By Pam Martens and Russ Martens: June 22, 2015
Jeb Hensarling, Chair of the House Financial Services Committee, has his nose to the ground, hot on the scent of crooks and liars in the finance industry. But are they the important crooks and liars? The ones that crash economies?
Like a dogged blood hound, Hensarling is determined to root out a Fed leak that occurred three years ago. This Thursday, he’s planning to beat up some more on the Consumer Financial Protection Bureau (CFPB), the young, underfunded agency that’s trying its best to protect average Americans against Wall Street’s crime wave.
The concern is that Hensarling, a Republican from Texas who calls himself “a life-long conservative,” has a broken antenna. While Hensarling is hunting down a Fed leak that is already under a Justice Department investigation, here’s what else is going on in the financial world.
The U.S. Treasury’s Office of Financial Research has been reporting that the country’s biggest and riskiest banks are ginning up their capital with dubious capital relief trades while systemic contagion risk grows. Last month, two of the biggest U.S. banks and three foreign global banks operating in the U.S. pleaded guilty to criminal charges of conspiring to rig markets. More criminal investigations of market rigging are underway. Last week, a former UBS trader told a London court that this global bank, operating throughout the United States, had an actual “Manual” on how to rig the Libor interest rate benchmark to help the bank’s positions. He introduced the Manual into evidence. We also learned last month that there’s a prevailing motto in financial services: “If you aint cheating, you aint trying,” a trader’s chat room slogan revealed in the recent foreign exchange felony charges brought by the Justice Department.
The hearings that Hensarling has scheduled this year have a persistent theme: paint bank regulation as stifling economic growth; suggest private enterprise can do everything better than government; invoke “regulatory burden” in as many places as possible; and chase after foreign “terrorists” in financial markets when the real threat is the home-grown culture of America’s biggest banks that crashed the economy in 2008 and remains the biggest, most dangerous threat going forward.
Hensarling is obsessed with one specific Fed leak, where a quite brazen newsletter, published by Medley Global Advisers, audaciously reported what the Fed minutes were going to reveal the following day. One revelation from the newsletter referred to continued large bond purchases by the Fed as follows:
“Tomorrow’s minutes will reference a staff paper that concludes the market has capacity to absorb purchases this large for a period of time.”
When the Fed released its minutes the next day, it included just such a finding.
While this specific leak is serious and certainly worthy of a criminal investigation, the everyday, ongoing coziness that exists between the New York Fed and Wall Street insiders is even more serious and worthy of an intense investigation. As we reported last year, during 2007 and 2008, as Citigroup spun toward insolvency as a result of failed regulation by the New York Fed, Tim Geithner, President of the New York Fed, held 29 breakfasts, lunches, dinners and other meetings with Citigroup executives. As we wrote last year:
“On January 25, 2007, Geithner not only hosted [Sandy] Weill to lunch at the New York Fed, but Geithner brought his teenage daughter to the lunch. Geithner’s appointment calendar shows Elise Geithner, his daughter, sharing his chauffeured car to work with her father and then joining him at lunch with Sandy Weill. In case you’re wondering, Take Your Daughters and Sons to Work Day was April 26 that year, not the day of this luncheon. A few months later, on May 17, 2007, Geithner joined Weill for breakfast at the expensive Four Seasons.”
And then there are those 84 secret meetings held by Bernanke during the crisis. Also, according to Greg Ip, writing in the Wall Street Journal in 2006, the Federal Reserve would not release to him the calendar of former Fed Chairman Alan Greenspan’s last seven months in office on the basis that it wasn’t subject to a Freedom of Information Act request.
Leaks are far more likely to occur in secret meetings. If Congress really wants to get to the bottom of the systemic corruption on Wall Street, it needs to broaden its investigation into these cozy, secret meetings and phone calls that the elites on Wall Street are holding with members of the Federal Reserve system and determine if such a jaded system should remain a key Wall Street regulator. Ideally, Congress will get around to this before the next epic Wall Street collapse.