By Pam Martens and Russ Martens: June 7, 2021 ~
Janet Yellen, the current U.S. Treasury Secretary, is also the Chair of the Financial Stability Oversight Council, which includes every Wall Street regulator. Before coming to the Treasury Department, Yellen was the Chair of the Federal Reserve and had spent the bulk of her working career at the Fed or the San Francisco Fed.
When Yellen was not reappointed as Fed Chair by Donald Trump when her Chairmanship term expired in 2018, she immediately cashed in her chips on Wall Street, collecting millions of dollars in speaking fees in 2019, and undisclosed millions more in 2018. (See Janet Yellen’s Cash Haul of $7 Million Is Just the Tip of the Iceberg; She Failed to Report Her Wall Street Speaking Fees from JPMorgan and Others in 2018.)
Yellen was a Federal Reserve Board Governor when she was appointed Fed Chair. Her term as a Governor didn’t expire until 2024. Yellen could have remained in that position. Instead, she opted for millions of dollars in quick cash from the very same mega banks that the Fed had been regulating during her tenure there. These were also the same banks that had blown up the U.S. financial system in 2008 and received a super-secret $29 trillion bailout from the Fed. The details of the Fed’s astronomical bailouts to the Wall Street mega banks were only made public after the Fed waged and lost a multi-year court battle to keep the size and recipients of its bailouts a secret.
The largest recipient of the Fed’s bailouts was Citigroup. It received a cumulative total of more than $2.5 trillion in below-market rate loans from the Fed from 2007 through at least the middle of 2010. After Yellen was nominated by President Biden to serve as U.S. Treasury Secretary, her financial disclosure report showed that she had spoken three times at Citigroup, on March 6, March 11, and March 12, 2019. She made $217,200 for each event, for a total of $651,600.
Oodles of cash were also flowing into Yellen’s bank account from Citadel, a giant hedge fund recently under scrutiny before the Senate Banking and House Financial Services Committees. Yellen’s financial disclosure report showed she had been paid $992,500 for speaking engagements at Citadel and had refunded it $50,000 to $100,000 for a cancelled event.
The most poignant analysis of Yellen’s cash haul from Wall Street came in a Tweet from Jesse Eisinger of the public interest publication, ProPublica. Eisinger wrote: “Deeply troubling two-fisted money grab from banks by Janet Yellen. This is corruption, but isn’t called that because it’s so quotidian.” Eisinger also noted: “Sure, Yellen might think she can make independent decisions once in office. But how arrogant is it to imagine that money corrupts everyone but you?”
Yellen’s power was already enormous as Treasury Secretary. She oversees an octopus of federal agencies that include the Internal Revenue Service (IRS); the Office of the Comptroller of the Currency (OCC), which oversees all national banks that operate across state lines; the Bureau of Engraving and Printing; the U.S. Mint; the Financial Crimes Enforcement Network (FinCEN) which is tasked with combating money laundering but has failed miserably in that job; and numerous other units.
In addition, legislation passed by Congress in 1934 puts Yellen in charge of the slush fund known as the Exchange Stabilization Fund, which is allowed to meddle in markets. The Dodd-Frank financial reform legislation of 2010 makes Yellen the Chair of the Financial Stability Oversight Council, and, thanks to stealthy legislation passed during the Trump administration, the Treasury Secretary is now also a permanent member of the National Security Council (NSC).
If all of this power were not frightening enough for a woman who just two years ago received multi-millions through largess from Wall Street, David Dayen has now penned an expose on how Yellen and the Biden administration are further consolidating the Fed’s power over Wall Street’s mega banks.
Dayen notes that it was Yellen who picked a low-level employee at the Fed, Michael Hsu, to serve as Acting Comptroller at the Office of the Comptroller of the Currency. The OCC oversees the most dangerous megabanks on Wall Street and reports on their hundreds of trillions of dollars in derivative trades.
According to Dayen, Hsu quickly turned around and appointed Benjamin McDonough as the OCC’s Senior Deputy Comptroller and Chief Counsel. Where had McDonough come from — the Legal Division of the Federal Reserve.
But that is hardly the extent of the Fed’s growing influence in the Biden administration. Dayen writes as follows: “…Nellie Liang, a Federal Reserve economist in multiple divisions for 30 years, is President Biden’s choice as Treasury undersecretary for domestic finance. Laurie Schaffer, a longtime lawyer at the Fed, currently serves as principal deputy general counsel at Treasury. Biden’s deputy national security adviser for international economic issues, Daleep Singh, previously headed the markets team at the Federal Reserve Bank of New York.”
(For how the New York Fed operates, see Is the New York Fed Too Deeply Conflicted to Regulate Wall Street?)
Liang, reports Dayen, “recently co-authored a paper with fellow longtime Fed staffer Pat Parkinson, which asserted that regulators should weaken the bank leverage ratio (the ratio of debt to assets) and that the Fed should construct a credit facility to serve as a permanent bailout fund for the repo market, which got into trouble in 2019.”
For how the Fed jumped in with both feet to bail out the repo market and keep Wall Street humming months before there was any pandemic in the U.S., see: Wall Street Had Cut 68,000 Jobs and Received Trillions in Emergency Loans Prior to COVID-19 Anywhere in the World.
Dayen also notes that McDonough, the man Hsu has named as the Chief Counsel at the OCC, had been an acting special advisor to the Vice Chairman for bank supervision at the Federal Reserve, Randal Quarles. Dayen writes that in that capacity McDonough had “worked on several of the deregulatory measures that Quarles pushed through, including the provision to weaken supervision for U.S. entities of foreign banks, which [Senator Elizabeth] Warren criticized Quarles for after the Archegos scandal.”
Quarles, like the sitting Fed Chairman Jerome Powell, both hail from one of the embodiments of greed on Wall Street – the Carlyle Group. (See: The Fed’s Chair and Vice Chair Got Rich at Carlyle Group, a Private Equity Fund with a String of Bankruptcies and Job Losses.)
Heretofore, Wall Street banks have been regulated by silos of regulators under the theory that if one regulator became totally captured, another regulator might continue to function in the public interest. Those regulators include the Securities and Exchange Commission (SEC), whose mandate is to regulate the stock exchanges, stock and bond trading, and the dissemination of publicly-traded corporations’ information to the public; the Commodity Futures Trading Commission (CFTC), which is supposed to regulate the commodity, futures and derivatives markets; and the Federal Deposit Insurance Corporation (FDIC), which oversees federally-insured banks (the largest of which have merged with Wall Street trading houses, making it next to impossible to tell a federally-insured bank from a trading casino).
But Dayen now sees an unhealthy trend of Fed domination. The title of his article is: “The Fed Becomes the Nation’s Only Bank Regulator.”
If this Fed warning was coming from a right-wing conservative news outlet that would like to outright abolish the Fed, it might be taken with a grain of salt. But Dayen is Executive Editor of The American Prospect, where the article was published. It is well known as a progressive publication.
The article contains this deeply troubling sentence for progressives and Americans in general: “…so far there’s been little meaningful distinction between the Trump and Biden eras on bank regulation.”