At the time I remember thinking "Oh look, the Fed has a new lending facility" and moving on to something shiny, not realizing it was a very big deal. As the old-timers used to say: "Pay attention or pay the offer."
From Wall Street on Parade, January 14:
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....
....MUCH MORE
Also at WSOP:
January 19
A Nomura Document May Shed Light on the Repo Blowup and Fed Bailout of the Gang of Six in 2019
Money, Money, Money: "A Self-Fulfilling Prophecy: Systemic Collapse and Pandemic Simulation"
