By Pam Martens and Russ Martens: December 15, 2022 ~ If you are an average American without insider knowledge of how Congress works these days, you might have felt that you had stepped onto the set of Alice in Wonderland while watching the Senate Banking Committee hearing yesterday. The hearing was convened to examine the sudden collapse of the crypto exchange, FTX; its tentacles that reach into the federally-insured banking sector; and legislation that may be required to rein in the mushrooming risks that crypto poses to U.S. financial stability. Given that more than one million customers of FTX cannot get access to the money or crypto “investments” in their potentially worthless accounts; that the kingpin of this operation, Sam Bankman-Fried, was indicted on Tuesday by the U.S. Department of Justice on eight criminal counts; and that a federally-insured bank, Silvergate Bank, that held FTX customer deposits, has seen its publicly … Continue reading →

By Pam Martens and Russ Martens: December 14, 2022 ~ Katie Cox worked for the Federal Reserve for 32 years, the last two decades of which were spent overseeing complex proposals for bank mergers. She left the Fed in 2020. Last Wednesday Katie Cox penned a shocker of a column for American Banker. She opened with this: “Suppose you’re a crypto company that wants to own a bank approved to engage in digital-asset activities. Here’s the fast-track way you might achieve that, while complying with rules in place since August: Go buy a bank, any bank. Convert your bank to a Federal Reserve member bank, meaning that your bank’s federal supervisor will now be the Fed, not the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corp. Wait a little bit, maybe six months. Then send the Fed a letter notifying it that your bank is going … Continue reading →

By Pam Martens and Russ Martens: December 13, 2022 ~ Yesterday, just hours before Sam Bankman-Fried was arrested in the Bahamas at the request of Damian Williams, the U.S. Attorney for the Southern District of New York, Wall Street On Parade learned that Bankman-Fried had been allowed to purchase an SEC-registered retail brokerage firm in August of last year. The brokerage firm at that time was called RJL Capital Group and was based in Staten Island, New York. Bankman-Fried changed the firm’s name to FTX Capital Markets LLC and moved its headquarters to Broad Street in the financial district in lower Manhattan. According to Wall Street’s self-regulator, FINRA, FTX Capital Markets was licensed to conduct retail stock trading in 32 states. FINRA further notes that the firm’s SEC registration is “pending withdrawal” as of December 5 and all 32 state licenses are listed as “Termination Requested.” It is not clear if … Continue reading →

By Pam Martens and Russ Martens: December 12, 2022 ~ Two days after the disgraced crypto exchange, FTX, filed its bankruptcy petition in Delaware bankruptcy court, Wall Street On Parade published an article explaining why it was problematic that the Big Law firm of Sullivan & Cromwell somehow managed to become the legal advisor on the FTX bankruptcy process despite its prior engagements with FTX and Alameda Research, the hedge fund owned by Sam Bankman-Fried, the co-founder and ousted CEO of FTX. We wrote at the time: “The General Counsel of FTX.US, the FTX exchange serving customers in the U.S., is former Sullivan & Cromwell partner, Ryne Miller, who had co-chaired the law firm’s commodities, futures and derivatives group and worked at the law firm for eight years prior to joining this speculative, upstart crypto exchange… “Another Sullivan & Cromwell partner involved with FTX is Ken Li, who represented FTX.US last … Continue reading →

By Pam Martens and Russ Martens: December 8, 2022 ~ The past 48 hours has brought major developments in the battle lines being drawn in the crypto wars. Let’s start with the unusual letter that Senator Sherrod Brown (D-OH) sent yesterday to Sam Bankman-Fried, the ousted CEO of the collapsed and scandalized crypto exchange, FTX, via his new lawyer, Mark S. Cohen. Typically, if you want a witness to testify at a Senate Banking Committee hearing, one doesn’t tell his attorney in writing that you know the witness is guilty of law-breaking activities. (But then, again, most people credibly alleged to have done what Sam Bankman-Fried has done would by now be warming a cot in a cold prison cell.) Brown advises in the letter that “There are still significant unanswered questions about how client funds were misappropriated, how clients were blocked from withdrawing their own money, and how you orchestrated … Continue reading →

By Pam Martens and Russ Martens: December 7, 2022 ~ If you’re the Chairman and CEO of a trucking company or air conditioner installer or a computer manufacturer (or thousands of other companies that don’t handle cash and have access to personal and financial data on millions of Americans) announcing to the world that 10 percent of your company’s new hires last year had criminal backgrounds might make you look like a social justice advocate. If you’re Jamie Dimon, Chairman and CEO of the largest bank in the U.S. with 5,023 bank branches across the country taking in cash each day that represents the life savings of moms and pops and pension funds, announcing that 10 percent of last year’s new hires had criminal backgrounds is not exactly a confidence builder – especially since Dimon’s bank has been charged by the U.S. Department of Justice with an unprecedented five criminal felony … Continue reading →

By Pam Martens and Russ Martens: December 6, 2022 ~ U.S. Treasury Secretary Janet Yellen has the dual role of Chairing the Financial Stability Oversight Council (F-SOC), whose role is to provide “comprehensive monitoring of the stability of our nation’s financial system.” Heads of each of the federal agencies that supervise Wall Street and the mega banks sit in on meetings of F-SOC. One would think that such an august body would have a handle on “staggering” threats to the U.S. financial system – especially since F-SOC was created under the 2010 Dodd-Frank financial reform legislation to prevent a replay of the off-balance sheet derivatives that crashed the U.S. economy in 2008 and forced an unprecedented and secret bailout of U.S. and foreign global banks by the Federal Reserve to the tune of $29 trillion. If Yellen is aware of the latest threat to financial stability, she’s not sharing the details … Continue reading →

By Pam Martens and Russ Martens: December 5, 2022 ~ If you have been following the Sam Bankman-Fried and FTX crypto exchange story since the company filed for bankruptcy on November 11, you have likely read the phrase “a valuation of $32 billion” dozens of times to describe the “valuation” of FTX as recently as February of this year. (We pulled up 47,600 results from a Google search.) But here’s the funny thing. No media outlet has bothered to explain how FTX came by that $32 billion valuation or precisely how Sam Bankman-Fried, the co-founder and CEO of FTX, became a billionaire overnight. FTX wasn’t publicly traded so its share price wasn’t determined by millions of investors buying and selling its stock on a public stock exchange five days a week. And here’s another funny thing: mainstream media reported in late September that FTX was looking to raise $1 billion more … Continue reading →

By Pam Martens and Russ Martens: December 2, 2022 ~ Investors seem to be thinking a lot these days about that old Will Rogers maxim: “People should be more concerned with the return of their principal than the return on their principal.” Investors have been demanding their money back from a growing number of crypto outfits and now that anxiousness is broadening out. The latest to be hit with a surge in investor demand for their money back is the Blackstone Real Estate Income Trust (BREIT). Unlike most REITs, BREIT doesn’t trade on a stock exchange. Investors have to ask the trust to buy back their shares when they want their cash back. According to an announcement posted at the Blackstone website, it has begun to limit withdrawals. In November, investors only received 43 percent of the withdrawals they requested. The statement explains: “BREIT received repurchase requests equal to 2.7% of … Continue reading →

By Pam Martens and Russ Martens: December 1, 2022 ~ That $4 billion capital raise that was supposed to shore up confidence in global banking behemoth Credit Suisse turns out to have been too little, too late. Yesterday, 5-year Credit Default Swaps (CDS) on Credit Suisse blew out to 446 basis points. That’s up from 55 basis points in January and more than five times where CDS on its peer Swiss bank, UBS, are trading. The price of a Credit Default Swap reflects the cost of insuring oneself against a debt default by the bank. Who might be desperate to buy protection against a default by Credit Suisse and driving up the cost of that protection? The mega banks on Wall Street that are counterparties to its derivative trades come to mind, as well as hedge fund speculators. Things don’t look any brighter this morning for Credit Suisse. Its shares are … Continue reading →