By Pam Martens and Russ Martens: December 16, 2024 ~

According to the December 6 release of Federal Reserve H.8 data, cash assets at the 25 largest U.S. banks have dropped by a stunning $663 billion from their peak levels on December 15, 2021. (See chart above, taken from the St. Louis Fed’s FRED graph, which is updated on an ongoing basis. Put your cursor on the FRED chart line here to get the weekly dollar figures.)

Notice also on the chart that cash levels at the largest U.S. banks were a sea of calm for more than two decades prior to the financial crash of 2008, but since that time cash assets have displayed wild gyrations, rising sharply then precipitously plunging.

It should provide no comfort to Americans that the wild gyrations on the chart above are a product of the central bank of the United States (the “Fed”) inserting itself, time and again since December 2007, into bailing out the trading houses on Wall Street – which since the repeal of the Glass-Steagall Act in 1999 are in drag as federally-insured banks.

The Fed’s first giant money funnel began secretly in December 2007 and lasted through at least July 2010. The Fed battled in court for more than two years to keep the names of the banks and the $16 trillion they borrowed a secret from the American people. (See chart below from the GAO audit.) If you add in the dollar swap lines that the Fed made available to foreign central banks during the financial crisis, the Fed’s money funnel comes to an even more staggering $29 trillion.

On July 21, 2011 the investigative arm of Congress, the Government Accountability Office (GAO), released the first-ever government audit of the Federal Reserve. The audit came about as a result of the determined efforts of Senator Bernie Sanders, who was successful in adding an amendment to the Dodd-Frank financial reform legislation of 2010 that mandated a top-to-bottom audit of how much the Fed had spent on bailing out the megabanks on Wall Street.

Sanders issued a statement saying this on the day the findings were released:

“The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression…The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether, some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”

The Fed’s bailout of the giant insurance company, AIG, was, in effect, a thinly disguised bailout of the Wall Street megabanks, which received 100 cents on the dollar from AIG for the derivative trades (credit default swaps) that AIG owed the banks and would not otherwise have been able to pay.

The reality is that the Federal Reserve’s 2007-2010 bailout was conceived by Wall Street, run by Wall Street for its own benefit, and controlled behind a dark curtain at the Federal Reserve Bank of New York – which is, literally, owned by the megabanks on Wall Street. (See These Are the Banks that Own the New York Fed and Its Money Button.)

A very similar scenario played out during the repo crisis in the last quarter of 2019 when the Fed pumped more trillions of dollars into Wall Street megabanks. That crisis transitioned into the COVID-19 pandemic crisis of 2020 and beyond, which resurrected the emergency loan programs of 2008 by the Fed plus a bunch of new ones. Then there was the Fed’s emergency response to the 2023 spring banking panic that saw the second, third and fourth largest bank failures in U.S. history plus a run on uninsured deposits across the banking landscape. (See Former New York Fed Pres Bill Dudley Calls This the First Banking Crisis Since 2008; Charts Show It’s the Third.)

The Fed defines cash assets as “vault cash, cash items in process of collection, balances due from depository institutions, and balances due from Federal Reserve Banks.” As the chart above shows, cash assets at the 25 largest banks have plummeted from $2.163 trillion on December 15, 2021 to $1.5 trillion on December 4 of this year – a plunge of $663 billion.

Where is all of this cash going? Since a major part of what these federally-insured megabanks do today is trading, we suspect – but can’t say for sure – that the cash is being used in part to post cash collateral on the tens of trillions of dollars in derivative trades held by a handful of these megabanks.

Let’s look at another strange era of cash assets going poof at the megabanks. On April 8, 2015, cash assets stood at $1.398 trillion at the 25 largest U.S. banks according to Fed data at that time. By September 18, 2019, cash assets had plunged to $759 billion – a decline of 45.7 percent.

This next chart shows how the Fed responded to this cash crisis in the fall of 2019, making trillions of dollars in emergency revolving repo loans to U.S. and foreign banks.

When the names of the banks that received these trillions of dollars in cheap loans from the Fed were finally revealed by the Fed two years later, there was a complete mainstream media news blackout.  (Read our report: There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.)

The 2008 financial collapse was the worst economic crisis in the U.S. since the Great Depression of the 1930s. It took six years for jobs to recover; more than 10 million Americans fell into poverty; and more than 6 million families lost their homes to foreclosure. And yet, Congress has failed to reform the Fed under both Democrat and Republican leadership in the White House.