By Pam Martens and Russ Martens: November 23, 2020 ~
Fourteen days before U.S. Treasury Secretary Steve Mnuchin released a letter to Federal Reserve Chair Jerome Powell, demanding the return of taxpayers’ money and the end to specific Fed emergency programs by the end of the year, four Senate Democrats had written to Mnuchin and Powell asking them to extend those very same emergency programs.
The Senate Democrats who authored the letter were Senators Sherrod Brown of Ohio, Elizabeth Warren of Massachusetts, Mark Warner of Virginia and Chuck Schumer of New York. The letter explained that “As of September, 3.8 million workers suffered permanent job losses, with 2.4 million considered long-term unemployed. Moreover, according to an analysis from Moody’s, without more federal support, another 3 million teachers, nurses, emergency responders, firefighters, and others from around the country will lose their jobs in the next two years.”
The Senators outlined sensible plans for both extending and modifying the Fed’s Main Street Lending Program and the Municipal Liquidity Facility. Exactly two weeks later, on November 19, Mnuchin sent his own letter to Powell telling him to kill those exact programs by the end of the year, along with the Corporate Credit Facilities and the Term Asset-Backed Securities Loan Facility (TALF).
See the full text of the letter here.
The four programs directed at helping Wall Street were the only programs that Mnuchin instructed the Fed to keep alive past December 31, 2020. Those programs are the Primary Dealer Credit Facility, which sluiced tens of billions of dollars to the trading houses on Wall Street that are owned by the big Wall Street banks; the Commercial Paper Funding Facility; the Money Market Mutual Fund Liquidity Facility; and the Paycheck Protection Program Liquidity Facility, which reimburses certain banks for loans they had provided under the Small Business Administration’s PPP program. Citigroup, the recipient of the largest bailout in history during the 2007 to 2010 financial crisis, has inexplicably received over $3 billion from that Fed program this year. (See Citigroup Has Made a Sap of the Fed: It’s Borrowing at 0.35 % from the Fed While Charging Struggling Consumers 27.4 % on Credit Cards.)
The Fed has made transaction level data available for all of its lending programs except three of the four that Mnuchin wants to keep alive. The Fed has not made one scintilla of information available about the names of the borrowers or the dollar amount loaned to specific borrowers under the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility.
Keeping the fact that the biggest banks on Wall Street were in a precarious position and needed to be bailed out by the Fed a secret from the American people was the precise position the Fed took in 2008 when it was sued in federal court by the courageous reporter, Mark Pittman of Bloomberg News. Pittman died of a heart attack at age 52 on November 25, 2009. The appellate court decision against the Fed would not come until March 19, 2010, four months after Pittman’s death.
Even after the appellate court had ruled against it, the Fed did not release the data. First it asked for a rehearing by the Second Circuit Court of Appeals. When that was rejected, a Wall Street consortium of banks, that were the recipients of the trillions of dollars in secret loans, appealed the case to the U.S. Supreme Court. That appeal failed and the Fed was forced to release its data in 2011. When all of its bailout programs were tallied up, the tab came to a staggering, cumulative $29 trillion – all transacted without the involvement or awareness of anyone elected to office by the American people. Congress remained in the dark throughout this period as trillions of dollars were sluiced to Wall Street, foreign banks, insolvent banks, even hedge funds that were shorting (betting against) the market.
Section 1103 of the Dodd-Frank financial reform legislation of 2010 requires specific transaction data from the Fed’s 13(3) funding facilities to be publicly released a year after the facility is terminated or two years after lending has ceased, whichever comes first. Mnuchin has asked for these facilities to be kept alive through March 31, 2021. That would keep their details secret until potentially March 31, 2022. But the new Treasury Secretary in the Biden administration could indefinitely keep these programs alive which would also keep their secrets safe for much longer.
One thing seems fairly certain. If Citigroup needed to be reimbursed more than $3 billion from the Fed’s Paycheck Protection Program Liquidity Facility, it is highly likely that it was also borrowing from other Fed programs.
Why would the Fed like to keep that a big secret? For starters, the Fed is a supervisor of Citigroup. If, for the second time in a decade, it turns out that the Fed didn’t do its job in keeping Citigroup, one of the biggest banks in the country, from getting into a liquidity crisis, Congress might strip it of its supervisory role. Secondly, Fed Chairman Powell has repeatedly told the public, including during an unprecedented appearance on the Today show on March 26, that these big banks have been a source of strength. If that turns out to have been a lie, Powell won’t be getting a second term as Fed Chair, unless he can prevent the truth from seeing the light of day. Powell’s four-year term as Chair of the Fed ends in February 2022. Since under Dodd-Frank, the details of these stealth programs don’t have to be reported until a year after they end, the move by Mnuchin just bought Powell the time he needs to get renominated and quickly confirmed by the Senate – should President-elect Biden ill-advisedly decide to do that.
There is also a third reason that the Fed may be attempting to keep the details of these programs secret. Under the Dodd-Frank legislation, the Fed is not allowed to provide outsized support to any individual institution. The lending facilities are required to be broad-based in nature. That didn’t happen during the last financial crisis. The Primary Dealer Credit Facility, that the Fed also created back then, doled out a total of $8.95 trillion in secret, cumulative, below-market rate loans. But instead of being a broad-based program, $2 trillion of that total went to Citigroup; $1.9 trillion went to Morgan Stanley; and $1.775 trillion went to Merrill Lynch. Three Wall Street trading houses received two-thirds of the total money dispersed in that program.
Despite this scandalous history, you will be hard-pressed to find one mainstream media outlet reporting about the Fed’s three secret programs today.
In addition, the Fed sluiced more than $9 trillion cumulatively to the trading houses on Wall Street from September 17 of last year in repo loans. That program began before there were any COVID-19 cases reported anywhere in the world. The public may never get to learn what firms got that money. That’s because the Fed loaned that money through its open market operations, which it has taken the position that it does not have to report details about individual loan recipients to the public.
Let’s hope the Biden administration demands the transparency from the Fed that is commensurate with a genuine democracy.