FED FAILS AS BANK REGULATOR Insuring Risks With Bank Deposits
December 11, 2019
by Wayne Jett, Classical Capital: Since 2010, the biggest banks of Wall Street have accepted business risks totaling hundreds of trillions of dollars under contracts called financial derivatives. Under those contracts, the big banks indemnify other firms against risks of losses, accept payments of “premiums” in exchange for taking the risks, and book the profits, making executives look good and the banks appear profitable. But, if the risked losses ultimately are realized a bank, the accounts of the bank’s ordinary depositors are subject to total loss!
Who on Earth has permitted this potential financial and social atrocity to exist? The answer, thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is the Federal Reserve. Financial Reform By Friends of Wall Street Under Dodd-Frank, the Fed was made regulator of banks in the U. S. The Fed is a private corporation with majority interests owned and controlled by Wall Street’s banks. What could go wrong? During most of the nine years since 2010, the Fed has treated regional and small banks like red-headed step-children. Those banks don’t have the multi-national corporations as depositors or borrowers. Their clientele traditionally are Main Street, industrial and medium-to-small businesses. accounts of the bank’s ordinary depositors are subject to total loss!Once becoming regulator of these banks, the Fed increased their reserve requirements so high that many were driven out of business or nearly so. To disguise the problem, the Fed actually began paying interest on un-invested reserves, so the smaller banks could maintain a degree of profitability. But these banks were weakened and the business community was less well served as consequences of the Fed’s actions. While those smaller borrowers starved for credit, the Fed’s TBTF Wall Street banks and their hedge fund satellites were awash in liquidity for use in investment tactics of every design. Hedge funds, for example, love to find low-margin transactions and then multiply their profits by replicating the same deal with “lots and lots and lots of leverage.” That kind of borrowing blows profits into the financial sector while vacuuming available credit away from productive businesses. Even overnight repurchase credit is consumed almost entirely by the financial sector’s suction, creating risks of a liquidity calamity that can do great damage quickly. This explains partly the Fed’s recent activities greatly increasing lending activities through repurchase agreements. The Existing Crisis In the aftermath of Dodd-Frank (enacted when the House, the Senate and the White House were controlled by the Democrat Party), financial risks taken on by TBTF banks have soared to become the worst nightmares of bank depositors. Failure of only one such bank could wipe out the Federal Deposit Insurance Corporation reserves for all banks without fully covering losses of the single big one. In this context, did the Federal Reserve safeguard the interests of American depositors by requiring banks to segregate and insulate its banking business involving depositors’ funds from the high risk financial derivatives business? No, nothing of that sort. But the Fed actually did create and lend more than $350 billion to a single, badly run European bank – Deutsche Bank of Germany. By the end of 2018, DB had taken on risks totaling $49 trillion under derivatives contracts. At year-end 2018, J. P. Morgan Chase Bank had derivatives risks of $48 trillion, Citigroup had derivatives risks of $47 trillion, and Goldman Sachs had derivatives risks of $42 trillion. The Fed contends that its $350 billion loan to DB reduced the likelihood that DB would default in its financial obligations to Morgan Chase, Citi and GS under their mutual dealings under derivatives contracts. Perhaps good for TBTF banks; not good for Americans, including bank depositors. End The Fed – Regulate Banks Wisely The truly alarming picture of financial instability reflected in these statistics proves to a certainty that the Federal Reserve should not have been appointed as regulator to guide Wall Street banks towards lower risk profiles than those existing during the financial crisis of 2008. Indeed, the results prove that both the House and Senate of 2010, plus the president, were puppets of the Wall Street banks, as is the Federal Reserve. What ought to be done at the earliest date possible is to require by law that bank deposits be classified as first priority financial obligations of every bank doing business in the U. S., whether the bank is chartered as a national bank or a state bank. No bank should be permitted to accept deposits from the public and make those deposits subject to risks taken by the bank in financial derivatives or in any other contractual obligation. Read More @ ClassicalCapital.com
Last edited by spring2 on Wed Dec 11, 2019 11:03 am; edited 2 times in total
Guest Guest
Subject: Congress Held a Hearing on the Fed’s Bailout of the Repo Market: Here’s Why You Haven’t Heard About It Wed Dec 11, 2019 10:40 am
Congress Held a Hearing on the Fed’s Bailout of the Repo Market: Here’s Why You Haven’t Heard About It
December 11, 2019
by Pam Martens and Russ Martens, Wall St On Parade: Last Thursday, U.S. Treasury Secretary Steve Mnuchin was the sole witness called before the House Financial Services Committee to answer questions on the state of financial stability in the U.S. Under the Dodd-Frank financial reform legislation of 2010, the U.S. Treasury Secretary also heads the Financial Stability Oversight Council (F-SOC) which is charged with monitoring any threats to the stability of the U.S. financial system in order to prevent a replay of the epic financial crash of 2008 and attendant devastation to the U.S. economy.
During the hearing, Mnuchin was grilled time and again by numerous Republicans and Democrats on what is necessitating the Federal Reserve Bank of New York (New York Fed) to be pumping out hundreds of billions of dollars per week to Wall Street trading houses via the repurchase agreement (repo loan) market. But instead of reporting on that critical line of questioning and Mnuchin’s lack of meaningful answers, when the New York Times reported on the hearing it focused instead on a tiny aspect of the hearing. Its headline read: “U.S. Objects to World Bank’s Lending Plans for China.” It made no mention at all of the still unexplained but ongoing repo crisis on Wall Street. Since the repo lending crisis started on September 17, when major Wall Street banks simply backed away from overnight lending to some financial institutions, forcing loan rates to spike to 10 percent from approximately 2 percent, the New York Times has written exactly one article on this new financial crisis. Wall Street On Parade has written more than three dozen articles on this critical topic. During last Thursday’s hearing, Mnuchin attempted to pass off the repo loan crisis as a two-day event that occurred on September 16 and 17. The lack of reporting on the matter by the New York Times would tend to support that narrative in the public’s mind. The reality is that the New York Fed has now pumped a cumulative total of more than $4 trillion into this black lending hole on Wall Street and has been making upwards of $100 billion a day in loans to Wall Street trading houses every business day since September 17. During the almost three months that the New York Times has not reported on this flashing red sign of a new crisis on Wall Street, the Federal Reserve has dramatically increased its original level of support to the repo market. It has expanded its overnight loans to include loans of up to 43 days; it has increased the dollar amount of overnight loans to as much as $120 billion available daily; and it has announced that it will be buying $60 billion a month in U.S. Treasury Bills, effectively creating a new round of Quantitative Easing (QE-4) – a tactic it has not used since the financial crisis. Wall Street is New York City’s most profitable hometown industry. Over many decades, the New York Times appears to have developed the mindset that what is good for Wall Street is good for The New York Times. (See The New York Times Has a Fatal Wall Street Bias.) The American people need a free and trustworthy press they can count on to give them an early heads up of a brewing financial problem. Congressman Ed Perlmutter (D-Colorado) had one of the more enlightening exchanges with Mnuchin. Perlmutter asked Mnuchin how Wall Street banks could have had record profits last year and not be able to lend this year. The Q&A went like this: Perlmutter: “My questions are going to go back toward repos and repurchases, because there are some flags here. And, you know, last year banks had the most profits they’ve had in forever. In part because of the big tax cuts and stuff like that. But huge profits, and at the same time, we saw the excess reserves of the banks decline by 3 percent since 2017, and at the same time as the Fed and Treasury were sort of shrinking the balance sheet, all of a sudden over the last few months have expanded again. I don’t understand how those all come together…” Mnuchin: “I’m happy to address it again because it is a very important issue. I don’t want to minimize it. Again, as recently as yesterday at F-SOC, we had a presentation from the Federal Reserve Bank of New York. I think there’s a lot of different issues that came together on those two days that caused the spike. It was not any one single issue but we are studying it carefully to make sure that this doesn’t occur again and to make sure it doesn’t occur on a prolonged basis. The banks are having very good profits mainly because the U.S. economy is performing very well. I don’t think this has to do with an issue of bank profits. This has to do with an issue of bank liquidity. There is plenty of liquidity – enough to go in and take up the repo. But they [the banks] didn’t want to do it. The reason they didn’t want to do it had to do with different regulatory tests that fit together…” Perlmutter: “Those were sort of the things that led up to the recession ten years ago. All of a sudden there was this illiquid setting of our banks. And then everybody started getting nervous and the rate securities went to heck and everything else started closing in. And I guess it just doesn’t add up for me. We’re making money over here but we’re shrinking. But all of a sudden, the reserves are shrinking like crazy…It isn’t just two days, it’s been happening for months.” Congressman French Hill (R-Arkansas) made this statement to Mnuchin: Hill: “I think the concern is that the New York Fed is not supporting the repo market. They are the repo market. I think that’s the challenge. And we don’t see the bank reserves that are more than adequate – billions more than needed, on JPMorgan, for example, $120 billion in daily cash held at the Fed on a $60 billion cash requirement, and yet they’re not entering that repo market.” Congresswoman Katie Porter (D-California) brought up one of the foreign banks that Wall Street banks are heavily leveraged to via derivative trades, which is rumored to be one of the reasons banks are backing away from lending. Porter had this to say: Porter: “In June 2017, Treasury issued a report on banking deregulation. It suggested that if Congress raised the $50 billion threshold above which U.S. banks are subject to stricter oversight, that Congress ought to do the same for foreign mega banks. Earlier this year the Fed followed that Treasury recommendation and massively deregulated foreign mega banks. That was an item on a wish list that you published in 2017. There’s a lot that concerns me about this but the most glaring for me is about Deutsche Bank. I’m sure you’re familiar and the Chairwoman [Maxine Waters] is very familiar with Deutsche Bank – they would now only need to submit their living will once every six years. This is the same Deutsche Bank that within the last six years had a surprise $3 billion quarterly loss. I don’t know how you lose $3 billion and not see that coming; has failed its stress test in three of the last four years; was fined for a mirror trading scandal involving laundering money for Russian oligarchs; admitted to participating in Libor interest rate market-rigging scandals and violated the U.S. sanctions laws against Iran, Libya, Syria and the Sudan. Why are you advocating and why did you advocate to deregulate one of the worst corporate recidivists operating in the U.S. banking system, particularly when it is not even a U.S. bank?” Mnuchin said he shared her concerns about Deutsche Bank but that it would be inappropriate for him from a regulatory standpoint to comment on any specifics. Porter then asked Mnuchin to state how many people work directly for the Financial Stability Oversight Council (F-SOC). Other members of the panel had earlier commented on how the Trump administration has gutted staffing and budgets for F-SOC and the Office of Financial Research. Read More @ WallStOnParade.com
Guest Guest
Subject: Watch Live: Fed Chair Powell Avoid Admitting QE4 Has Begun & Repocalypse Is Imminent Wed Dec 11, 2019 2:41 pm
Watch Live: Fed Chair Powell Avoid Admitting QE4 Has Begun & Repocalypse Is Imminent
[size=10]by Tyler Durden Wed, 12/11/2019 - 14:25
The Fed's balance sheet is expanding at a record rate and 'turn' repo rates are soaring (despite endless daily liquidity provisions); so today's FOMC press conference will be fun to see Powell squirm as he desperately avoids any admission that The Fed is in panic mode - which it is - and will never, ever raise rates ever again (which it won't)... If everything's so awesome in the economy, why is all of the above occurring? Watch Live (due to start at 1430ET): https://youtu.be/HPoT94V5VvA
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Guest Guest
Subject: Re: #2 = FED FAILS AS BANK REGULATOR Insuring Risks With Bank Deposits = ordinary depositors are subject to total loss! Wed Dec 11, 2019 2:44 pm
Subject: #2 = FED FAILS AS BANK REGULATOR Insuring Risks With Bank Deposits = ordinary depositors are subject to total loss! 
Wed Dec 11, 2019 10:37 am
Since 2010, the biggest banks of Wall Street have accepted business risks totaling hundreds of trillions of dollars under contracts called financial derivatives. Under those contracts, the big banks indemnify other firms against risks of losses, accept payments of “premiums” in exchange for taking the risks, and book the profits, making executives look good and the banks appear profitable. But, if the risked losses ultimately are realized a bank, the accounts of the bank’s ordinary depositors are subject to total loss!
Last Thursday, U.S. Treasury Secretary Steve Mnuchin was the sole witness called before the House Financial Services Committee to answer questions on the state of financial stability in the U.S. Under the Dodd-Frank financial reform legislation of 2010, the U.S. Treasury Secretary also heads the Financial Stability Oversight Council (F-SOC) which is charged with monitoring any threats to the stability of the U.S. financial system in order to prevent a replay of the epic financial crash of 2008 and attendant devastation to the U.S. economy.
