By Pam Martens and Russ Martens: April 20, 2020 ~
The Federal Reserve’s role under the U.S. law that governs it (the Federal Reserve Act) is to function as the nation’s central bank and lender of last resort to deposit-taking commercial banks in a crisis and to set monetary policy to achieve the dual objectives of stable prices (preventing deflation as well as runaway inflation) while maximizing employment.
But since December 2007, the Federal Reserve has simply written its own playbook, independent of the law that governs it. The Fed has decided to outsource to one of its 12 regional Federal Reserve banks, the New York Fed, the role of propping up the swamp on Wall Street.
The New York Fed’s own playbook involves dangling a shiny object for mainstream media in a “look here but not there” operation. During the 2008 financial collapse on Wall Street that took down the U.S. economy in the worst crisis since the Great Depression, the shiny object was a four-letter acronym called TARP, short for Troubled Asset Relief Program.
TARP was a congressionally-approved taxpayer bailout of the Wall Street banks, including those that had brought on the crisis by turning their federally-insured banking unit into a derivatives casino. Mainstream media was all over TARP as it doled out chunks of $10 billion to $45 billion to the largest banks on Wall Street in the fall of 2008, as well as lesser amounts to smaller banks caught up in the panic.
But while the $700 billion TARP shiny object was all over the front pages of newspapers, the New York Fed, with nary a vote in Congress or even the awareness of Congress, was running a secret $29 trillion Wall Street bailout. The New York Fed was using its unlimited ability to create money out of thin air to ply Wall Street banks and trading houses, as well as global foreign banks and central banks, with the lion’s share of $29 trillion in revolving loans, at a fraction of the interest rate these financial firms would have been charged in the open market. Those revolving loans began secretly in December 2007 and ran through at least July 21, 2010.
So desperate was the Fed to keep that $29 trillion a secret from the American people that it battled in court for more than two years, arguing that the American people had no right to this information. It lost that battle.
This time around, the Fed and New York Fed have brazenly upped their game because they have a much bigger shiny object: a deadly pandemic that is dominating the news and effectively eliminating any network or newspaper coverage of what is happening behind the scenes at the New York Fed.
What is happening at the New York Fed is the same thing that happened during the financial crisis of 2007 to 2010. Average Americans are getting the short-end of the stick in the stimulus bill known as the CARES Act while Wall Street banks are getting astronomical sums from the New York Fed’s unlimited money spigot.
Even worse, in what is beginning to resemble a conspiracy of silence, no mainstream news outlet has reported on the more than $9 trillion in super cheap repo loans the New York Fed has pumped into Wall Street trading houses or the fact that those loans began on September 17, 2019 – four months before the first coronavirus case was reported in the United States and at a time when President Trump was bragging on TV about the unprecedented robustness of the U.S. economy.
Equally alarming, the New York Fed refuses to provide the names of which of these trading houses has received the lion’s share of this $9 trillion in emergency funding. The majority of these trading houses are owned by publicly-traded global banks. Under the law, their shareholders are entitled to know any material fact that pertains to the financial condition of that public company. But that has not happened and the Securities and Exchange Commission, which is in charge of enforcing securities laws, has remained silent.
And this time around, Wall Street’s lackies in Congress are putting a gun to the head of the House and Senate members that are desperate to get relief to the small businesses and unemployed workers in their homes states by demanding, and getting, in exchange a new $4.54 trillion bailout for Wall Street where the taxpayer will eat $454 billion of losses. (When that $454 billion runs out, there is the clear expectation that Congress will be tapped to allocate more taxpayer money to absorb the losses.)
There is nothing in any law governing the Federal Reserve that says that if the taxpayer puts up $454 billion it is allowed to leverage that up by 10 to 1 to $4.54 trillion and use that money to buy up toxic waste from the banks and trading houses on Wall Street. The New York Fed has simply decided that this is what it needs to do to prop up Wall Street and eat their bad bets.
And almost no one in mainstream media is asking any questions about the lopsided playing field set up by the New York Fed.
For example, the largest and most serially fined and prosecuted bank in America, JPMorgan Chase, is borrowing billions from the Fed’s discount window at ¼ of one percent interest. The Fed is offering its repo loans to trading houses on Wall Street at 1/10 of one percent interest. But the loans to small businesses under the CARES Act and Small Business Administration are being made at ten times that amount of interest.
Should a small restaurant owner be paying 10 times the amount of interest as a giant trading house on Wall Street?
And then there is the Primary Dealer Credit Facility (PDCF) which is, of course, being run out of the New York Fed. It is making 90-day loans to Wall Street trading houses at an interest rate of ¼ of one percent and among the collateral it is accepting for these loans, it has decided to include stocks. Yes, stocks, at a time when some stocks are losing as much as 25 percent or more in a week. (This is clearly illegal under the Federal Reserve Act which requires that the Fed make loans against “good” collateral.)
Quite a number of the trading houses to whom the New York Fed is making these loans do not have good credit ratings. But unlike the average American worker, they are able to plunk down plunging stocks and obtain a loan at ¼ of one percent interest.
The trading arm of JPMorgan Chase is one of the trading houses that is eligible to borrow at that ¼ of one percent under the PDCF using plunging stocks as collateral. Compare that to what JPMorgan Chase advised struggling Americans last week: it will no longer be making home equity loans and if you want to obtain a first mortgage from JPMorgan Chase, you will need a 20 percent down payment and a credit score of at least 700. JPMorgan Chase is a 3-count felon borrowing at 1/4 of one percent interest.
The PDCF was the largest of the covert programs that the New York Fed ran during the last financial crisis. According to an audit performed by the Government Accountability Office (GAO) in 2011, the PDCF issued 1,376 loans that cumulatively totaled $8.95 trillion. Of that amount, $5.7 trillion, or 64 percent, went to Citigroup, Morgan Stanley and Merrill Lynch according to the GAO audit.
On March 17 of this year, U.S. Treasury Secretary Steve Mnuchin described the new rollout of the PDCF as a means to “help facilitate the availability of credit to American workers and businesses.”
But the parent banks of the trading houses that are borrowing from the PDCF at ¼ of one percent interest are continuing to charge upwards of 17 percent interest on their credit cards to millions of recently laid off workers.
Americans need to engage rapidly in these critical issues. Call your Senators and Reps in Congress and demand the separation of federally-insured, deposit-taking banks from the casinos on Wall Street and a fair shake for Main Street in these stimulus bills from Congress.
