“This begs the question: did the U.S. have a Wall Street banking crisis similar to 2008 long before there was a pandemic crisis?”
By Pam Martens and Russ Martens: April 15, 2020 ~
From 3 to 4 p.m. on Wednesday, February 19 of this year, Federal Reserve Chairman Jerome (Jay) Powell met in the anteroom to his office in Washington, D.C. with Jamie Dimon, Chairman and CEO of JPMorgan Chase. Adding to the unusual nature of this meeting, the Chief Financial Officer of JPMorgan Chase, Jennifer Piepszak, had traveled with Dimon from New York to Washington, D.C. to attend this meeting. During the entire month of February, Powell met with no other CEO or CFO of any other Wall Street mega bank. We obtained this information from a review of the Fed Chairman’s daily calendar.
The meeting came one day after Reuters reported a “sweeping reshuffle” at JPMorgan’s investment bank and two weeks after Bloomberg News reported that the bank was, once again, under a criminal probe by the U.S. Department of Justice. This would be the fourth, publicly known, criminal probe at JPMorgan Chase during Dimon’s tenure as Chairman and CEO. A prior investigation into how JPMorgan Chase had handled the business bank account for Ponzi schemer Bernie Madoff ended in two criminal felony counts against the bank in 2014, to which the bank pleaded guilty. Another investigation into the bank’s role in rigging foreign exchange trading ended in one criminal felony count in 2015, to which the bank also pleaded guilty.
A fourth criminal probe into how the federally-insured bank that is part of JPMorgan Chase had used depositors’ money to gamble in derivatives in London in 2012 and lose $6.2 billion, did not end in criminal charges. It did, however, result in a scathing 300-page report by the U.S. Senate’s Permanent Subcommittee on Investigations into how the bank “piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.” Dimon had initially called the matter “a tempest in a teapot.”
A peculiar timeline has emerged at JPMorgan Chase that includes the February 19, 2020 meeting with the Fed Chair but actually began in the first half of last year, long before there was any coronavirus COVID-19 crisis anywhere in the world.
This begs the question: did the U.S. have a Wall Street banking crisis similar to 2008 long before there was a pandemic crisis?
Here’s the timeline. Note carefully that the first coronavirus COVID-19 case in the United States was not found until January 20, 2020, according to the New England Journal of Medicine and reported by CNN on January 22, 2020.
January 1 to June 30, 2019: During the first six months of 2019, JPMorgan Chase “reduced the cash it has on deposit at the Federal Reserve, from which it might have lent [in the repo loan market], by $158 billion in the year through June, a 57% decline,” according to a report by David Henry at Reuters.
September 17, 2019: Liquidity in the overnight lending market known as the repo market dries up, pushing the overnight loan rate from approximately 2 percent to 10 percent. Fingers point to JPMorgan’s backing away from making overnight loans. The Federal Reserve is forced to step in, for the first time since the 2008 financial crisis, and become the lender of last resort in the repo loan market.
October 23, 2019: The Fed announces it will increase its loans to as much as $120 billion per day.
November 13, 2019: Wall Street On Parade reports the following:
“According to the most recent 10-Q that JPMorgan Chase filed with the Securities and Exchange Commission, from September 30 of last year to September 30 of this year, the bank reduced its cash position that was predominantly held at Federal Reserve banks by $145 billion from $344.66 billion to $199.8 billion. During the same period, to meet its required level of High-Quality Liquid Assets (HQLA), it increased its securities holdings by $147 billion.
“According to a note in the SEC filing, the securities that have replaced the liquid cash include ‘Predominantly U.S. Treasuries, U.S. GSE [government-sponsored enterprises] and U.S. government agency MBS [mortgage-backed securities], and sovereign bonds net of applicable haircuts under the LCR [Liquidity Coverage Ratio] rules.’
“None of these securities are as liquid as cash and without knowing the foreign countries associated with these ‘sovereign bonds’ it is impossible to say just how liquid they are.”
November 14, 2019: The Fed announces it is adding longer-term loans to its overnight repo operations that will extend from 2019 into 2020.
January 3, 2020: The Fed releases its minutes for its December 10-11 FOMC meeting and indicates that its emergency repo loans may need to be extended through April. The minutes also indicate that the Fed has pumped “roughly $215 billion per day” to Wall Street, or approximately $6.23 trillion in cumulative emergency loans.
January 20, 2020: The first confirmed case of coronavirus COVID-19 is found in the United States according to the New England Journal of Medicine. It is reported by CNN on January 22.
February 19, 2020: According to Fed Chairman Jerome Powell’s daily calendar, he held a meeting with the Chairman and CEO as well as the CFO of JPMorgan Chase in Washington, D.C. He met with no other Wall Street mega bank CEOs that month or in the prior December and January.
February 25, 2020: Reuters reports that JPMorgan Chase will begin borrowing from the Fed’s discount window, a stunning development for a bank that has perpetually bragged about its “fortress balance sheet.”
March 11, 2020: In violation of the Freedom of Information Act, the Federal Reserve finally answers the FOIA request filed by Wall Street On Parade (which under the law should have taken 20 business days but instead took 4 months). It acknowledges that it has 233 documents that might shed light on why JPMorgan Chase was allowed to dramatically draw down its cash reserves at the Fed, but says it will not provide them to Wall Street On Parade.
April 8, 2020: JPMorgan Chase files two mixed shelf offerings with the Securities and Exchange Commission, totaling a maximum of $210 billion.