By Pam Martens and Russ Martens: September 9, 2014 This month marks the six-year anniversary of the financial collapse of some of Wall Street’s most iconic names. As this New York Post cover of September 20, 2008 memorializes, rapper Sean Combs (P. Diddy) was stepping in dog excrement while the taxpayer was being dragged into something just as smelly – a government bank bailout that would grow to hundreds of billions in on-the-record cash infusions and $16 trillion in secret below-market-rate loans from the Fed. Now it’s September 2014. Six years of crisis studies, hearings, reform legislation, rule-writing, stress tests, living wills, new bank scandals and no jail time for top dogs have darkened the public mood further about both Wall Street and the ability of Congress to meaningfully reform it. The Senate Banking Committee is hauling all six regulators of Wall Street before it today to take the pulse … Continue reading →

By Pam Martens and Russ Martens: September 8, 2014 Last week the Fed announced a plan for the next financial crisis that feels to some observers like a plan to burn down the trading houses on Wall Street – or, alternately, guarantee another massive taxpayer bailout of the biggest banks. The Federal Reserve Board and its regional banks are overflowing with economists. What the Fed does not seem to have is an honest, informed voice to consult about how trading markets think in a severe financial crisis. Last Tuesday, the Federal Reserve Board along with other bank regulators announced a new liquidity rule for the largest Wall Street banks – the ones that required the massive bailout in the 2008 to 2010 financial crisis. The goal of the new rule, according to the Fed, would be to force the biggest, most complex banks to hold enough “high quality liquid assets” … Continue reading →

By Pam Martens and Russ Martens: September 4, 2014  The Federal Reserve Board of Governors, together with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency – the top regulators of Wall Street’s largest banks – finalized liquidity rules yesterday that make absolutely no sense to anyone with a historical perspective on how Wall Street operates in a crisis. The Federal regulators adopted a new rule that requires the country’s largest banks – those with $250 billion or more in total assets – to hold an increased level of newly defined “high quality liquid assets” (HQLA) in order to meet a potential run on the bank during a credit crisis. In addition to U.S. Treasury securities and other instruments backed by the full faith and credit of the U.S. government (agency debt), the regulators have included some dubious instruments while shunning others with a higher safety … Continue reading →

By Pam Martens and Russ Martens: September 3, 2014 The continuing perversions and disfigurement of an entire nation’s financial system to accommodate insanely complex mega banks – the same ones who brought the country to the brink of financial collapse six years ago – takes center stage in Washington, D.C. again today. Because Federal regulators do not want to have egg on their face if one of these global behemoths has to be rescued by taxpayers again, the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency are set to release new liquidity rules today. The rules will redefine the types of liquid assets these giant Wall Street banks must hold to meet the new Basel III Liquidity Coverage Rule set by the international banking body known as the Basel Committee on Banking Supervision, a group made up predominantly of … Continue reading →

By Pam Martens and Russ Martens: September 2, 2014  Figuring out how to write ever creative versions of headlines that say the market is hitting a new high is commanding a lot of energy in newsrooms these days. What should be commanding more energy in the newsrooms is writing about the market structure that is underpinning this “bull”. On Friday, TheStreet.com went with the headline “S&P Books Best August Since 2000.” Bringing up the year 2000 is a bit like bringing up the Hindenburg during an air show. The year 2000 marked the peak in Wall Street’s dot.com bubble, whose bust erased 78 percent of the Nasdaq stock market over the next two and one-half years. Wiped-out Nasdaq investors were eventually to learn that much of this so-called bull market was a highly orchestrated fraud by some of the biggest firms on Wall Street. The fraud worked like this: Research … Continue reading →

By Pam Martens and Russ Martens: August 28, 2014 Edward S. Knotek II and Saeed Zaman work for the Federal Reserve Bank of Cleveland. On August 19 they posted a paper at the Cleveland Fed’s web site that looked at causal relationships between wages, prices and future economic activity. Knotek and Zaman have two Ph.D.s between them. Their paper arrives at this conclusion: “…subdued wage growth is symptomatic of the existence of slack in the labor market. But given wages’ limited forecasting power, they are but one piece in a larger puzzle about where the economy and inflation are going.” What Knotek and Zaman are pumping out as forecasting research at the Cleveland Fed is important because the President of the Cleveland Fed, Loretta J. Mester, is a voting member of the Federal Open Market Committee (FOMC) that sets monetary policy for the U.S. central bank. Mester will help decide … Continue reading →

By Pam Martens and Russ Martens: August 27, 2014 Yesterday, Wall Street’s self-regulator, the Financial Industry Regulatory Authority (FINRA), charged Citigroup with cheating its customers out of fair prices on preferred stock trades — 22,000 times. Citigroup was fined a meager $1.85 million, ordered to pay $638,000 in restitution, allowed to neither deny or admit the charges, and sent on its merry way to loot the next unwary investor. Why do we believe there will be more charges of malfeasance in Citigroup’s future? Because it is an unrepentant recidivist. Yesterday’s FINRA fine was the 408th fine that FINRA has levied against Citigroup Global Markets or its predecessor, Smith Barney, for trading violations, market manipulations or failure to supervise its traders or brokers. And that’s just FINRA – the light-handed disciplinarian with industry ties. Citigroup has kept other Federal regulators, including the U.S. Justice Department, very busy as well. It is … Continue reading →

By Pam Martens and Russ Martens: August 26, 2014 Every time a Wall Street honcho is hauled before Congress to explain the latest fleecing of the unsophisticated investor, he can be counted on to punctuate his testimony with this: “the U.S. markets are the deepest, widest, most liquid markets in the world.” Or words to that effect. There are now two gripping questions before Congressional investigators, the FBI, the Justice Department and the New York State Attorney General’s office as they look at High Frequency Trading operations in U.S. markets: Can markets give the appearance of liquidity while simultaneously being rigged? How much “liquidity” is being created because the current market structure offers a slam-dunk opportunity for High Frequency Traders to loot the unsophisticated with impunity, thus drawing a steady flow of big money to the looting enterprise? This, naturally, leads to two final questions: will market liquidity be negatively … Continue reading →

 By Pam Martens: August 25, 2014 The time and effort spent by members of the Federal Reserve Board of Governors debating the timing of rate hikes is an utterly wasted exercise in futility – and the historically astute members of the Fed know it. After eight solid months of blathering about when rate hikes might occur, the real muscle in the bond market – the bond vigilantes – are drawing their own conclusions about what is coming down the pike. The benchmark 10-year U.S. Treasury note has moved from a yield of 2.85 percent at the beginning of the year to close last week at 2.38 percent. That’s the reaction of a market more worried about constrained income dispersal in the U.S. causing deflation than a market bidding up yields in anticipation of a rate hike. In early August, the Fed’s own scholars released a report showing just how fragile … Continue reading →

By Pam Martens and Russ Martens: August 21, 2014 Any ideas that household balance sheets in the U.S. have been repaired since Wall Street took a wrecking ball to the nation’s economy in 2008 were dashed with the release of a study earlier this month by the Federal Reserve. As Federal Reserve Chair Janet Yellen ponders what will happen in the markets when the Fed starts to eventually raise interest rates, she has to also worry about what will happen to the cash-strapped consumer who is barely hanging on and has no emergency funds to meet a job loss or hike in credit card interest payments. The Fed study was conducted in September 2013 by the Fed’s Division of Consumer and Community Affairs. Its stated aim was to “capture a snapshot of the financial and economic well-being of U.S. households, as well as to monitor their recovery from the recent … Continue reading →