that continue to take place on Wall Street could seriously believe that there is a “loss of risk-taking.” Bloomberg News provides this comment in the bio of the author of this column, Jared Dillian: “He may have a stake in the areas he writes about.”

https://wallstreetonparade.com/2021/12/a-bloomberg-column-says-the-macho-culture-and-risk-taking-on-wall-street-is-dead-in-the-same-year-that-it-blew-up-archegos-with-85-percent-margin-loans/

The Fed Gets Its Ducks in a Row for the Next Wall Street Bailout; Quietly Adds Goldman Sachs Bank, Citibank to Its New $500 Billion Standing Repo Facility

 

The Fed Gets Its Ducks in a Row for the Next Wall Street Bailout; Quietly Adds Goldman Sachs Bank, Citibank to Its New $500 Billion Standing Repo Facility

By Pam Martens and Russ Martens: December 21, 2021 ~

Jerome (Jay) Powell, Chairman of the Federal Reserve Board

Last Friday, with the public’s attention diverted to the surge in Omicron variant cases of COVID in the U.S. and holiday travelers’ attention focused on the safety of air travel and family gatherings, the Federal Reserve Bank of New York quietly announced, in a one sentence statement, that it was adding the following three federally-insured banks to its list of counterparties for its newly-minted $500 billion Standing Repo Facility: Citibank, Goldman Sachs Bank USA, and the New York Branch of Mizuho Bank.

If you’re stunned that Goldman Sachs is allowed to own a federally-insured bank under existing U.S. law, see our previous report: Goldman Sachs’ Rich Man’s Bank Backstopped by You and Me. If you’re stunned that a New York branch of Mizuho Bank, part of the Japanese conglomerate Mizuho Financial Group, is able to have federal deposit insurance backstopped by the U.S. taxpayer, welcome to the world of borderless global banking for the one percent.

These three banks have a number of things in common: (1) each financial institution already has a broker-dealer affiliate that is already one of the Fed’s 24 primary dealers that participates in the Fed’s repo operations; (2) each of the three banks’ primary dealer affiliates took large, secret loans from the Fed’s repo facility when credit collapsed on Wall Street on September 17, 2019; (3) all three institutions have trillions of dollars in exposure to derivatives according to data from the Office of the Comptroller of the Currency (OCC).

If all three banks already have broker-dealer affiliates participating in the Fed’s repo loan facility, why would another affiliate be added? The first thought that comes to mind is the fact that the Fed puts a daily cap on the dollar amount that each counterparty can borrow per day. By having two affiliates as counterparties, the amount that can be borrowed is doubled.

Why would these three banks need to have a sugar daddy at the Fed to loan them money in a financial crisis? Because all three banks have huge exposure to derivatives. According to the latest report from the OCC, as of September 30, 2021, Goldman Sachs Bank USA had $387 billion in assets versus $48 trillion (yes, trillion) in notional (face amount) derivatives. Citibank had $1.7 trillion in assets versus $44 trillion in notional derivatives. Mizuho’s bank holding company had $48.8 billion in assets versus $6 trillion in derivatives.

Until July of this year, only the Fed’s primary dealers were eligible to participate in the Fed’s repo facility. That all changed in July, when the Fed announced it would be adding depository banks as counterparties and making the repo facility a “Standing Repo Facility” with the ability to lend $500 billion per day in overnight loans, which can, of course, be rolled over for long periods of time. See our July report: The Fed Announces Plans to Permanently Backstop Wall Street with a Standing Repo Loan Facility of $500 Billion…Starting Tomorrow.

How did the secret loans from the Fed’s last repo loan bailout to Wall Street that began in the fall of 2019 become public information? On October 13, Wall Street On Parade broke the news that the New York Fed had quietly released the names of Wall Street firms that had grabbed tens of billions of dollars of repo loans under the Fed’s emergency repo loan operations that began on September 17, 2019 – months before there was a COVID-19 case in the United States or anywhere else in the world.

Repos (repurchase agreements) are a short-term form of borrowing where corporations, banks, securities firms and money market mutual funds obtain loans from each other by providing safe forms of collateral such as Treasury securities. The repo market is supposed to function without the assistance of the Federal Reserve. But on September 17, 2019, the oversized demand for the repos and the lack of available funds to meet the demand drove the overnight interest rate on repo loans to an unprecedented 10 percent at one point. Typically, the overnight repo rate trades in line with the Federal Funds rate, which was at that time targeted at 2 to 2.25 percent by the Fed.

On the first day of the emergency repo loan operations on September 17, the New York Fed provided a total of $53.15 billion in one-day repo loans. JPMorgan Securities was the largest borrower at $7.6 billion or 14 percent of the total. At that point in time, JPMorgan Chase held $2.3 trillion in assets and $55 trillion in notional derivatives.

Also on the first day of the repo loans on September 17: BNP Paribas Securities, part of the French investment bank, took $5 billion of the $53.15 billion or 9 percent. Goldman Sachs also took $5 billion or another 9 percent; Citigroup borrowed $3.5 billion; Nomura Securities borrowed $3.5 billion; the New York branch of Societe Generale, a French multinational investment bank, borrowed $3 billion; the New York unit of the Bank of Nova Scotia borrowed $2.5 billion; Barclays Capital, part of the U.K. bank, took $2.4 billion; Mizuho Securities borrowed $1 billion. (There were numerous other borrowers. See the full list here.)

Under the Dodd-Frank financial reform legislation of 2010, the Fed is required to release its repo loan data after two years has elapsed, unless it elects to do so earlier. The Fed is now releasing the data from 2019 quarter by quarter. Thus far, the public has only seen the Wall Street borrowing binge for the period beginning on September 17 through the end of that quarter, ending on September 30, 2019.

https://wallstreetonparade.com/2021/12/the-fed-gets-its-ducks-in-a-row-for-the-next-wall-street-bailout-quietly-adds-goldman-sachs-bank-citibank-to-its-new-500-billion-standing-repo-facility/