By Pam Martens and Russ Martens: April 2, 2020 ~
At 4:30 p.m. today, the Federal Reserve released the shocking details of what it has been up to in the past week. Its balance sheet has skyrocketed from $5.3 trillion as of March 25 to $5.85 trillion yesterday, a growth of $557 billion in one week’s time.
One of the factors affecting this growth was a $142 billion jump in the amount of its Central Bank Liquidity Swaps, where it provides dollars to foreign central banks in exchange for their local currency. During the last financial crisis, some of these dollar swaps were used to bail out global foreign banks that were in trouble. Given the current condition of numerous European banks, and their ties through derivatives to Wall Street’s mega banks, there is every reason to believe these dollar swaps are another thinly disguised bailout of a Frankenbank-financial system – for the second time in 12 years.
Sopping up all of that surplus debt the U.S. government took on to launch that big corporate tax cut in 2017 was also a factor in the growth of the Fed’s balance sheet – as it will continue to be. The Fed increased its purchases of U.S. Treasuries that are flooding Wall Street by $362 billion in one week’s time, giving it a new total of $3.34 trillion of Treasury securities on its balance sheet. It calls this maneuver Quantitative Easing but it’s actually an unwanted debt mop-up operation.
Then there is the Primary Dealer Credit Facility (PDCF) where the Fed is illegally accepting stocks as collateral for loans to the trading houses on Wall Street – as it also did during the 2008 financial crash. Under any possible interpretation of the Federal Reserve Act under which the Fed operates, it is only allowed to accept “good” collateral for loans. When the stock market is making wild swings and losing as much as 3,000 points in a day, stocks are decidedly not “good” collateral. Loans issued to the trading houses of Wall Street under the PDCF facility grew from $27.7 billion on March 25 to $33 billion on April 1, an increase of 19 percent in one week. During the 2007 to 2010 financial crisis, the Fed made $8.95 trillion in revolving loans from its then newly created PDCF facility. It kept that $8.95 trillion a secret from the public until Congressional legislation forced it out into the sunshine.
Three Wall Street trading houses, and their London trading units, received almost two-thirds of the $8.95 trillion in cumulative loans from the PDCF. Those firms were Citigroup, Morgan Stanley and Merrill Lynch.
Today, the public has no idea who is getting all of this next to free money from the Fed. Once again, the Fed refuses to make this information public. The PDCF is making its loans at ¼ of one percent interest, dramatically below what any of these trading houses could borrow at in the free market.