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.

LINK

On March 31, the Fed Has to Name Names under Four of its Emergency Loan Programs to Wall Street. Will the Media Censor that News Also?

 

On March 31, the Fed Has to Name Names under Four of its Emergency Loan Programs to Wall Street. Will the Media Censor that News Also?

By Pam Martens and Russ Martens: January 10, 2022 ~

Fed Chair Jerome Powell Testifying Before Senate Banking Committee, November 30, 2021

The Fed has kept a very tight lid on the names of the banks that received emergency loans from three of its funding facilities that it abruptly launched in mid March 2020. These are not only the most opaque of the Fed’s “official” bailout programs, set up under Section 13(3) of the Federal Reserve Act, but they are also the first three 13(3) emergency lending programs that the Fed launched in 2020. The Primary Dealer Credit Facility (PDCF) and Commercial Paper Funding Facility (CPFF) were both announced by the Fed on March 17, 2020. The Money Market Mutual Fund Liquidity Facility (MMLF) was announced the very next day.

The legal deadline, under the 2010 Dodd-Frank Act, for releasing the names of the Wall Street firms that borrowed from these facilities, and the amounts borrowed, is March 31 of this year. In addition, on March 31, the Fed is also required to release the names of the banks and amounts borrowed under its emergency repo loan operations for the first quarter of 2020. The Fed has already released the repo loan information for the third and fourth quarters of 2019, but every mainstream media outlet invoked a news blackout of that information. That leads us to question if the same censorship of another major news story on the Fed’s bailout of Wall Street will prevail on March 31.

The Fed has released the names of all of its borrowers under its other 13(3) lending facilities that sprang up in 2020, just not these three. On that basis alone, there’s reason to be suspicious of what went on here.

Another key reason to be suspicious of the Primary Dealer Credit Facility is that the Fed launched the identically-named program during the financial crisis in 2008. It took the media more than two years of court battles and a Senator Bernie Sanders’ amendment tucked into the Dodd-Frank legislation to unclench the tight fist of the Fed and have that secret data released.

The Sanders’ amendment ordered the Government Accountability Office (GAO) to audit the Fed’s emergency lending facilities and release the audit to the public no later than one year after the signing of Dodd-Frank. When the audit by the GAO was released on July 21, 2011 (exactly one year after the signing of Dodd-Frank) it showed that the Primary Dealer Credit Facility had sluiced $8.9 trillion in cumulative loans to Wall Street trading houses. Instead of good collateral for the loans, as the Fed is required to do under law, it sometimes accepted stocks and junk bonds as collateral at a time when prices of both were collapsing. In addition, the PDCF loaned 64 percent of the entire $8.9 trillion in cumulative loans to just three Wall Street firms: $2.02 trillion to Citigroup; $1.9 trillion to Morgan Stanley; and $1.775 trillion to Merrill Lynch.

The Fed is not legally allowed to make loans to insolvent institutions, and yet, Citigroup was insolvent during much of this time.

Much smaller sums appear to have been funneled to Wall Street firms under the Primary Dealer Credit Facility in 2020, however, the Fed’s repo loan facility seems to have made up the difference. According to the Fed’s own audited financial statements for 2020 and 2019, on its peak day in 2020 the Fed’s repo loan operation had $495.7 billion in loans outstanding to Wall Street and $259.95 billion on its peak day in 2019. What we also know about the repo facility, based on previous data released by the Fed, is that from September 17, 2019 through the end of the program on July 2, 2020, a cumulative total of $11.23 trillion was funneled to the Wall Street trading houses. That’s 70 percent of the total $16.1 trillion that the GAO audit tallied up as the cumulative total for the Fed’s 13(3) emergency lending programs during and after the financial crisis of 2008. That crisis was the worst since the Great Depression.

Even more troubling, from September 17, 2019 through January 20, 2020, when the very first case of COVID-19 was confirmed in the U.S. by the CDC, the Fed had already shoveled $6.04 trillion in cumulative loans to Wall Street’s trading houses. To this day, the Fed has failed to offer a credible reason for this 2019 financial crisis just as it has failed to offer a credible explanation for why its then sitting President of the Dallas Fed, Robert Kaplan, was allowed to trade like a hedge fund kingpin.

We know from the Fed’s H.4.1 weekly release of the line items on its balance sheet that as of April 8, 2020, just a few weeks after these three programs started, the Primary Dealer Credit Facility had ballooned to $33 billion in loans outstanding while the Money Market Mutual Fund Liquidity Facility had soared to $53 billion.

The Commercial Paper Funding Facility grew far more slowly but gyrated in its early days. According to the Fed’s weekly H.4.1 releases, as of May 20, 2020 the Commercial Paper Funding Facility stood at $4.3 billion. One week later, on May 27, it had almost tripled to $12.8 billion, strongly suggesting that one or more large financial institutions could not roll over their commercial paper because its counterparties were backing away.

The PDCF, CPFF and the MMLF were supposed to cease operations on December 31, 2020 but the Fed extended them through March 31, 2021. That meant that the Fed would not have to release the names of the Wall Street firms and the amounts they had borrowed under the facility until March 31, 2022.

Under Section 1103 of the Dodd-Frank financial reform legislation of 2010, the Fed is required to provide ‘‘(A) the names and identifying details of each borrower, participant, or counterparty in any credit facility or covered transaction; (B) the amount borrowed by or transferred by or to a specific borrower, participant, or counterparty in any credit facility or covered transaction; (C) the interest rate or discount paid by each borrower, participant, or counterparty in any credit facility or covered transaction; and (D) information identifying the types and amounts of collateral pledged or assets transferred in connection with participation in any credit facility or covered transaction.”

In the case of the 13(3) facilities, Dodd-Frank requires that the specific transaction data be provided to the public no later than “on the date that is 1 year after the effective date of the termination by the Board of the authorization of the credit facility.” By extending the expiration of the three facilities from December 31, 2020 to March 31, 2021, the Fed was able to maneuver not releasing the data until sitting Fed Chair Jerome Powell’s reconfirmation hearing had occurred. Powell’s confirmation hearing will be held tomorrow before the Senate Banking Committee.

Conveniently, the Fed’s release of the repo loan transaction data, under Dodd-Frank, did not have to be happen until “the last day of the eighth calendar quarter following the calendar quarter in which the covered transaction was conducted.” That information from the Fed is now coming out in dribs and drabs on a quarterly basis, with the public unable to see the full picture from the chopped-up data releases.

The Fed released the transaction data for its other 13(3) facilities on a much earlier and rolling basis because it said the Treasury had provided taxpayer money under the stimulus bill known as the CARES Act to backstop these programs. But the taxpayer is on the hook for 98 percent of the Fed’s balance sheet under any set of circumstances.

The Dodd-Frank Act indicates that the Chairman of the Fed can release this information at any time if he believes “such disclosure would be in the public interest and would not harm the effectiveness of the relevant credit facility or the purpose or conduct of covered transactions.”

There is an overarching public interest for the Fed to immediately release all of the names of the Wall Street borrowers, the amounts borrowed, and all other required information in a user-friendly format that allows quick tabulations of the total amounts loaned. The public interest will be served by allowing the public to determine for itself if the Fed is once again propping up zombie banks to cover the fact that it failed to adequately supervise them – again, as in the leadup to the 2008 financial collapse on Wall Street.

If the Fed has propped up the same zombie banks for the second time in 11 years, the Fed must be stripped of any and all oversight of Wall Street banks and any and all ability to create electronic money out of thin air to bail them out.

LINK

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/

RSN: FOCUS: David Sirota and Andrew Perez | Joe Manchin: Bailouts for Me, But Not for Thee

 

 

01 October 21

Live on the homepage now!
Reader Supported News

 

FOCUS: David Sirota and Andrew Perez | Joe Manchin: Bailouts for Me, But Not for Thee
David Sirota and Andrew Perez, Jacobin
Excerpt: "Joe Manchin is threatening to kill the reconciliation bill for promoting an 'entitlement mentality,' almost exactly 13 years after he pushed for a Wall Street bailout. It would be nice if bankers ever had to show a little 'personal responsibility.'"

Joe Manchin is threatening to kill the reconciliation bill for promoting an "entitlement mentality," almost exactly 13 years after he pushed for a Wall Street bailout. It would be nice if bankers ever had to show a little "personal responsibility."

On Thursday, coal baron-turned-senator Joe Manchin threatened to kill his party’s climate, health care, and anti-poverty legislation, telling reporters: “I cannot accept our economy, or basically our society, moving towards an entitlement mentality.”

Manchin’s declaration comes almost exactly thirteen years after he played a pivotal role pushing for a massive Wall Street bailout that funneled hundreds of billions of dollars of public money to the banks whose financial crisis destroyed the global economy and ravaged West Virginia with mass foreclosures.

The bailed-out banks quickly paid themselves huge government-subsidized bonuses and later bankrolled Manchin’s political campaigns.

“Congress Needs to Act Now”

On October 1, 2008, Manchin used his position as West Virginia governor to intervene in the contentious debate over the federal government’s response to the financial crisis, coauthoring a letter to senators demanding that Congress immediately hand over the cash to bank executives.

“There is a time for partisanship and there is a time for getting things done,” Manchin and Texas governor Rick Perry wrote at the time. “No one likes the hand they’ve been dealt, and now is not the time to assign blame.”

They continued: “Americans across the country and in every demographic are feeling the pinch. If Congress does not act soon, the situation will grow appreciably worse. It’s time for leadership. Congress needs to act now.”

“Governors, Business Lobbyists Up Pressure for Bailout Bill,” read the headline of the Associated Press story about the letter, which helped create momentum to pass the measure in the Senate that same day.

As the bailout enriched Wall Street executives, the Center for Responsible Lending reported that regulators’ failure to curb abuses in subprime mortgage lending would result in more than fifteen thousand West Virginia foreclosures and nearly $350 million of lost home equity in the state.

A few years after the bailout happened, Manchin’s wife was named to the board of a mortgage bank.

Donors from Goldman Sachs — the bank which received $10 billion from the Manchin-backed bailout — would go on to collectively become one of Manchin’s biggest career campaign donors, according to data compiled by OpenSecrets.

Manchin’s Other Bailouts

Manchin’s inveighing against an “entitlement mentality” also comes as he’s demanded the preservation of special tax subsidies for the fossil fuel industry, which is among the biggest financial contributors to his election bids.

And when he was the governor of West Virginia, the state’s Public Service Commission bailed out the power plant that buys waste coal from Manchin’s family coal brokerage, Enersystems.

Manchin put his Enersystems stake into a blind trust as governor and put the company under the control of his son. On Wednesday, Manchin cited the blind trust arrangement in a testy exchange with Bloomberg News reporter Ari Natter, who asked if Enersystems poses a conflict of interest for him as he’s negotiating Democrats’ economic and climate agenda package.

“I’ve been in a blind trust for 20 years, I have no idea what they’re doing,” Manchin said. When the reporter said Manchin’s still getting “dividends” from the company, he replied: “You got a problem?”

Manchin and his wife each reported having Enersystems holdings worth between $1-5 million last year, generating $1.1 million in combined income, according to their financial disclosure forms.

READ MORE

 

Contribute to RSN

Follow us on facebook and twitter!

Update My Monthly Donation

PO Box 2043 / Citrus Heights, CA 95611