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   Non-TechDerivatives: Darth Vader's Revenge


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From: Worswick11/5/2021 4:43:50 PM
1 Recommendation   of 2788
 
The most difficult year for me since I started this thread over two decades ago

I'm ready to take up the cudgel's again herewith.

Wall Street On Parade .. the best source now in this moment for the machinations of our gvt.

Zero Hedge seems to be "loosing the thread" I fear. Better they look at their model and tune it up lest their "private" Pay For Site doesn't work out and it is too expensive

Very best to you all

.

..
Stock Prices Are Dangerously Diverging: Mega Banks Close in a Sea of Red Ink as S&P 500 Hits an Historic Record



By Pam Martens and Russ Martens: November 5, 2021 ~

Yesterday, the S&P 500 and Nasdaq set new record highs for the sixth straight trading session. The Dow Jones Industrial Average, however, closed in the red. That’s because two high-priced bank components of the Dow, Goldman Sachs and JPMorgan Chase, closed in the red and helped to pull the index into negative territory. (The Dow Jones Industrial Average is a price-weighted index.)

As the chart above indicates, the declines in Goldman and JPMorgan were part of a major bank selloff yesterday – a striking and disturbing divergence from the broader indices. It would be impossible to have a healthy stock market going forward if the mega banks that finance the bulk of corporate activity descend into a downward spiral.

Among the worst bank performers yesterday were three foreign global banks that have a heavy presence on Wall Street: the British bank, Barclays (BCS), lost 5.56 percent; Swiss bank, Credit Suisse (CS), gave up 4.73 percent; while German mega bank, Deutsche Bank (DB), closed down 4.64 percent.

Foreign global banks are heavily interconnected to U.S. mega banks via derivatives. The banks serve as counterparties to each other in making private contract derivative bets on everything from credit defaults to equities to foreign exchange. These private contracts are known as bilateral over-the-counter (OTC) derivative trades and lack a central party clearing platform to stand behind the wager. This is what led to the collapse of the giant insurer, AIG, in 2008 and resulted in it being nationalized for a time by the U.S. government.

That type of derivatives hubris was supposed to have been reformed under the Dodd-Frank legislation of 2010 but, in reality, very little has meaningfully changed.

Causing particular angst in the banking sphere is the situation with Credit Suisse, Switzerland’s second-largest bank. It announced yesterday that it will close the bulk of its prime brokerage business that makes leveraged loans to hedge funds. The announcement comes after Credit Suisse owned up earlier this year to suffering $5.5 billion in losses when Archegos Capital Management, a family office hedge fund, blew itself up in March. (See our report: Archegos: Wall Street Was Effectively Giving 85 Percent Margin Loans on Concentrated Stock Positions – Thwarting the Fed’s Reg T and Its Own Margin Rules.)

In just the past year, Credit Suisse has been hit with the Archegos scandal; it paid $547 million to settle with criminal and civil authorities in the U.S. and U.K. for making an $850 million fraudulent loan in Mozambique where a significant part of the funds went for kickbacks to Credit Suisse employees and Mozambique government officials; it is being sued by investors for selling them billions of dollars of Greensill Capital debt as low risk – Greensill filed for insolvency in March. Just last month, the Swiss bank regulator, FINMA, reported that Credit Suisse had engaged in seven separate spying operations on its Board members, former employees and third parties.

Adding to banking woes is the fact that the Federal Reserve announced on Wednesday afternoon that it will begin this month to take away its bond-buying punch bowl (that has been suppressing interest rates) to the tune of $15 billion each month beginning in November. The Fed has been buying $80 billion a month in Treasury securities and $40 billion a month in agency Mortgage-Backed Securities (MBS) for a total of $120 billion each month.

The Fed left the door open “to adjust the pace of purchases if warranted by changes in the economic outlook.”

Also adding to bank stock concerns yesterday was an 8:30 a.m. report from the Labor Department showing that weekly jobless claims registered just 269,000 last week, the lowest showing since March of 2020. Investors holding bank stocks see this as evidence of a tightening labor market and a potential contributor to inflation that could force the Fed to hike interest rates earlier than anticipated.

Other central banks are already tightening via interest rate increases. On September 23, Norway’s Norges Bank became the first major G10 central bank to hike rates, imposing a quarter-point increase from its record low zero interest rate. It has indicated that another hike is likely in December.

South Korea’s central bank hiked rates in August by a quarter point to 0.75 percent, for the first time in three years. Brazil’s central bank lifted its key interest rate by 1.50 percent on Wednesday of last week – a half point more than anticipated by market watchers and the largest percentage increase since 2002.

This week saw more central bank action. After surprising markets in October by raising its interest rate by 40 basis points to 0.50 percent, on Wednesday of this week Poland’s central bank hiked rates by another 75 basis points to 1.25 percent. Yesterday, the Czech Republic raised its benchmark interest rate by 125 basis points to 2.75 percent.

And while the Bank of England surprised markets this week by keeping interest rate increases on hold, both the BOE and the Bank of Canada have signaled that rate hikes are coming sooner than previously expected.

Also impacting mega bank stock prices are news and rumors that hedge funds are taking losses on wrong-way bets on which way interest rates would move. Mega banks finance the highly-leveraged trading by hedge funds through their prime broker operations.

I hope you are all well amigos.

My best, as ever

Clark

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From: Worswick11/5/2021 5:14:35 PM
2 Recommendations   of 2788
 
I have been pondering this article since it appeared last week .... at first after looking up Omarova on Wikipedia little tendrils of my unrest grew and grew... after I picked myself up off the floor and stopped laughing.

Look her up yourselves people. Omarova is a very, very heavy lady.

Basically, this plan n(below) is an admission that our whole financial system is rotted beyond repair.

So the god people whom oversee America's future are planning a "bail in" of our entire financial system centered upon recapitalizing the country,

THIS IS A GIANT "BAIL IN" of all the financial "deposits" in America.

Think Roosevelt in the 1930's ....eventually 93% inheritance taxes, WPA projects, dams, bridges, crop guarantees, etc. etc.

An all in bail in would certainly cure the least of our problems of the last 25 years of derivatives of various sorts being wildly out of control. Are we up to a quadrillion yet?

As to Omarova's credentials:

Mind you for 6 years Omarova worked at a top NY law firm Davis, Polk, Wardwell, THAT IS ... certainly one of the marque "arrangers" of America. She has Moscow PHd. Cornell academic, US gvt appointee, etc.

None of Omarova's credentials fit easily together so one might give those a think for a bit.

My best,

Clark






House Hearing: PricewaterhouseCoopers Signed Off on Evergrande’s Books, Which Counted “Unbuilt and Unsold Properties” as Assets ?

Biden’s Nominee Omarova Has a Published Plan to Move All Bank Deposits to the Fed and Let the New York Fed Short Stocks

Pam Martens and Russ Martens: October 26, 2021

Saule Omarova

This month, the Vanderbilt Law Review published a 69-page paper by Saule Omarova, President Biden’s nominee to head the Office of the Comptroller of the Currency (OCC), the Federal regulator of the largest banks in the country that operate across state lines. The paper is titled “The People’s Ledger: How to Democratize Money and Finance the Economy.”

The paper, in all seriousness, proposes the following:

(1) Moving all commercial bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;

(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;

(3) Allowing the most Wall Street-conflicted regional Fed bank in the country, the New York Fed, when there are “rises in market value at rates suggestive of a bubble trend,” such as with technology stocks today, to “short these securities, thereby putting downward pressure on their prices”;

(4) Eliminate the Federal Deposit Insurance Corporation (FDIC) that insures bank deposits;

(5) Consolidate all bank regulatory functions at the OCC – which Omarova has been nominated to head.

Republican Senator Pat Toomey has been running a Red Scare campaign against Omarova, who was born in the Kazakh Soviet Socialist Republic (now Kazakhstan) and attended Moscow State University on a Lenin Personal Academic Scholarship.

The real threat that Omarova poses to U.S. financial stability, that Democrats should be calling out, is that she wants to further concentrate all major aspects of the U.S. banking system in the hands of the Federal Reserve, a captured regulator whose 12 regional bank tentacles are, literally, owned by the banks. (See These Are the Banks that Own the New York Fed and Its Money Button.) Omarova offers not one scintilla of a suggestion about restructuring the Fed so that it is not owned by or controlled by the banks.

In her paper, Omarova characterizes the current relationship between the Fed and the banks as the Fed running a “franchisor ledger” to assist its franchisee-banks. But as the Fed’s secret $29 trillion bailout of the mega banks on Wall Street and their foreign derivative counterparties proved following the financial crash in 2008, it’s actually the banks that are cracking the whip and the Fed amicably doing their bidding. That means that the mega banks are the franchisor and they’ve shifted their faux bank examinations and faux stress tests to the Fed, for appearances sake.

This point is further demonstrated by the fact that during the Fed’s 2007-2010 bailouts, most of the Fed’s emergency lending programs were farmed out in no-bid contracts to the very banks being bailed out. JPMorgan Chase, a five-count felon, continues to have a contract with the Fed to serve as custodian of more than $2 trillion of the Fed’s agency Mortgage-Backed Securities (MBS).

As further proof as to who owns whom, the Federal Reserve Board of Governors has outsourced its major functions to the privately-owned New York Fed, whose largest private shareholders are the mega banks, JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon.

One New York Fed bank examiner, Carmen Segarra, was so outraged at what she witnessed at the New York Fed that she went to the Spy Store, bought a tiny tape recorder, and secretly recorded 46 hours of audio. Segarra filed a federal lawsuit, charging that when she attempted to write a negative examination of Goldman Sachs, she was first bullied by her colleagues at the New York Fed and then fired for refusing to change her examination results.

As additional proof that the New York Fed does not function anything like a public servant, the President of the New York Fed receives a larger paycheck than the President of the United States. According to the Fed’s 2020 Annual Report, the President of the New York Fed, John Williams, makes a salary of $506,300. The President of the United States and Commander in Chief, who is elected by the people, makes $400,000. The CEOs of the mega Wall Street banks rotate on and off the New York Fed’s Board of Directors.

The New York Fed is so deeply in bed with the Wall Street mega banks that instead of using a misconstrued franchisor-franchisee analogy, Omarova should have thought along the lines of Stockholm Syndrome: the Fed is completely enthralled with its captors. So enthralled, in fact, that one of the first things that former Fed Chair Janet Yellen did after leaving the Fed was to sign up at a speakers’ bureau and grab millions of dollars in speaking fees from Wall Street.

With that as a backdrop, this is what Omarova proposes in her paper:

Deposits at Commercial Banks Would Be Replaced with FedAccounts:

“In principle, FedAccounts can be made available as an alternative to bank deposit accounts, upon a person’s request. As explained below, however, the more effective option would be to transition all deposits to the Fed. Functionally, all FedAccounts will be essentially identical. For purely administrative purposes, however, it would be advisable to differentiate among ‘individual’ and ‘entity’ accounts. For U.S. citizens, Individual FedAccounts would be opened automatically upon birth or naturalization. These accounts would also be credited automatically with regularly received federal benefits: social security payments, tax refunds, and all other disbursements that depend on one’s citizenship status. For qualifying resident aliens, Individual FedAccounts would be opened and closed upon request, rather than automatically, but otherwise would function in the same manner. Entity FedAccounts could also be administratively divided into separate categories, depending on whether the holder is a government unit, a nonprofit organization, or a business entity incorporated or operating in the United States.”

The New York Fed Would Overtly Insert Itself into the Stock Market:

“Under this proposal, the Federal Reserve Bank of New York (‘FRBNY’) would conduct regular purchases and sales of a broad range of securities and other tradable financial assets with an explicit view to modulating volatile swings in what has been defined elsewhere as ‘systemically important prices.’

“To this end, the FRBNY would establish a separate trading portfolio replicating, as closely as practicable, the market portfolio. In effect, this portfolio would be an index fund reflecting the proportional values of all financial asset classes constituting the financial market as a whole. Once the fund is established, the Fed would conduct its current daily tracking of the nation’s financial markets.

“If a particular asset class—such as mortgage-backed securities or technology stocks—rises in market value at rates suggestive of a bubble trend, the FRBNY trading desk will short these securities, thereby putting downward pressure on their prices. This type of action would tend to tighten the flow of speculative credit to the asset class in question, because (1) speculative profit prospects would be diminished by the price drop; and (2) the Fed’s engineering the drop would signal to the market its determination that current prices of the asset in question are artificially inflated and accordingly best suppressed. Conversely, the FRBNY will go long on particular asset classes that appear to be artificially undervalued in order to avoid unnecessary market dislocation. It will follow the same process in targeting broader market-price fluctuations.”

One can only imagine what a field day hedge funds are having with this idea. They could simply jump on board whatever the New York Fed is shorting and drive the share price to zero. The fact that Omarova specifically mentions technology stocks as potential shorts has likely caused Google and Microsoft to call an emergency session with their lobbyists.

The Fed is already artificially suppressing interest rates by buying up $120 billion a month in Treasury debt and agency Mortgage-Backed Securities (MBS). Omarova would now add to its portfolio the ability to manipulate stock market prices. The fact that Omarova would commit this idea to paper, let alone publish it in a legal journal, shows an incredible naivete about how members of Congress, investors, and even average Americans would react to the idea of bureaucratic control of stock prices.

The Fed’s Ability to Confiscate Money from Depositors’ FedAccounts:

“Implementing a contractionary monetary policy by debiting FedAccounts, in turn, presents a different set of ex ante institutional choices aiming to minimize the economic and political fallout from what is likely to be perceived as the government ‘taking away’ people’s money. This tool is to be reserved only for extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates and deploying its new asset-side tools, discussed below. It is nevertheless important to have a mechanism in place for draining excess liquidity from these accounts with minimal disruption of productive activity.”

The most important question that Democrats should be asking right now is who vetted this nominee for Biden.

Obiously, Dark Vader... Darth's brother.

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From: Worswick11/5/2021 5:52:20 PM
1 Recommendation   of 2788
 
Backing up a bit ... I started the movie with the last scene( in the previous post) where the heroine steps up and tells the world her program to help the world.,



Best & Better

Watch THE MOVIE .... referenced in the below article

https://tubitv.com/movies/596621?utm_source=justwatch-feed&tracking=justwatch-feed


Biden’s Nominee Omarova Called the Banks She Would Supervise the “Quintessential A**hole Industry” in a 2019 Feature Documentary
By Pam Martens: November 3, 2021 ~

Saule Omarova



Yesterday, President Biden stunned moderates in his party by formally sending his nomination of Cornell Law Professor Saule Omarova to head the Office of the Comptroller of the Currency (OCC) to the Senate. The OCC regulates national banks, those operating across state lines, which include some of the largest banks in the nation, such as JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup’s Citibank.

Many folks believed that after Omarova’s recent law journal article became widely analyzed, she would remove herself from consideration or Biden would quietly ask her to step aside. As Wall Street On Parade revealed last week, Omarova’s 69-page paper published in the Vanderbilt Law Review in October, proposed the following:

(1) Moving all commercial bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;

(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;

(3) Allowing the most Wall Street-conflicted regional Fed bank in the country, the New York Fed, when there are “rises in market value at rates suggestive of a bubble trend,” such as with technology stocks today, to “short these securities, thereby putting downward pressure on their prices”;

(4) Eliminate the Federal Deposit Insurance Corporation (FDIC) that insures bank deposits at commercial banks across the United States;

(5) Consolidate all bank regulatory functions at the OCC – which Omarova has been nominated to head.

Omarova is now facing a new brouhaha for calling the very industry that she would supervise the “quintessential a**hole industry” in a 2019 Canadian feature documentary.

The documentary, A**holes: A Theory, was directed by John Walker and based on the 2012 non-fiction book by the same name, which was written by philosopher Aaron James. (Both the documentary and the book fully spell out the word “a**holes.”) The documentary was released to theatres in 2019 and had its television premiere on the Canadian Broadcasting Corporation’s Documentary Channel in 2020.

The documentary explores the so-called “a**hole” culture that brought men like Donald Trump to power in America and Silvio Berlusconi in Italy. The narcissism, rapacious greed and gratuitous vulgar language on Wall Street are singled out as key elements in America’s escalating a**hole culture.

In the film, the soft-spoken Omarova says this:

“The financial services industry, in my view, and I don’t think I’m alone here, is a quintessential a**hole industry. But when you think about the pervasiveness of systematically type a**hole behavior in a particular social venue, for example, financial services industry, then the problem of managing a**holes becomes a structural problem in which law can potentially have a lot of say. So if we make certain types of a**hole behavior systemically unprofitable, for example, irrational, something that is not rewarding, then that behavior will naturally kind of fall away. And, overall, the system will become less prone to being overtaken by a bunch of a**holes that continue to pursue their own private goals, their own insatiable appetites for private gain at the expense of the rest of us, the rest of the society.”

Omarova fully enunciates the word “a**hole” multiple times without wincing. You can listen to her full set of comments at 34:16 minutes on the live stream of the documentary. (Viewing is free but there are commercial breaks.)

Let’s pause here for one moment. This is a law professor from New York who doesn’t seem to have even a modest grip on how massive fines and felony counts from law enforcement have utterly failed to make a dent in the crime wave of mega banks on Wall Street – the very banks she would be supervising. Take JPMorgan Chase’s rap sheet as a prime example. After years of paying out tens of billions of dollars in fines and being charged by the criminal division of the U.S. Department of Justice with multiple felonies, it ratcheted up, not down, its crime wave.

For the first time that anyone on Wall Street could remember, on September 16, 2019, the U.S. Department of Justice used the RICO statute to indict two current and one former precious metals traders at JPMorgan Chase for turning the precious metals desk at the bank into a “racketeering” enterprise. The RICO statute is typically used to charge organized crime members. JPMorgan Chase, the largest bank in the United States, now has a total of five felony counts in the past seven years, admitting to all of them.

The Chairman and CEO of JPMorgan Chase, Jamie Dimon, was at the helm of the bank throughout this crime wave. He remains at the helm of the bank. Rather than removing this man who has failed to inspire ethical conduct at the bank, the JPMorgan Chase Board of Directors (itself a study in conflicts and hubris) awarded Dimon a $50 million bonus in July.

To put it bluntly, the last thing Americans need at this juncture in time is a person at the helm of a mega bank federal regulator who thinks that law enforcement holds the key to reining in the serial crime wave at the mega banks. What Omarova is forgetting about is the revolving door between law enforcement and the lawyers representing those banks. What her plan to move all of the banks’ savings deposits to the Federal Reserve forgets about is that the Federal Reserve is the quintessential captured regulator, with two of its own former Fed Bank Presidents under investigation for their own trading abuses.

The U.S. doesn’t need some untested, fringe plan to restructure Wall Street. The U.S. already has a plan that worked exceptionally well for 66 years, from its legislative enactment in 1933 to its repeal in 1999 under the Wall Street-friendly Bill Clinton presidency. That plan is called the Glass-Steagall Act. It would simply prohibit Wall Street trading casinos from being associated with, merging with, or being owned by federally-insured, deposit-taking banks. It is the only meaningful and workable solution to restoring financial stability to the U.S. financial system. Senator Elizabeth Warren at one time understood this and repeatedly introduced the 21st Century Glass-Steagall Act with bipartisan support.

Biden and other Democrats have now apparently caved in support for Omarova, despite her ludicrous proposals for financial reform, because more than 60 progressive groups and watchdog organizations admire her positions on racial justice and climate. The groups jointly sent a letter yesterday to Senator Sherrod Brown, the Chair of the Senate Banking Committee that would hold Omarova’s confirmation hearing. The letter said that the groups are in “strong support of the nomination of Professor Saule Omarova.”

British actor, John Cleese, also appears in the Canadian documentary and he seems to have a better grip than Omarova on how Wall Street is able to churn out a limitless supply of new a**holes to replace those indicted by the Justice Department. Cleese says this in the film:

“The most foul-mouthed people are the investment bankers and I’m sure that when you go see things like The Wolf of Wall Street, that language is typical of the language that they actually use all the time. Very vulgar, very harsh, very assertive. I would describe a hedge fund as an a**hole factory. They’re just churning them out in large numbers because once you’ve got a horrible group of people together then all they want to do is choose other horrible people to join them.”

As someone who worked for a decade at Sandy Weill’s white-male hunting band known variously as Shearon Lehman and then Salomon Smith Barney, I can assure you that the vulgar language in The Wolf of Wall Street is not exaggerated. It functions as a conquest language that bonds the members of the white-male predatory hunting band while serving in the dual role of disgusting civilized people to the point that they flee the industry, attempting to purge their memory banks of the degradations they had to endure to work there. (I successfully survived by viewing myself as an embedded researcher with a front-row seat to observe and de-code the activities and language of the hunting band. Then I made those activities and language public in federal court for five years, attempting to overturn Wall Street’s private justice system that enshrines and protects this entrenched system.)

Those of us who genuinely want progressive change on Wall Street, who have worked there and understand it, know that Omarova is wrong for this job. You can’t call the people you plan to regulate “a**holes” and expect to engage in an ongoing dialogue with them for change. You can’t publish a treatise that recommends stripping 5,000 banks in the country of their deposits. You can’t recommend eliminating the Federal Deposit Insurance Corporation, the FDIC, which stands at the very core of preventing banking panics and bank runs in the United States.

Senator Elizabeth Warren, who recently showed great courage and boldness in calling Fed Chair Jerome Powell “a dangerous man,” needs to show the same courage and boldness and ask Omarova to step aside. Otherwise, Republicans are going to make an embarrassing circus out of her confirmation hearing. Omarova has given them lots of material to work with.

***************

Ah, above the Editorial Voice telling Omarova to step aside ....

Believe me its all going down Mr. Editorial.

When we are all broke and nothing will clear -reference what happened in the 1930's to society and not just the financial industry - the assholes won't be able to find toilet paper just like everyone else.

And Amarova will have a paycheck with a government job. Think of that!

For Lots of Fun Watch "The Assholes Movie" by John Walker

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To: Worswick who wrote (2765)11/5/2021 6:25:40 PM
From: ggersh
   of 2788
 
Perfect timing as it's the 5th of November!


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From: Worswick11/19/2021 8:55:53 AM
   of 2788
 
IT IS DIFFICULT TO SEE HOW THEY ARE GOINGTO WIFFLE THEMSELVES OUT OF THIS ....










Traders Are Running for the Exits at JPMorgan Chase. Bloomberg News Can’t Figure Out Why

By Pam Martens and Russ Martens: November 18, 2021 ~



Last Thursday, Hannah Levitt of Bloomberg News published a report about a large trader exodus at JPMorgan Chase. She wrote:

“…By this fall, many of the team’s heaviest hitters had gone.

“The setting wasn’t some struggling investment bank. It was the equity derivatives desk inside the mighty JPMorgan Chase & Co. – one of many pockets of employee turnover that have erupted there in recent months, keeping the company’s recruiters busy.”

That article was published at 8:00 a.m. By 11:00 a.m., Bloomberg News was finessing that negative article with another article by Brian Chappatta, which appeared to be an attempt to boost both the bank’s reputation as well as that of its Chairman and CEO, Jamie Dimon. Chappatta wrote:

“Even with competitive pay and the bank’s prestige, departure rates in many of its businesses are reportedly up at least a few percentage points from pre-pandemic levels. It stands to reason that much of corporate America is dealing with similar issues. After all, if CEO Jamie Dimon isn’t impervious to labor market forces, no one is.”

If JPMorgan Chase has any “prestige” left, it’s in no small part because Bloomberg News has failed to adequately report on the seven-year crime spree at the bank which has garnered it five criminal felony counts, to which it admitted, and a rap sheet that is likely the envy of the Gambino crime family. Dimon was at the helm of the bank throughout these serial crimes.

For how Bloomberg’s publishing properties have ridiculously lavished praise on Dimon as the rap sheet grew, see our reporting here. Michael Bloomberg, majority owner of the publishing and data terminal empire, even co-authored an opinion piece with Dimon for the opinion section of Bloomberg News in 2016. The same year, the New York Post reported that JPMorgan Chase was the second largest customer of Bloomberg’s data terminal business with 10,000 leases, which at the time cost around $21,000 each per year or approximately $210 million being forked over by JPMorgan Chase to Michael Bloomberg’s company.

During JPMorgan Chase’s London Whale scandal, where the bank gambled with bank depositors’ money in derivatives in London and lost at least $6.2 billion, Michael Bloomberg was Mayor of New York City. Instead of condemning this outrageous risk-taking with federally-insured deposits, Bloomberg was quoted in the Wall Street Journal calling Dimon “a very smart, honest, great executive,” adding “The controls failed. He’ll look at that and fix it.” That statement appeared in May of 2012. The five felony counts followed from 2014 to 2020.

Traders throughout JPMorgan Chase have had queasy stomachs since 2019. On September 16, 2019, for the first time that anyone on Wall Street can remember, RICO charges were brought against traders at JPMorgan Chase by the U.S. Department of Justice. Its precious metals trading desk was characterized at the time as a racketeering enterprise. The Justice Department couldn’t bring itself to state the name of the bank where the traders were located, calling JPMorgan Chase simply “Bank A.”

Last year, on September 29, the Justice Department brought the fourth and fifth felony counts against JPMorgan Chase. One count involved traders rigging the precious metals markets and the other count for rigging the U.S. Treasury market. As the Justice Department had done in all the previous felony charges against the bank, it settled them with large fines, deferred prosecution agreements, and a probation period. (The bank has had three probation periods since 2014 for criminal activity.) But the Justice Department did one thing on September 29 that was unprecedented for a felony charge involving the rigging of the U.S. Treasury market. The Justice Department announced the charges without holding its usual press conference and taking questions from reporters.

The Justice Department’s deal was so sweet for a criminal recidivist that it wrote in its deal with the bank that “an independent compliance monitor was unnecessary” despite also revealing that the bank “did not voluntarily and timely disclose to the Fraud Section and the Office the conduct described in the Statement of Facts.”

Traders that are not burying their heads in the sand like Bloomberg News now understand that you may be sitting on a trading desk at a five-count felony bank one day and perp-walked the next day. In addition to felony counts for rigging trading in precious metals and U.S. Treasuries in 2020, the bank received one felony count in 2015 for rigging foreign exchange trading. In July 2013, a unit of JPMorgan Chase agreed to pay $410 million to the Federal Energy Regulatory Commission to settle claims of rigging California and Midwest electricity markets. In December of 2013, JPMorgan Chase agreed to pay 79.9 million Euros to settle claims brought by the European Commission relating to illegal rigging of benchmark interest rates.

There is also growing buzz among JPMorgan Chase traders that trying to do the right thing has no upside and a lot of downside in terms of one’s career.

In April of this year, Donald Turnbull, a former Global Head of Precious Metals Trading at JPMorgan Chase, filed a federal lawsuit against the bank. Turnbull worked on the same precious metals desk that was deemed to be a racketeering enterprise by the U.S. Department of Justice when it handed down indictments in 2019.

Turnbull’s lawsuit, filed in the federal district court for the Southern District of New York, alleges that the bank trumped up false charges against Turnbull as a pretext to terminate him when it was actually terminating him for cooperating with the Department of Justice’s investigation.

Turnbull was not one of the traders that was indicted by the Department of Justice. Nonetheless, Turnbull charges in the lawsuit that the indicted traders received better benefits when they were released from employment than he did. Despite a seriously-ill wife, Turnbull states in the lawsuit that JPMorgan Chase cancelled his health insurance, did not pay him severance, and took away his unvested stock awards.

The lawsuit offers multiple examples of how indicted traders were treated in a far more favorable manner than was Turnbull. One example, of many cited in the lawsuit, reads as follows:

“Trader C was employed by JPMorgan between 2008 and 2019. JPMorgan recognized that Trader C’s trading practices ‘could be perceived as spoofing’ when it began an internal investigation of his conduct in 2016. JPMorgan—having concluded that his conduct did not meet company standards—issued a verbal warning. But Trader C’s conduct so obviously violated JPMorgan’s ‘could be perceived as spoofing’ ‘standard’ that the Bank used examples of his order sequences in employee training materials as illustrations of how not to trade— because the conduct looked like spoofing. Nevertheless, JPMorgan retained him in its employ until he resigned three years later to plead guilty to eight years of spoofing, and a related CFTC enforcement action acknowledged that he placed ‘thousands’ of spoof orders.”

The lawsuit offers the court this analysis of why Turnbull had to be “neutralized”:

“Mr. Turnbull’s account lent credibility to the notion that the Bank itself was the most culpable entity in the alleged conspiracy; the risk he posed had to be neutralized…JPMorgan sought to reframe the narrative as though the defendants operated in their allegedly manipulative manner without JPMorgan’s knowledge.”

This is not the first time that a trader has alleged that higher ups were culpable in corrupt trading practices but threw the individual trader under the bus. In 2016, the Wall Street Journal published an article indicating that Bruno Iksil, the man dubbed the London Whale in the JPMorgan Chase derivatives trading scandal, had stated that the bank made him a “scapegoat.” Iksil stated to the paper that the trades were “initiated, approved, mandated and monitored” by senior management.

In addition to the risk that traders at JPMorgan Chase may end up facing RICO charges, a statute typically reserved for organized crime, there are also bad feelings among traders about how the bank has handled the COVID-19 crisis.

The bank ordered all senior traders back to their desks by September 21, 2020. That announcement came despite an outbreak of COVID-19 on a JPMorgan Chase trading floor in April of 2020, when a reported 16 people became infected.



Congress Is Facilitating “Catastrophic Risk” by Allowing Federally-Insured Banks to Be Owned by Wall Street’s Trading Houses

By Pam Martens and Russ Martens: November 17, 2021 ~

We recently read the report conducted by the Special Committee of the Board of Directors of Credit Suisse into how the bank had lost $5.5 billion when the Archegos family office hedge fund that was being financed by Credit Suisse and other Wall Street firms blew itself up this past March. One paragraph in particular caught our attention:

“The Archegos-related losses sustained by CS are the result of a fundamental failure of management and controls in CS’s Investment Bank and, specifically, in its Prime Services business. The business was focused on maximizing short-term profits and failed to rein in and, indeed, enabled Archegos’s voracious risk-taking. There were numerous warning signals—including large, persistent limit breaches—indicating that Archegos’s concentrated, volatile, and severely under-margined swap positions posed potentially catastrophic risk to CS. Yet the business, from the in-business risk managers to the Global Head of Equities, as well as the risk function, failed to heed these signs, despite evidence that some individuals did raise concerns appropriately.”

(For a more succinct look at the Archegos blowup, see our report: Archegos: Wall Street Was Effectively Giving 85 Percent Margin Loans on Concentrated Stock Positions – Thwarting the Fed’s Reg T and Its Own Margin Rules.)

What grabbed our attention in that paragraph from the Credit Suisse report is that the Board of Directors is actually acknowledging that trading positions posed “catastrophic risk” to the bank. What also grabbed our attention is that banking regulators in the United States have been reading this same kind of assessment of catastrophic risk within the mega banks on Wall Street since the financial crisis of 2008, while doing absolutely nothing meaningful to rein it in.

Even more striking, banking regulators and Congress continue to allow the majority of the largest trading houses on Wall Street to continue to own federally-insured deposit-taking banks where the taxpayer would be on the hook for bailouts if they blow themselves up.

Consider these three paragraphs from the report prepared by the Senate’s Permanent Subcommittee on Investigations after JPMorgan Chase lost at least $6.2 billion gambling in derivatives in London using deposits from its federally-insured bank:

“The bank’s reliance on Ms. Drew to police risk within the CIO [Chief Investment Office] was so excessive that some senior risk personnel first became aware of the CIO’s outsized synthetic credit positions from the media. John Hogan, the bank’s Chief Risk Officer, for example, told the Subcommittee that the articles about the ‘London Whale,’ which first appeared on April 6, 2012, surprised him. Mr. Hogan said that the Synthetic Credit Portfolio was not on his radar in an ‘alarming way’ prior to that date. It speaks volumes that the financial press became aware of the CIO’s risk problems before JPMorgan Chase’s Chief Risk Officer.

“While the bank’s Chief Risk Officer was apparently left in the dark, by April 2012, senior CIO management was well aware that the Synthetic Credit Portfolio had lost money on most days during the first quarter of the year, had cumulative losses of at least $719 million, and had massively increased the portfolio size with tens of billions of dollars of new synthetic credit positions threatening additional losses. Ms. Drew was so concerned that on March 23, she had ordered the traders to stop trading. Yet in the week following publication of the ‘London Whale’ articles, Mr. Dimon, Mr. Hogan, Chief Financial Officer Douglas Braunstein, and others, gave the impression that the press reports were overblown. On the bank’s April 13 quarterly earnings call, Mr. Dimon referred to the press accounts as a ‘complete tempest in a teapot,’ and Mr. Braunstein stated that the bank was ‘very comfortable with our positions.’ Those statements did not reflect the magnitude of the problems in the Synthetic Credit Portfolio. Mr. Dimon publicly withdrew his comment a month later.

“Prudent regulation of the U.S. financial system depends in part on understanding how a small group of traders in the London office of a global bank renowned for stringent risk management were able to purchase such a large volume of synthetic credit derivatives that they eventually led to losses of more than $6 billion. This case study elucidates the tension between traders and risk managers. Traders are incentivized to be aggressive and take on significant risk. Risk managers are supposed to be a voice of caution, limiting and reigning in that risk. Just because trading strategies sometimes succeed does not mean they are prudent. Bad bets sometimes pay off, and it is easy to confound profits with successful trading strategies. At the CIO, initial success in high risk credit derivative trading contributed to complacent risk management, followed by massive losses.”

JPMorgan Chase is the largest deposit-taking bank in the United States. According to the Federal Deposit Insurance Corporation (FDIC), it has 5,135 branch bank offices across the United States accepting insured deposits from moms and pops, small businesses, pension funds and the like. The vast majority of these depositors have no idea that the bank is allowed by Congress and its regulators to make wild gambles in derivatives.

The three paragraphs above from the report on JPMorgan Chase are bad enough, but here’s what else you need to know. The “Ms. Drew” that was supposed to be policing trading risk for the bank and was supposed to be policing the derivative traders in London didn’t even possess a trading license herself. That’s illegal at trading houses known as broker-dealers on Wall Street. At broker-dealers, a supervisor must have the proper licenses to oversee traders.

The Senate’s Permanent Subcommittee on Investigations held hearings as part of its explosive London Whale investigation. Ina Drew (the “Ms. Drew” referred to above) told the Subcommittee that the investment securities portfolio exceeded $500 billion during 2008 and 2009 and as of the first quarter of 2012 was $350 billion. But we learned from the industry’s self-regulator, FINRA, that during the 13 years that Drew supervised stunning amounts of securities trading, she had neither a securities license nor a principal’s license to supervise others who were trading securities.

At the time, we asked numerous Wall Street regulators to explain how Drew could have been overseeing traders without the proper trading licenses. One regulator who spoke on background only told us that Drew could not hold a securities license because she worked for the federally-insured commercial bank, not its broker-dealer. Only employees of broker-dealers are allowed to hold securities licenses. But apparently, not having a securities license does not stop one from supervising a $500 billion portfolio of securities trading at a federally-insured bank.

Welcome to the insane world of Wall Street today.

Was JPMorgan Chase chastened by its humiliation in the press and before the U.S. Senate, which also called Jamie Dimon, the bank’s Chairman and CEO, to testify in the matter? Not in the least. Last year, Wall Street On Parade published the following articles, showing the wild cowboy culture was alive and well at JPMorgan Chase:

Using Bank Deposits, JPMorgan Chase Lost $3.2 Billion Trading Stocks and Credit Derivatives in First Quarter

JPMorgan Chase and Citibank Have $2.96 Trillion in Exposure to Credit Default Swaps

Morgan Stanley is another blowup waiting to happen on Wall Street. It also owns federally-insured banks, although their size pales in comparison to the $2 trillion in deposits held by JPMorgan Chase’s domestic branches.

Morgan Stanley was another Wall Street bank that had exposure to Archegos when it blew up in March. It acknowledged almost $1 billion in losses from Archegos. Morgan Stanley has had far larger losses from trading blowups in the past. During the 2007-2008 subprime mortgage crisis, one of Morgan Stanley’s traders, Howie Hubler, lost $9 billion of the firm’s capital betting on subprime debt. Hubler didn’t get a character to play his role in “The Big Short” movie but Michael Lewis, who wrote the book on which the movie is based, told the public a good deal about Hubler within its pages.

Lewis describes Hubler as a star bond trader at Morgan Stanley, making $25 million in one year prior to the collapse of the subprime mortgage market. Hubler was one of those who made early bets that the lower-rated subprime bonds would fail. He used credit default swaps (derivatives) to make his bets. But because he had to pay out premiums on these bets until the collapse came, he placed $16 billion in other bets on higher-rated portions of the subprime market, according to Lewis. When those bets failed, Morgan Stanley lost at least $9 billion.

According to a government audit of the Fed’s secret loans to the trading houses on Wall Street during and after the 2008 Wall Street implosion, Morgan Stanley was the second largest recipient (after Citigroup) of the Fed’s secret loans that were funneled from December 1, 2007 to at least July 21, 2010 to bail out the lack of risk controls on Wall Street. Morgan Stanley received a total of $2.04 trillion in cumulative loans from the Fed.

If you care about the financial stability of the United States; if you care about the kind of future you are leaving to your children and grandchildren, pick up the phone today and call your U.S. Senators and members of Congress and demand that they restore the Glass-Steagall Act, which would ban federally-insured banks from being part of Wall Street’s trading casino.



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To: Worswick who wrote (2767)11/19/2021 10:48:00 AM
From: ggersh
   of 2788
 
Jamie Dimon amongst others all should've been sent to
jail when Mr. hope and Change took the presidency. However
all he did was enable them even further.

It's a sick world, that we could go to jail for shoplifting yet
WS thieves go free for stealing hundreds of billions.

There is no accountability for the elites

in America anymore, especially since 911.

Hope all is well and have a Happy Thanksgiving!

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To: ggersh who wrote (2768)12/4/2021 3:19:26 PM
From: Worswick
1 Recommendation   of 2788
 
A wrap up of the malefactions of the last few years relating and not relating to the big banks, the FED, etc.

This article and list was made by the Martens the last heroic couple on Wall Street.

Best to you all,

Clark
SEC’s Gary Gensler Picks a 20-Year Wall Street Bank Defender for His Crime Chief

By Pam Martens and Russ Martens: April 28, 2021 ~ary Gensler, SEC Chairman

The only thing worse than SEC Chairman Gary Gensler’s pick for Director of Enforcement at Wall Street’s so-called watchdog is the way corporate media is attempting to spin it.

On April 22 Gensler announced that he had appointed Alex Young K. Oh to be his top Wall Street crime fighter. Reuters (and numerous other media outlets) spun the announcement like this:

“The U.S. Securities and Exchange Commission on Thursday named former federal prosecutor Alex Oh as its new head of enforcement, the first woman of color to lead the division, which plays a crucial role in policing U.S. financial markets.”

Yes, Alex Young K. Oh was a former federal prosecutor, but one of numerous assistant U.S. Attorneys working in the Southern District of New York more than two decades ago. What Oh has been doing for the past two decades is working as an attorney for Paul, Weiss, Rifkind, Wharton & Garrison, the law firm that major Wall Street banks repeatedly choose to fight their serial fraud charges.

Oh has been with Paul Weiss since October 2000. She became a partner in January 2004. Her stint as an assistant U.S. Attorney was for a brief three and one-half years, from January 1997 to June 2000, according to her LinkedIn profile.

Career attorneys at the SEC are disgusted that someone from their own ranks is never selected as Director of Enforcement to make a genuine effort at fighting crime on Wall Street.

James Kidney, a former 25-year veteran trial lawyer at the SEC, worked under another Wall Street revolving door appointee, Robert Khuzami, who served as Director of Enforcement under President Obama. In 2018, Kidney described that experience with Wall Street On Parade’s readers as follows:

“I was one of several trial lawyers at the SEC involved in the Commission’s investigations into conduct of the big banks and their employees. I can say, based on my experience and that of other trial lawyers, that there was an inexplicable reluctance on the part of the Division of Enforcement to utilize conspiracy theories to investigate – let alone sue – higher ups at Goldman Sachs, Bank of America, Morgan Stanley and other large banks.

“Yet, it was obvious to many talented lawyers at the SEC, both senior and junior, that the products offered by these banks to investors were developed cooperatively and approved by knowledgeable men (almost exclusively men) of Wall Street far above the levels of those few who were unfortunate enough to be sued. It is very likely that at least some participated in a scheme to defraud – a conspiracy. But the Division of Enforcement under Khuzami chose to pursue cases almost exclusively on a much narrower ‘false statement’ theory, which courts have increasingly interpreted to mean liability solely for the individual who actually misrepresented to an investor a fraudulent product. In effect, the SEC applied at the outset the narrowest legal theory available to restrict the investigation and, therefore, protect higher-ups from questioning, let alone possible charges. Conspiracy theories were rejected at the outset of most investigations and not pursued.”

Brad Karp is the Chairman of Paul Weiss. Max Moran, writing for the American Prospect in February 2020, had this to say about Karp:

“But if the Democrats do nominate a candidate of the old guard, the traditional school of money-for-access politics, chances are high that one name will be at the top of their list of advisers: Brad Karp. After all, Karp’s name shows up on almost every bundler [fundraiser] list the 2020 race has seen so far. If money is seductive in politics, then Karp is a master of seduction. And he’s in it for a reason: to make sure the next president doesn’t appoint regulators and prosecutors who will bring his corporate clients to heel…”

In terms of both billable hours and serial crimes, one of Karp’s biggest clients has been Citigroup – the bank that imploded in the 2008 Wall Street collapse only to be resuscitated by government bailouts and $2.5 trillion in secret, cumulative loans from the Fed from 2007 to the middle of 2010.

We outlined the relationship between Karp and Citigroup for our readers in 2012, writing:

“It’s one of the few things predictable on Wall Street; an immutable signature on the reply briefs whenever Citigroup is charged with fraud – and that is quite often.

“Brad Karp, a partner at the 737-attorney-strong Wall Street law firm, Paul, Weiss, Rifkind, Wharton & Garrison LLP, has been Citigroup’s go-to guy for fraud allegations since the company was born out of the too-big-too-fail merger of Travelers Group insurance, its myriad Wall Street investment banks, brokerage units, and Citicorp, parent of Citibank.

“When the London-based private equity firm, Terra Firma, claimed it had been lied to and defrauded by Citigroup, making it overpay for the purchase of EMI, a British music label, in 2007, Karp and colleagues wrung an 8-0 decision from the jury in favor of Citigroup. Karp was also on hand to witness victory when the trustee for the bankrupt Italian dairy giant, Parmalat, charged Citigroup with fraud. Then there were fraud charges connected to Citigroup’s involvement in the collapse of WorldCom and Enron – along with auction rate securities, rigged stock research and understating its exposure to subprime debt by $39 billion. Karp, Karp, and more Karp.”

When Citigroup was under investigation by the Financial Crisis Inquiry Commission (FCIC) for its role in the 2008 financial collapse, it was Karp who penned Citigroup’s 21-page response in an effort to get Citigroup off the hook. Nonetheless, the FCIC referred three of Citigroup’s former top executives to the Justice Department for potential criminal charges: the former Chairman of the Executive Committee of Citigroup, Robert Rubin; former Citigroup CEO Charles (Chuck) Prince; and former Citigroup CFO Gary Crittenden. (The Justice Department failed to pursue any criminal referrals against Wall Street titans from the FCIC.)

Then there is the matter of all of those internal investigations that Paul Weiss so obligingly conducts for its corporate clients. In May of 2019 the Chief Judge for the U.S. District Court for the Southern District of New York, Colleen McMahon, wrote a decision finding that the U.S. Justice Department had outsourced a criminal investigation to the target of the investigation – Deutsche Bank – and Deutsche Bank’s outside law firm…(wait for it)…Paul Weiss.

Judge McMahon wrote in her decision that “…there are profound implications if the Government, as has been suggested elsewhere, is routinely outsourcing its investigations into complex financial matters to the targets of those investigations, who are in a uniquely coercive position vis-à-vis potential targets of criminal activity.”

The Judge wrote that the government didn’t take any investigative depositions on its own unless it had “first passed through the maw of Paul Weiss’s five-year, $10 million investigative machine and been fully digested for the Government by the target of the investigation…It is hard not to conclude that the Government did not conduct a single interview of its own without first using a road map that Paul Weiss provided – illuminating just how the Government should ‘investigate’ the case against certain Deutsche Bank employees…”

In 2011, Paul Weiss was named in an SEC Inspector General report that delved into claims from a whistleblower inside the SEC that alleged that the then Director of Enforcement, Khuzami, had spoken on the phone on June 28, 2010 with Mark Pomerantz, a partner at Paul Weiss who was representing the bank in connection with SEC charges that it had misled investors about its exposure to subprime debt. Pomerantz and Khuzami knew each other from their work at the U.S. Attorney’s office in the Southern District of New York.

According to the unnamed whistleblower, SEC attorneys working under Khuzami had already decided to bring fraud claims against Citigroup’s CFO, Gary Crittenden, for misstating the amount of Citigroup’s exposure to subprime debt by almost $40 billion. But during the phone call, Pomerantz told Khuzami that Citigroup would experience collateral damage if a key executive were charged with fraud.

Shortly after this call, another Citigroup lawyer, Lawrence Pedowitz of Wachtell, Lipton, Rosen & Katz (the law firm that helped former Citigroup CEO Sandy Weill maneuver the repeal of the Glass-Steagall Act in order to merge his casino trading firms with the federally-insured Citibank) told SEC Associate Enforcement Director, Scott Friestad, that Khuzami had agreed to drop the fraud charges against Crittenden. The Inspector General’s report says that Khuzami denies ever making this promise.

Nonetheless, the fraud charges were dropped and the deeply redacted Inspector General’s report does not inform the public as to how they came to be dropped.

If you’re not sick to your stomach that Wall Street’s top watchdog has been a completely captured regulator under both Democrat and Republican administrations for decades, then you’re simply not paying attention.

Related Articles:

SEC Chair Jay Clayton Left Markets in the Biggest Mess Since 1929

If the New York Stock Exchange is a “High-Frequency Brothel” then the SEC is its Pimp

SEC Nominee Has Represented 8 of the 10 Largest Wall Street Banks in Past Three Years

The Whites Go to the SEC: Why Wall Street Still Owns Washington

An Indulging “Uncle” — Arthur Levitt’s Reign at the SEC

Archegos: Wall Street Was Effectively Giving 85 Percent Margin Loans on Concentrated Stock Positions – Thwarting the Fed’s Reg T and Its Own Margin Rules

Margin Debt Has Exploded by 49 Percent in One Year to $814 Billion. The Actual Figure May Be in the Trillions. Here’s Why.

Congress Is Facilitating “Catastrophic Risk” by Allowing Federally-Insured Banks to Be Owned by Wall Street’s Trading Houses

The U.S. Banking System Is More Dangerous Today than in 1929, Thanks to the Fed’s Reg U and Swaps – Two Well-Kept Secrets from the Senate Banking Committee

Wall Street On Parade


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To: Worswick who wrote (2769)12/5/2021 12:31:49 PM
From: ggersh
   of 2788
 
History keeps repeating itself. Happy Holidays my friend!

jessescrossroadscafe.blogspot.com

"I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City."

Robert Sobel in PBS, The Great Crash of 1929

Big business owns the government



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From: Worswick12/21/2021 7:56:42 PM
1 Recommendation   of 2788
 
The Fed Gets Its Ducks in a Row for the Next Wall Street Bailout; Quietly Adds Goldman Sachs Bank, Citibank to Its New $500 Billion Standing Repo Facility

By Pam Martens and Russ Martens: December 21, 2021 ~

If you’re stunned that Goldman Sachs is allowed to own a federally-insured bank under existing U.S. law, see our previous report: Goldman Sachs’ Rich Man’s Bank Backstopped by You and Me. If you’re stunned that a New York branch of Mizuho Bank, part of the Japanese conglomerate Mizuho Financial Group, is able to have federal deposit insurance backstopped by the U.S. taxpayer, welcome to the world of borderless global banking for the one percent.Last Friday, with the public’s attention diverted to the surge in Omicron variant cases of COVID in the U.S. and holiday travelers’ attention focused on the safety of air travel and family gatherings, the Federal Reserve Bank of New York quietly announced, in a one sentence statement, that it was adding the following three federally-insured banks to its list of counterparties for its newly-minted $500 billion Standing Repo Facility: Citibank, Goldman Sachs Bank USA, and the New York Branch of Mizuho Bank.

These three banks have a number of things in common: (1) each financial institution already has a broker-dealer affiliate that is already one of the Fed’s 24 primary dealers that participates in the Fed’s repo operations; (2) each of the three banks’ primary dealer affiliates took large, secret loans from the Fed’s repo facility when credit collapsed on Wall Street on September 17, 2019; (3) all three institutions have trillions of dollars in exposure to derivatives according to data from the Office of the Comptroller of the Currency (OCC).

If all three banks already have broker-dealer affiliates participating in the Fed’s repo loan facility, why would another affiliate be added? The first thought that comes to mind is the fact that the Fed puts a daily cap on the dollar amount that each counterparty can borrow per day. By having two affiliates as counterparties, the amount that can be borrowed is doubled.

Why would these three banks need to have a sugar daddy at the Fed to loan them money in a financial crisis? Because all three banks have huge exposure to derivatives. According to the latest report from the OCC, as of September 30, 2021, Goldman Sachs Bank USA had $387 billion in assets versus $48 trillion (yes, trillion) in notional (face amount) derivatives. Citibank had $1.7 trillion in assets versus $44 trillion in notional derivatives. Mizuho’s bank holding company had $48.8 billion in assets versus $6 trillion in derivatives.

Until July of this year, only the Fed’s primary dealers were eligible to participate in the Fed’s repo facility. That all changed in July, when the Fed announced it would be adding depository banks as counterparties and making the repo facility a “Standing Repo Facility” with the ability to lend $500 billion per day in overnight loans, which can, of course, be rolled over for long periods of time. See our July report: The Fed Announces Plans to Permanently Backstop Wall Street with a Standing Repo Loan Facility of $500 Billion…Starting Tomorrow.

How did the secret loans from the Fed’s last repo loan bailout to Wall Street that began in the fall of 2019 become public information? On October 13, Wall Street On Parade broke the news that the New York Fed had quietly released the names of Wall Street firms that had grabbed tens of billions of dollars of repo loans under the Fed’s emergency repo loan operations that began on September 17, 2019 – months before there was a COVID-19 case in the United States or anywhere else in the world.

Repos (repurchase agreements) are a short-term form of borrowing where corporations, banks, securities firms and money market mutual funds obtain loans from each other by providing safe forms of collateral such as Treasury securities. The repo market is supposed to function without the assistance of the Federal Reserve. But on September 17, 2019, the oversized demand for the repos and the lack of available funds to meet the demand drove the overnight interest rate on repo loans to an unprecedented 10 percent at one point. Typically, the overnight repo rate trades in line with the Federal Funds rate, which was at that time targeted at 2 to 2.25 percent by the Fed.

On the first day of the emergency repo loan operations on September 17, the New York Fed provided a total of $53.15 billion in one-day repo loans. JPMorgan Securities was the largest borrower at $7.6 billion or 14 percent of the total. At that point in time, JPMorgan Chase held $2.3 trillion in assets and $55 trillion in notional derivatives.

Also on the first day of the repo loans on September 17: BNP Paribas Securities, part of the French investment bank, took $5 billion of the $53.15 billion or 9 percent. Goldman Sachs also took $5 billion or another 9 percent; Citigroup borrowed $3.5 billion; Nomura Securities borrowed $3.5 billion; the New York branch of Societe Generale, a French multinational investment bank, borrowed $3 billion; the New York unit of the Bank of Nova Scotia borrowed $2.5 billion; Barclays Capital, part of the U.K. bank, took $2.4 billion; Mizuho Securities borrowed $1 billion. (There were numerous other borrowers. See the full list here.)

Under the Dodd-Frank financial reform legislation of 2010, the Fed is required to release its repo loan data after two years has elapsed, unless it elects to do so earlier. The Fed is now releasing the data from 2019 quarter by quarter. Thus far, the public has only seen the Wall Street borrowing binge for the period beginning on September 17 through the end of that quarter, ending on September 30, 2019.

***

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To: Worswick who wrote (2771)12/21/2021 8:21:37 PM
From: ggersh
   of 2788
 
Merry Christmas everyone!!

wolfstreet.com

Enough of this “Bond-Markets-Don’t-Buy-Hawkish-Fed’s-View” Nonsense: It’s the Fed’s Reckless Interest-Rate Repression by Wolf Richter • Dec 20, 2021 • 210 Comments Bond Markets will buy Hawkish Fed’s views just fine if the Fed stops buying bonds, period, and sells outright its TIPS, MBS, and long-dated Treasuries. By Wolf Richter for WOLF STREET. The articles are everywhere, including today: “Bond Markets don’t buy hawkish Fed’s view on high U.S. rates can go.” They’re looking at the Treasury yields, particularly the 10-year yield which currently is at 1.4%, which is just a little higher than where short-term rates might be, according to the latest dot plot from the Fed by the end of 2022 and below where short-term rates might be in 2023. The theory is that bond markets are smart somehow and figure that the Fed won’t raise rates, or might cut rates into the negative or some such thing.

The reality is that the Fed already holds $5.64 trillion in Treasury securities, after its reckless bout of QE that started in March 2020. These holdings represent 25% of all marketable Treasury securities.

But this includes only $326 billion in short-term Treasury bills. The remaining $5.31 trillion are coupon-bearing Treasury notes and bonds. Of them, $1.02 trillion mature in 5-10 years, and $1.34 trillion mature in over 10 years.

With these enormous purchases and still growing holdings, the Fed has massively repressed long-term Treasury yields, which was the primary purpose of these purchases – to reduce borrowing costs across the board, from mortgages to junk bonds.


The interest rate repression scheme is even bigger: MBS. The Fed also holds $2.63 trillion in government-guaranteed Mortgage-Backed Securities, which, due to their government guarantees, trade with yields just a little higher than Treasury securities. And 97% of those MBS that the Fed holds mature in over 10 years.

MBS are different from regular bonds in that they pass the flow of principal payments through to their holders. These principal payments occur when a mortgage is paid off when the home is sold, and they occur when a home is refinanced and the existing mortgage is paid off, and they occur as monthly mortgage payments are made.

During the full-blast QE, which is now being tapered out of existence, the Fed purchased roughly $110 billion a month in MBS: $40 billion a month to add to the overall pile of MBS; and $70 billion to replace the pass-through principal payments.

By buying $110 billion a month in MBS, the Fed was the hugest gigantic-est and most relentless ravenous buyer ever in the MBS market. Nothing came even close. The Fed doesn’t trade; it only buys – unlike many other market participants that trade in and out of their positions.

By buying $110 billion in MBS a month, and by increasing its holdings by $40 billion a month, the Fed massively repressed not only the interest rates on mortgages, but also yields in the broader bond market. And that was the stated purpose of those MBS purchases.

The Fed purposefully falsifies the bond markets inflation signals. Part of the Fed’s Treasury security holdings are Treasury Inflation Protected Securities. The Fed holds TIPS with a face value of $381 billion and accumulated inflation compensation of $70 billion, for a combined $451 billion. Its holdings at face value represent about 20% of total TIPS outstanding.

With these TIPS purchases and holdings, the Fed has not only repressed the TIPS yield, but also has ingeniously manipulated the bond market’s “inflation expectations” data, that are based on the difference in yields from Treasury notes and TIPS with similar maturity dates.

So the often cited inflation expectation data coming out of the bond market, such as the “10-Year Breakeven Inflation Rate” (now at 2.38%), is not an indication of actual inflation expectations by the bond market, but what the Fed wants it to be.

Despite the Fed’s year-long and now abruptly abandoned efforts to brush off the worst inflation in 40 years, it must have expected back in 2020 and 2021 that there would be a lot of inflation as a result of its reckless money-printing.

And to be able to brush off this coming inflation for as long as possible without looking too ridiculous – an effort that failed as the Fed ended up looking totally ridiculous by summer – it preemptively manipulated the inflation signals coming out of the bond market with its proportionately large purchases of TIPS. It thereby purposefully falsified the very inflation signals that the Fed cited endlessly in its efforts to brush off the surging inflation.

The bond market will buy the Fed’s hawkishness just fine if the Fed allows it to. So we’re confronted with headlines like this: “Bond Markets don’t buy hawkish Fed’s view on high U.S. rates can go,” and similar.

But what bond yields reflect is what the Fed allows them to reflect. So in order to free the bond market from under the yoke of the Fed, and in order to allow it to signal what it really thinks, and to allow the bond market to buy the hawkish Fed’s views on how high rates can go, the Fed should:

  1. End QE cold turkey now, rather than in March.
  2. Allow all maturing Treasury securities to roll off the balance sheet without replacement, starting now.
  3. Sell outright, starting in January, those Treasury securities with a maturity of five years or more, starting with the longest-dated maturities, in large and unspecified amounts that are sufficient to allow the 10-year yield to rise well above the rate of inflation.
  4. Reduce MBS holdings by not replacing pass-through principal payments, and by selling MBS outright to where the combined reductions amount to about $120 billion a month. This will allow the Fed to wash its hands off these MBS in less than two years.
  5. Announce a policy shift, where QE is removed from the Fed’s toolbox forever.
If there is too much demand for yields to rise beyond a certain point, particularly demand from foreign buyers whose own sovereign bonds might still yield near 0%, the Fed should increase amounts of outright sales until the 10-year yield rises well above the rate of inflation. Blistering foreign demand would provide a perfect opportunity to unload the balance sheet for a perfectly timed exit.

And after the Fed starts actually shedding two or three trillions of its holdings in this manner, the bond market will start joyfully buying the Fed’s hawkishness, and yields will jump to where they belong with CPI inflation at 6.8%.

And as long-term yields shoot higher, the yield curve steepens, and the Fed can then raise its short-term rates rapidly to keep spreads at a reasonable level, while keeping the yield curve steep enough. And it will then gradually begin to accomplish the other task at hand: tamping down on this runaway inflation.

That’s what it would take to free the bond market to signal a reality outside the reckless interest-rate repression scheme designed and created of the Fed.

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