By Pam Martens and Russ Martens: June 29, 2020 ~
Tomorrow, June 30, the House Financial Services Committee will hold a hearing beginning at 12:30 p.m. titled “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response.” Fed Chair Jerome Powell and Treasury Secretary Steve Mnuchin are scheduled as witnesses.
A good number of Democrats on this Committee – such as Maxine Waters (the Chair), Katie Porter, Bill Foster, Brad Sherman, Carolyn Maloney, Madeleine Dean, Sylvia Garcia, and Ayanna Pressley – have no problem fashioning probing questions that benefit the American people’s right to know if government is showing proper stewardship of the people’s money. But Republicans can’t seem to craft a meaningful question, opting instead to simply heap praise on Powell and Mnuchin for the bailout and simultaneous deregulation of Wall Street.
Wall Street On Parade is nothing if not charitable. We want to help out the Republicans on this Committee who are so desperately struggling to hone a question that has any meat to it. We offer the following 10 questions for tomorrow’s hearing:
- Since September 17, 2019, the Fed has made more than $9 trillion cumulatively in revolving repo loans to the trading houses on Wall Street at interest rates far below what the market would charge. Since mid-March, the Fed has made hundreds of billions of dollars of these loans at almost zero interest to Wall Street, that is, at 1/10th of one percent interest. Why, then, is the Fed charging the State of Illinois 3.82 percent interest on its loan under the Municipal Liquidity Facility? The states of our nation build our roads and bridges and educate our children, along with funding many other essential services. Why should a state have to borrow from the Fed at 38 times the rate of a Wall Street trading house?
- Mr. Powell, both you and your Vice Chairman for Supervision, Randal Quarles, have stated that you intend to provide full transparency to the American people as to whom the money from your emergency facilities is flowing. But thus far, you have provided transaction details on just 3 out of 11 emergency programs. The oldest of these programs is the Primary Dealer Credit Facility. At its peak in April, the facility had made loans of more than $31 billion to trading houses on Wall Street. It’s been over three months that this facility has been operating but the American people have yet to learn to whom, specifically, this money went. When do you plan to release transaction data for this facility and the other facilities that you have yet to report on?
- Mr. Mnuchin, the CARES Act earmarked $454 billion for you to hand over to the Federal Reserve so that it could leverage that into approximately $4.54 trillion in emergency lending to businesses, states and local governments, and nonprofits in order to deal with the financial crisis created by the COVID-19 pandemic. According to the Fed’s H.4.1 release, as of June 24 it has received only $114 billion of that money, leaving $340 billion unaccounted for. Mr. Mnuchin, the United States is in the worst financial contraction since the Great Depression. Why hasn’t that money gone to where Congress instructed you to deploy it?
- Mr. Powell, you and your Vice Chairman for Supervision, Randal Quarles, have repeatedly stated to Congress and in media interviews that the biggest Wall Street banks are “well capitalized.” But on June 24, Bloomberg News reported that from the start of 2017 through March of this year, “Citigroup returned almost twice as much money to its stockholders as it earned.” Those payouts to stockholders included share buybacks and dividend payments on common and preferred stock. The same article also noted that three other Wall Street banks, JPMorgan Chase, Bank of America and Wells Fargo, over the same period had paid out $1.26 for every $1 they reported as net income. Can you explain to us how these banks can be “well capitalized” when they have been paying out more than they have been earning for more than three years?
- Mr. Powell, back on September 17 of last year, months before the coronavirus emerged, overnight lending rates on Wall Street abruptly skyrocketed from 2 percent to 10 percent, raising alarm bells that one or more financial institutions were in trouble and nobody wanted to lend to them at less than 10 percent interest. You promised Congress back then that the Fed was researching the problem and would provide Congress with a copy of that report. The Fed jumped in to make those loans in its lender-of-last resort capacity – which is supposed to be a short-term emergency posture. But the Fed has been making those repo loans ever since, to the tune of more than $9 trillion cumulatively. As recently as the first week of June, the Fed had to make $304.20 billion in repo loans. These loans are not going to banks, which could offer that money to consumers and businesses, but to the Wall Street trading houses owned by these banks. Can you now explain to us the nature of the problem that has forced the Fed to continue to make these repo loans to trading houses?
- Mr. Powell and Mr. Mnuchin, I’d like each of you to answer this question. After the last financial crisis, the Government Accountability Office published the results of its audit of the Fed’s emergency lending programs. The public learned for the first time that the Fed had made over $2.5 trillion cumulatively in emergency loans to Citigroup over a period that stretched from December 2007 to at least July 21, 2010. For much of that time those loans were illegal because Citigroup was insolvent. The Chair of the FDIC during that crisis was Sheila Bair. She later wrote a book that said this: “virtually no meaningful supervisory measures had been taken against the bank by either the OCC or the NY Fed…Instead, the OCC and the NY Fed stood by as that sick bank continued to pay major dividends and pretended that it was healthy.” Are either of you aware today of any large bank that is under the supervision of the Fed that is being propped up by Fed loans and could not otherwise function?
- Mr. Powell, Reuters reported on October 1 of last year that JPMorgan reduced the cash it has on deposit at the Federal Reserve, from which it might have lent to consumers and businesses, by $158 billion in the year through June, a 57% decline. Can you explain to us why the Fed allowed JPMorgan to reduce its reserves with the Fed by 57 percent and what the bank explained to you was the reason for that dramatic drawdown?
- Mr. Powell, the European Central Bank in March called upon the banks in the euro zone to refrain from engaging in share buybacks and paying dividends. Large U.S. banks, on their own, announced the discontinuation of buybacks in March but have continued to pay dividends. Why hasn’t the Fed asked the banks to conserve their money available for loans to businesses and consumers during this crisis by suspending dividend payments? And part 2 of that question, has the Fed made repo loans to units of these banks that continued to pay out dividends to shareholders?
- Mr. Mnuchin and Mr. Powell, are either of you aware of any Trump business or any member of the Trump family that has benefited from any of the Paycheck Protection Program loans or loans from the Fed’s lending facilities?
- Mr. Powell, on May 13 the Fed’s Vice Chairman for Supervision, Randal Quarles, testified before a House hearing. He was asked about the Fed’s corporate bond buying program regarding whether the Fed would hold the bonds to maturity or sell them before maturity in the open market. Mr. Quarles stated: “Our intention is to buy and hold.” Since the Fed is planning to buy bonds with maturities up to five years, are the American people to understand that the Fed envisions being involved in propping up the corporate bond market in the U.S. for half a decade?