Yesterday’s Market Plunge Shines Harsh Light on Big Banks and their Derivative Counterparties

Citigroup Stock Chart, August 14, 2019

Citigroup Stock Chart, August 14, 2019

By Pam Martens and Russ Martens: August 15, 2019 ~

As we’ve previously reported, five mega banks on Wall Street hold the fate of the entire financial system of the United States in their crony, frequently soiled hands. Yesterday’s trading action clearly showed the ugly warts between those banks and their derivative counterparties in the insurance industry. And even though their crony regulator, the Securities and Exchange Commission, allows the banks to trade their own stocks in darkness in their own internal Dark Pools, someone else clearly got the upper hand yesterday.

The Dow Jones Industrial Average lost a whopping 800 points or 3.05 percent but each of the five mega banks outpaced the Dow’s losses on a percentage basis. That’s not a good thing when Congress has left the fate of a nation in such perilous hands – especially when those very same banks caused the greatest financial crash in 2008 since the Great Depression.

Citigroup, the bank that received the largest government bailout in U.S. history in 2008, including a secret $2.5 trillion in almost zero rate loans from the Federal Reserve, led the losses among the Wall Street mega banks yesterday with a decline of 5.28 percent. Bank of America was next with a loss of 4.69 percent. Goldman Sachs lost 4.19 percent with JPMorgan Chase following on its heels with a decline of 4.15 percent.

Unlike the Dow and its four banking peers which continued their losses into the final hour of trading, Morgan Stanley’s stock mysteriously rallied beginning at 2:42 p.m. In a very non-typical fashion, Morgan Stanley had the best showing among the Big Five Wall Street banks, with a loss of 3.34 percent.

Morgan Stanley, it should be noted, owns three separate Dark Pools. A bank holding company, such as Morgan Stanley and the other four banks, which is allowed to own a Federally-insured, deposit tanking bank, tens of trillions of dollars in non-transparent derivatives, and also trade it and its peer banks’ stocks in a Dark Pool is an outrage to U.S. taxpayers who had a gun put to their heads to bail out these same banks in 2008. But being allowed to own three Dark Pools simultaneously shows just how unmoored from an honest financial system the U.S. has become.

Citigroup’s stock chart shows why the banks weren’t able to save themselves yesterday. Looking at the volume on Citigroup’s chart above shows that hedge funds or other big money players were very active in the first half hour of trading, from 9:30 a.m. to 10:00 a.m., then held their big ammunition until the last half hour of trading, from 3:30 p.m. to 4:00 p.m.

According to Bloomberg data, Citigroup’s average daily trading volume over the past 30 days of 13,973,364 more than doubled yesterday to 29,370,676.

Two other stocks now trade pretty much in tandem with the Wall Street mega banks on big down-draft days. Those companies are Prudential Financial and Lincoln National – both are insurance companies with significant counterparty exposure to Wall Street banks’ high-risk derivatives. Prudential Financial lost 3.80 percent while Lincoln National was down an outsized 4.74 percent yesterday.

But the really eyebrow-raising selloff occurred yesterday in the shares of the giant insurer, AIG. That’s the same AIG that had to be taken over by the Federal government in 2008, with a bailout that eventually topped out at $185 billion. At least half of that money was funneled out the back door of AIG to the Wall Street banks and their global counterparts who had derivative deals and security lending arrangements that were never properly collateralized by AIG. AIG’s shares shed 4.86 percent yesterday. (See Wall Street Has Placed a Derivatives Noose Around the U.S. Insurance Industry.)

Also coming as unwelcome news to rising questions about market integrity, is a report out this morning from Harry Markopolos, the forensic financial expert who pounded on the SEC’s door for years telling them that Bernie Madoff was likely running a Ponzi scheme. The SEC ignored his warnings. Today’s report from Markopolos calls the iconic General Electric company, a “bigger fraud than Enron.”

General Electric had been a component of the equally iconic Dow Jones Industrial Average for 111 years on a continuous basis until it was unceremoniously booted from the index in June of last year. (The decidedly non-industrial company, Walgreens, replaced GE.)

The report from Markopolos will also raise questions about the failure of the SEC to force companies to rotate their auditors and about the other companies being audited by KPMG. The accounting firm has been GE’s auditor for 109 years.

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