By Pam Martens and Russ Martens: October 27, 2020 ~
Congresswoman Katie Porter has never met an overpaid Wall Street billionaire that she couldn’t reduce to a flummoxed whimperer within a few minutes. (See video clip below of Porter and Jamie Dimon, Chairman and CEO of JPMorgan Chase, during an April 10, 2019 House hearing.)
Porter has had the Chairman of the so-called “independent” Federal Reserve in her radar since he appeared at a House Financial Services Committee hearing on February 11 of this year. At the hearing, Porter held up a photo of Fed Chair Jerome Powell in black tie outside the mansion of billionaire Jeff Bezos, CEO of Amazon. Porter said this:
“Can you imagine how attending a lavish party at Jeff Bezos’ $23 million home, along with Jared and Ivanka and the CEO of JPMorgan Chase, Jamie Dimon, might give off the sense to the public that you are not in fact immune from external pressures.”
Now Porter has taken her criticism of the Fed to a new level, with plenty of ammunition in her arsenal. In a letter to the Fed last Wednesday, Porter wrote that “using billions of taxpayer dollars to play kingmaker on Wall Street—effectively awarding billions of dollars to a handful of corporations—using a decision-making process that you have not made public, appears corrupt.”
Porter was talking about several distinct issues. First, the Fed had stated that its corporate bond buying program would not include the debt of the Wall Street banks. Nonetheless, wrote Porter, the Fed “is using billions of taxpayer dollars to purchase the debt of banks like JPMorgan Chase.” The Fed is making those purchases by buying debt-based Exchange Traded Funds (ETFs).
Porter quotes from a September 21 Yale School of Management study titled “Despite Stated Exclusion, the Fed Is Buying Bank Debt.” The report notes that “a close review of its holdings reveals that by buying exchange traded funds, [the Federal Reserve] has indirectly bought $2 billion of bank bonds—over 15% of its total corporate bond holdings.”
Porter is particularly critical of the fact that the Fed is using money from the pandemic stimulus legislation passed in the spring and known as the CARES Act to facilitate these corporate bond purchases. Porter writes: “Your decision to buy corporate debt with taxpayer dollars directly benefited Wall Street and the world’s richest corporate executives.”
The CARES Act called for the Treasury Department to hand over $454 billion of taxpayers’ money to backstop any losses experienced by the Fed on its myriad lending facilities. The game plan was that the Fed would leverage up the $454 billion to approximately $4.54 trillion and buy up the sludge on Wall Street. For reasons as yet unexplained, the Treasury has not turned over the bulk of those funds to the Fed. Exactly what happened to the rest of the money is unknown. (See $340 Billion of the $454 Billion that Mnuchin Was to Turn Over to the Fed is Unaccounted For.)
According to the H.4.1 data released by the Fed for the week ending Wednesday, October 21, the Fed has received the following amounts from the Treasury: $10 billion for the Commercial Paper Funding Facility; $37.5 billion for the Corporate Credit Facilities; $37.5 billion for the Main Street Lending Facilities; $17.5 billion for the Municipal Liquidity Facility; $10 billion for the Term Asset-Backed Securities Loan Facility; and $1.5 billion for the Money Market Mutual Fund Liquidity Facility – for a total of $114 billion.
The CARES Act was signed into law on March 27 of this year. It’s now exactly seven months later and nobody can explain what’s happened to $340 billion that was allocated by Congress.
Porter’s letter also expresses outrage that the Fed has appointed a Wall Street investment firm that is one of the largest purveyors of ETFs to manage the corporate bond buying programs. Porter writes that the Fed’s decision to “appoint the CEO of BlackRock to administer the largest corporate bailout in history has resulted in windfall profits for a few hand-selected corporations and eroded public faith in an institution that is foundational to our democracy. To begin to remedy these wrongs, I request that you immediately develop and implement stronger safeguards against conflicts of interest. The profits that BlackRock has made off the exchange-traded funds (ETF) market since your March 23 announcement that the Fed would begin to purchase ETFs that invest in bank debt are clear evidence that any current precautions are wholly insufficient.”
The Fed outsourced most of its lending facilities to Wall Street firms during the financial crisis of 2007 to 2010 as well. (See In Last Bailout, the Fed Outsourced Management to the Banks Being Bailed Out – then Paid them Huge Fees for their Work.) Porter tells the Fed it needs to “create and provide a detailed plan to build within the career staff of the Federal Reserve the level of expertise necessary to guide the central bank through the next financial crisis without outsourcing corporate bailouts to Wall Street.”
Read Porter’s full letter to the Fed. The video below is Porter questioning Jamie Dimon at a House hearing on April 10 of last year.