Category Archives: Monetary Policy

In Texas, drowning in debt

By Mike Krauss | Intelligencer

Watching the broadcast media reporting on the catastrophe in Texas, I heard the team on Fox News wonder aloud what the evacuees would do and where to turn to find shelter and safety? Many left their homes with little more than the clothes on their backs. What resources could they draw on?

Commentator, Chris Stirewalt put it in perspective when he observed that most Americans cannot, in times of crisis, lay their hands on more than $500. Other published estimates put that at $400.

Texas may be drowning in water, but the American people are drowning in debt. This is the legacy of decades of neo-liberal economic policy enforced by both political parties, in the Congress and the White House: Americans trapped in a web of debt spun over four decades by a parasitical finance “industry.”

The “capitalism” endlessly extolled by talking heads on networks like Fox and in leading publications like The Wall Street Journal and the Economist is dead; having been steadily degraded into a global economics of trans-national monopolies, with wealth and income monopolized by the few.

It’s simple, really. It takes capital to be a capitalist. Most Americans don’t have any. They have debt. Families, students, small businesses, state and local governments, school districts and the taxpayers that support them are drowning in debt.

The proposed way out? It’s just another step deeper into the web of debt. As in Pennsylvania and across the nation, the same old, same old: more debt and taxes.

The burden of debt will come quickly into focus as Congress is asked to appropriate the many billions that will be needed to fund the federal participation in the recovery from Hurricane Harvey. Deficit hawks are already insisting that whatever amount is appropriated must be offset by cuts elsewhere in the federal budget.

There is an alternative. To understand its utility, it is first necessary to understand how the money of the United States is created. Look at a dollar bill, or any bill. It says clearly at the top, “Federal Reserve Note.” The Fed has a monopoly on the creation of our money. It works like this.

The Fed takes the “full faith and credit” of the United States (Nothing more — no gold, no silver), sells bonds and transfers the credit raised to the Treasury. The majority of the buyers are the global cabal of parasites in pinstripes and some foreign governments. The roughly two dozen banking and finance companies with a license to sell those bonds make a fortune. The Treasury then pays off those bonds, at interest, with the money raised in income taxes. The interest is killing taxpayers and keeping Americans in debt.

Interest on mortgages, car loans, student loans, credit cards, municipal bond issues and built into the chain of production and supply for almost everything we purchase. One example. The new Bay Bridge in San Francisco cost about $6 billion. But there is another $6 billion in interest costs for California taxpayers to pay off.

The alternative is the one used by Lincoln in the Civil War, to bypass the banksters and their high interest. The Treasury can issue the money directly, as “U.S. Treasury Notes,” and avoid the interest paid to the banksters. Cut out the middleman.

Lincoln had the Treasury issue $450 million of “greenbacks,” which went directly into the productive economy, buying goods and services. That $450 million in 1864 is equal to roughly $6.7 billion in today’s dollars, a tiny fraction of the current $4 trillion federal budget and almost $20 trillion U.S. economy.

Trump has proposed a $1 trillion infrastructure package. It will come at interest. The Treasury could issue three times that as low, almost no cost interest (the same terms on which the Fed loaned an estimated $17 trillion to Wall Street) to underwater homeowners and businesses, students and cash strapped state and local governments and school districts, to pay off older, more costly debt and start rebuilding the entire national infrastructure.

The Treasury can be repaid easily by an elimination of debt-service costs, an explosion of wealth-generating productivity, the growth of tax receipts at all levels of government and the future employment of well-educated young people.

The Treasury can bypass the Fed — which is nothing more than the administrative arm of Wall Street and the banksters — and rescue the American people from their high interest racket.

The banksters will howl, making more noise than a hurricane.

Music to our ears.

Goliath, not a David, likely wins Santa Fe banking contest

Photo: Protesters outside a Santa Fe Wells Fargo in January called for Santa Fe to withdraw its municipal accounts from the banking giant. (Eddie Moore/Albuquerque Journal). 

By Mark Oswald | Albuquerque Journal North

SANTA FE, N.M. — The Santa Fe City Council, as a customer looking for the best deal, is now faced with something similar to the rancorous debate that took place when a new Super Walmart opened about a decade ago.

Santa Feans, and the council, were divided about having a second and bigger Walmart in town. Walmart was blasted for its labor policies, as a corporate giant that hurts local business and as yet another aggression against the old, traditional Santa Fe.

But in a public comment period during what was literally a night-long council meeting, there was also support for what Walmart and its massive organization has to offer – cheap prices. In the end, the Walmart development on far south Cerrillos Road was approved by a single tie-breaking vote.

Now the City Council is considering a new contract for municipal government’s banking services as the existing one with the giant Wells Fargo Bank expires.

Wells Fargo, of course, is coming off a bad year.

In a major scandal, Wells Fargo acknowledged in September that its employees opened up to 2 million bank and credit card accounts without customer authorization in order to meet lofty sales goals – a case of trying to hoodwink its own customers. Federal and California regulators fined Wells Fargo $185 million.

And the bank has faced protests, including in Santa Fe, for its involvement in financing the controversial Dakota Access Pipeline.

Mayor Javier Gonzales cheered the DAPL protesters who showed up outside a Wells Fargo branch in January and pushed for changes to the bidding process for the banking contract to include assurance of local involvement by the city’s banker. The mayor and others on the council also have promoted study of the ground-breaking idea of a public bank for Santa Fe, in part to gain control over how its money can be used as it bolsters a bank’s assets

But a city fiscal team, after reviewing bids from Wells Fargo and four other banks, now recommends sticking with the Wells Fargo behemoth. Three of the four other bidders are locally based. One other bidder has New Mexico in its name, but is a “member” of a banking outfit from Dubuque, Iowa.

The bid evaluation team’s report makes it clear that the competition wasn’t even close.

“Wells Fargo Bank provided a strong alignment of business interests, community initiatives and process priorities while keeping fiduciary responsibility and the safeguarding of the City’s financial assets in the forefront,” says the team’s recommendation.

In the new “community initiatives” category, Wells Fargo scored 501 points out of a possible 525. No other bidder got more than 338 points here. “The most complete, thorough and involved response was provided by Wells Fargo” in this category, the evaluation report says. The report lists Wells Fargo’s local lending to small borrowers, community donations and its employees’ volunteer services as pluses. It even adds, “Wells Fargo has been an industry leader in social, environmental and governance activities.” Wow.

For what it’s worth, a regional Wells Fargo official more or less apologized for the unauthorized accounts scandal. He was “personally very disappointed with things that have happened in other areas of our institution this year,” he told a City Council committee Monday.

The evaluation committee’s rave review of the Wells Fargo bid is going to make it difficult for councilors to move to another bank. The Finance Committee on Monday sent the recommendation onto the full council.

It’s a tough call for elected representatives to go against political beliefs that they and many of their constituents have expressed and strongly hold to. But the city staffers’ strongly non-political evaluation report is hard to argue with.

 

Fed’s Kashkari to Jamie Dimon: It’s ‘nothing personal’ — big banks need to double their safety nets

Minneapolis Federal Reserve President Neel Kashkari told CNBC on Friday banks need “about twice as much” rainy-day capital to effectively address “too big to fail,” which put U.S. taxpayers on the hook to bail out Wall Street firms during the 2008 financial crisis.

Higher capital requirements would be on “the biggest banks, only the biggest banks” to guard against the “contagion risk” of a cascading collapse in the financial system, he said on “Squawk Box.”

He said he’s talking about banks with “$250 billion in assets and up. That’s about a dozen banks in America.”

“Those are the ‘too big to fail’ banks as we see it,” he said.

In a blog post Thursday, Kashkari argued that JPMorgan Chairman and CEO Jamie Dimon recently made “demonstrably false” statements about the banking industry.

Dimon, in his annual letter to shareholders this week, wrote “too big to fail” fears have been eradicated. He contended banks are well-capitalized enough to sustain shocks similar to what happened during the financial crisis.

Kashkari disputed Dimon’s comments, saying on CNBC: “This is nothing personal. … Banks don’t have nearly enough capital.”

“The biggest banks need about twice as much equity capital as they have today,” he continued. “We could more or less address ‘too big to fail.’ We haven’t done it yet.”

Addressing critics who argue that higher capital requirements would keep banks for lending and hurt the economy, Kashkari said, “This is about analyzing costs and benefits.

“The benefits of higher capital are we avoid these disastrous financial crises,” he said. “Safety isn’t free.”

Kashkari said he’d be willing to accept a little less lending from the big banks because “the benefits outweigh the costs.”

At the same time, Kashkari would like to see smaller banks get a break. “We would want to relax regulations on small banks [and] on community banks because they’re not systemically risky for the economy.”

In his 16 months at the Fed, Kashkari has consistently railed against the size of big Wall Street institutions. He was also the lone dissenter against a Fed interest rate hike in March.

Kashkari, who unsuccessfully ran as a Republican for governor of California in 2014, served as the administrator of TARP, the Troubled Asset Relief Program, at the Treasury Department during the financial crisis.

After leaving Washington, he joined Pimco as a managing director and head of global equities. Before his time at Treasury, he was a vice president at Goldman Sachs.

What Donald Trump Owes Wall Street

New information on conflicts of interest that would challenge even a saint

While the president-elect’s finances remain murky, due largely to his refusal to release his tax returns, the newspaper reports that he owes at least hundreds of millions of dollars, that the debt is held by more than 150 institutions, and that some of it is backed by his personal guarantee. “As a result, a broader array of financial institutions now are in a potentially powerful position over the incoming president,” it states. “If the Trump businesses were to default on their debts, the giant financial institutions that serve as so-called special servicers of these loan pools would have the power to foreclose on some of Mr. Trump’s marquee properties or seek the tens of millions of dollars that Mr. Trump personally guaranteed on the loans.”

One wonders whether to be more worried about Big Finance using its leverage to influence the president or the president abusing his power in order to thwart his creditors.

Either way, Trump’s decision to hold on to his opaque business empire while president, rather than liquidating his interests to focus on the good of the country, has created unprecedented conflicts of interest that even a saint would have difficulty navigating in office. In a prior column, I noted a New York Times investigation into a portion of Trump’s business dealings in foreign countries, arguing that in India, China, Turkey, Saudi Arabia, Indonesia, Brazil, Argentina, and other countries besides, there will be countless occasions where the interests of the United States and the interests of the Trump organization diverge.

If the Times story was the best look we’ve gotten at specific conflicts of interest abroad, the Wall Street Journal article is the domestic analog, highlighting facts like this:

Wells Fargo & Co., for example, runs at least five mutual funds that own portions of Trump businesses’ securitized debt, according to an analysis of mutual-fund data conducted by Morningstar Inc. for the Journal.

The bank also is a trustee or administrator for pools of securitized loans that include $282 million of loans to Mr. Trump. And Wells acts as a special servicer for $950 million of loans to a property that one of Mr. Trump’s companies partly owns, according to securities and property filings.

Wells Fargo is currently facing scrutiny from federal regulators surrounding its fraudulent sales practices and other issues. Once he takes office, Mr. Trump will appoint the heads of many of the regulators that police the bank.

The article lists other specific conflicts.

And then there’s this alarming detail: “It is impossible to identify all the firms or individuals that now hold Trump businesses’ securitized debt, as these investments often don’t have to be disclosed.” As a result, it is easy to imagine Trump covertly benefiting or punishing one of his creditors (depending on his analysis of what’s preferable). He needn’t be in a position to directly appoint regulators to do so. He often posts tweets that laud or vilify corporations with huge consequences for their stockholders. How many corporate leaders would quietly forgive debt if the stock of their biggest competitor would be tanked, rather than their own?

This should concern even Americans who voted for Donald Trump. The underlying case here isn’t that he is unusually corrupt, but that the extreme power of the presidency requires a responsible country to put anyone who rises to the position under a microscope. Trump’s unusually big business conflicts create even more problems than usual, temptations to which the vast majority of humans might succumb. If Trump merely behaves as most people would, the country will lose, bigly.

Tens of millions of people will be harmed.

Trump is nevertheless offering less transparency than any predecessor in the modern era, and entering office with both houses of Congress controlled by Republicans who show no inclination to fulfill their responsibility to scrutinize his conflicts. Until members of Congress launch a full probe into Trump’s financial assets and debts, so that at the very least they can understand where his interests and America’s interests diverge, there is no way that they can adequately represent their constituents.

And it is particularly ironic that their historic abdication of responsibility is rooted in partisanship, given that it will benefit a man with no loyalty to the Republican Party.

MAKE AMERICA HONEST AGAIN

Northwest Ohio supporters of Senator Bernie Sanders in his run for President have launched a nationwide push to enlist other organizations to send it letters and take to social media to endorse a demand that President-elect Donald Trump fulfill a campaign pledge. Trump made the pledge on October 26 of this year in a speech he delivered in Charlotte, North Carolina, promising to enact a 21st Century Glass-Steagall Act to reform Wall Street. Such legislation has been sitting dormant in both the House and Senate for years. If enacted, it would separate the deposit-taking, taxpayer-insured commercial banks from the globe-trotting, high-risk trading casinos known as investment banks on Wall Street.

The 1933 Glass-Steagall Act kept the financial system of the United States safe for 66 years until its repeal in 1999 during the Bill Clinton presidency. It took only nine years after its repeal for Wall Street to blow up the financial system in a replay of 1929. All that prevented another Great Depression was a massive, secret money drop by the Federal Reserve.

Following the financial crash in 2008, the Federal Reserve fought for years in court to avoid providing details of the money it funneled to the Wall Street banks during the years of the crisis. When the Fed finally lost the legal fight, the Government Accountability Office (GAO) tallied up the secret Fed loans, all of which had been made at super low, below-market interest rates with no public or Congressional disclosure. The final tally came to $16.1 trillion in cumulative loans. (See the GAO report for a bank-by-bank breakdown of the loans.)

While Wall Street banks received trillions of dollars in almost interest-free loans, many of the same banks were charging the customers they had rendered homeless through foreclosures, double-digit interest rates on their credit cards.

During Trump’s speech in Charlotte on October 26, he delivered the following remarks:

“I will also pursue financial reforms to make it easier for young African-Americans to get credit to pursue their dreams in business and create jobs in their communities…Dodd-Frank has been a disaster, making it harder for small businesses to get the credit they need. You folks know that. The policies of the Clintons brought us the financial recession – through lifting Glass-Steagall, pushing subprime lending, and blocking reforms to Fannie and Freddie. Two friendly names but they’re not so friendly. It’s time for a 21st century Glass Steagall and, as part of that, a priority on helping African-American businesses get the credit they need.”

Sanders’ supporters have good reason to be holding Trump’s feet to the fire on his pledge to restore Glass-Steagall. Instead of making good on his pledge to drain the Washington swamp, Trump has stacked his administration with men tied to Goldman Sachs. Trump has nominated Steven Mnuchin, a 17-year veteran of Goldman Sachs to be his Treasury Secretary; named Stephen Bannon, another former Goldman Sachs banker, as his Chief Strategist in the White House; and nominated Gary Cohn, the current President of Goldman Sachs, to head the National Economic Council. Just this week, Trump nominated a Goldman Sachs outside lawyer, Jay Clayton of Sullivan & Cromwell, to serve as Wall Street’s top cop as Chairman of the Securities and Exchange Commission. In an added insult to the public’s sensibilities, Clayton’s wife currently works as a Vice President at Goldman Sachs.

The 849-page Dodd-Frank financial reform legislation, enacted over six years ago in 2010, has indeed been a failure as Trump correctly notes. Dodd-Frank mandated 398 new rules, none of which have been successful in curtailing fraud by Wall Street banks. What has happened instead is that the biggest banks on Wall Street are signing deferred prosecution agreements with the Justice Department for prior felonies as they invent ingenious new ways to loot the investing public. Instead of these so-called “universal” banks functioning as one-stop financial supermarkets as they promised Congress prior to the repeal of Glass-Steagall, they have become sprawling criminal enterprises, frequently operating as cartels to rig various markets or engaging in ever more brazen frauds, as we saw in the recent two million fake accounts at Wells Fargo or the London Whale scandal at JPMorgan Chase where it gambled with hundreds of billions of dollars of its depositors’ money, not its own capital, and lost over $6.2 billion in high-risk derivatives trading in London.

The organization pressing Trump to keep his campaign promise and asking others to make this a national campaign is Our Revolution in Northwest Ohio. The letter it is circulating has been endorsed by the Cuyahoga County Progressive Caucus and by Ohio Revolution.  Sanders had promised his supporters a “political revolution.” Despite his loss in the presidential primary, his supporters are keeping that promise alive through this kind of grassroots activism.

Eight Years After an Epic Banking Crash, America’s Biggest Threat Is Still Its Banks

Source: Federal Deposit Insurance Corporation

In 1934 the U.S. had 14,146 commercial banks holding insured deposits. By 1985, that number had barely budged, standing at 14,417. Then came the Bill Clinton administration in the 1990s and its reckless and unprecedented banking deregulation which allowed the giant Wall Street banks to swallow up, or drive out of business, thousands of banks across America. According to the Federal Deposit Insurance Corporation (FDIC), as of December 22 of this year, there are only 5,927 FDIC insured banks left in the U.S., a stunning decline of 59 percent from 1985.

But those numbers are just the tip of the iceberg. Banking concentration in the U.S. has reached an unprecedented crisis level when it comes to deposits. Out of the dramatically shrunken base of 5,927 FDIC insured banks which were holding a total of $11.2 trillion in total deposits (insured and uninsured deposits) as of September 30, 2016, just four banks hold 44.6 percent of all deposits. Those four banks are JPMorgan Chase Bank N.A. with $1.486 trillion in total deposits; Bank of America N.A. with $1.3 trillion in total deposits; Wells Fargo Bank N.A. with $1.3 trillion in total deposits; and Citibank N.A. with total deposits of $947.8 billion. (Deposit figures are as of September 30, 2016. The source is the FDIC.)

Each of those four banks also have an outsized presence on Wall Street; each of them received taxpayer bailouts during the 2008 crash; each received secret, below­-market interest rate loans from the Federal Reserve during the crisis; and three of them (JPMorgan Chase, Bank of America and Citibank) are currently holding tens of trillions of dollars in derivatives within the insured banking subsidiary – meaning there would be a forced taxpayer bailout if the derivatives blew up the bank.

Here’s why these behemoth banks pose such a threat to the safety and soundness of the U.S. banking system. The FDIC’s Deposit Insurance Fund (DIF) as of September 30, 2016 stood at $80.7 billion (that’s billion with a “b”) to insure a total of $6.8 trillion of DIF­insured deposits. That’s a slim reserve ratio of 1.18 percent in a banking system that required $16 trillion of secret Federal Reserve loans to resuscitate itself from 2007 to 2010. Citigroup, parent of Citibank, alone received $2.5 trillion in cumulative revolving loans of the $16 trillion loaned by the Fed. It has more derivatives today than it did at the peak of the crisis in 2008.

How did Bill Clinton’s administration set this train wreck in motion? In 1999, Clinton signed the repeal of the Glass­Steagall Act which had kept the nation’s banking system safe for 66 years. This allowed Wall Street’s speculative trading activities in its investment banks and brokerage firms to merge with commercial banks holding insured deposits that are backstopped by the U.S. taxpayer. But Clinton did two other horrendous banking deeds: in 1994 Clinton signed into law the Riegle­Neal Interstate Banking and Branching Efficiency Act. This permitted bank holding companies to acquire banks anywhere in the nation and invalidated the laws of 36 states which had allowed interstate banking only on a reciprocal or regional basis. And, finally, Clinton signed into law the Commodity Futures Modernization Act of 2000, allowing trillions of dollars of OTC derivatives on Wall Street to escape regulation.

It is nothing short of fiduciary negligence that Congress has allowed this dangerous banking system to remain unreformed eight long years after the greatest financial collapse since the Great Depression.

Three Federal Studies Show Fed’s Stress Tests of Big Banks Are Just a Placebo

 

federal-reserve-tries-wizardly-to-cure-too-big-to-fail

 

The only thing standing between the American people and another apocalyptic financial collapse among by the biggest banks on Wall Street is the Federal Reserve’s stress tests and capital requirements. After Wall Street laid waste to the U.S. housing market and economy from 2008 through 2010, while propping itself back up with a feeding tube from the taxpayers’ pocketbook, the Obama administration passed the Dodd-Frank financial reform legislation in 2010.  It wasn’t so much legislation as it was an illusory 2300 pages of rules that might someday get implemented in a meaningful way if President Obama appointed tough cops to his financial regulatory bodies – which he decidedly did not do.

One of the promises in Dodd-Frank was that the Federal Reserve would annually assess whether the biggest and most dangerous banks have adequate capital to withstand a severe recession and whether the bank has the proper risk-management programs in place to prevent it from imploding and becoming a ward of the taxpayer.

Yesterday, the nonpartisan congressional watchdog, the Government Accountability Office (GAO), became the third Federal entity in the last two years to indicate that the Fed is muffing the job of stress testing the big Wall Street banks.

The GAO report notes:

“…the Federal Reserve’s organizational structure for the stress tests does not include a formal process through which model development or risk management at the aggregate—or system-of-models—level is implemented…By largely focusing the modeling principles on the component models and not applying those principles to the system of models, the Federal Reserve has limited its ability to manage the extent to which model risk is introduced into the supervisory stress test models.”

Another failing according to the GAO report is this:

“The Federal Reserve also has not conducted analyses to determine if its single severe supervisory scenario is sufficiently robust and reliable to promote the resilience of the banking system against a range of potential crises. Such analyses—including performing sensitivity analysis involving multiple scenarios—could help the Federal Reserve understand the range of outcomes that might result from different scenarios and explore trade-offs associated with reliance on a single severe supervisory scenario.”

Last year, the Federal Reserve was criticized in a report by its Office of Inspector General over the models in its stress tests. But far more alarming was a report issued just this past March by the Office of Financial Research (OFR), which was also created under the Dodd-Frank legislation.

The OFR report brought the illusory nature of the stress tests into sharp focus. A careful reading of the report strongly suggests that the stress tests are being used to simply comfort Congress and the public with the notion that Wall Street banks are not going to rapidly morph again into an exploding fireworks factory, when, in fact, there is no basis for that confidence.

The OFR researchers who conducted the study, Jill Cetina, Mark Paddrik, and Sriram Rajan, found that the Fed’s stress tests are measuring counterparty risk for the trillions of dollars in derivatives held by the largest banks on a bank by bank basis. The real problem, according to the researchers, is the contagion that could spread rapidly if one big bank’s counterparty was also a key counterparty to other systemically important Wall Street banks. The researchers write:

“A BHC [bank holding company] may be able to manage the failure of its largest counterparty when other BHCs do not concurrently realize losses from the same counterparty’s failure. However, when a shared counterparty fails, banks may experience additional stress. The financial system is much more concentrated to (and firms’ risk management is less prepared for) the failure of the system’s largest counterparty. Thus, the impact of a material counterparty’s failure could affect the core banking system in a manner that CCAR [one of the Fed’s stress tests] may not fully capture.” [Italic emphasis added.]

It’s not that the Fed doesn’t have real-world experience that a failure by a major counterparty could rapidly spread contagion across Wall Street. That’s exactly what happened when the large insurer, AIG, failed in 2008. The U.S. government had to backstop AIG with $185 billion. Approximately half of the bailout money was then quietly funneled to the biggest banks on Wall Street to cover the counterparty guarantees on derivatives that AIG was on the hook to pay – but could not have paid except for the taxpayer bailout.

The March 2016 OFR study also reached the stunning conclusion that just six banks make up the “core” of the U.S. financial system. That’s six banks out of a little more than 6,000 commercial banks. That dangerous core includes: Bank of America Corp., Citigroup Inc., Goldman Sachs Group, Inc., JPMorgan Chase Co., Morgan Stanley, and Wells Fargo & Co. The researchers noted that while individual bank holding companies direct losses have declined under the Fed’s stress tests, “counterparty credit risks to the banking system collectively have risen and may suggest a greater systemic risk than is commonly understood.”

This counterparty concentration risk was also called out in the seminal report on the 2008 financial collapse by the Financial Crisis Inquiry Commission. The final report found:

“Large derivatives positions, and the resulting counterparty credit and operational risks, were concentrated in a very few firms. Among U.S. bank holding companies, the following institutions held enormous OTC derivatives positions as of June 30, 2008: $94.5 trillion in notional amount for JP Morgan, $37.7 trillion for Bank of America, $35.8 trillion for Citigroup, $4.1trillion for Wachovia, and $3.9 trillion for HSBC. Goldman Sachs and Morgan Stanley, which began to report their holdings only after they became bank holding companies in 2008, held $45.9 and $37 trillion, respectively, in notional amount of OTC derivatives in the first quarter of 2009. In 2008, the current and potential exposure to derivatives at the top five U.S. bank holding companies was on average three times greater than the capital they had on hand to meet regulatory requirements. The risk was even higher at the investment banks. Goldman Sachs, just after it changed its charter, had derivatives exposure more than 10 times capital. These concentrations of positions in the hands of the largest bank holding companies and investment banks posed risks for the financial system because of their interconnections with other financial institutions.”

Despite the devastation unleashed on the U.S. by the Wall Street banks in 2008, the worst economic collapse since the Great Depression, the biggest Wall Street banks now hold many trillions of dollars more in derivatives than they did in 2008. And, with the exception of Morgan Stanley, those derivatives are held at the FDIC-insured, taxpayer-backstopped, commercial banking units of the behemoth Wall Street banks.

A careful assessment of what the Fed has actually been doing with its much ballyhooed annual release of stress test results strongly suggests it is simply offering up a placebo for a malignant cancer eating away at the very heart of the U.S. economy and the future of the struggling young people of this nation.

It’s important to remember that this is the same Federal Reserve that secretly sluiced $16 trillion in cumulative, below-market-rate loans to the behemoth banks (while millions of families were losing their jobs and homes) and then fought a multi-year court battle attempting to keep the public from learning about this unprecedented action. Thanks to Senator Bernie Sanders and others, the public was finally afforded an accounting of this non-Congressional authorized bailout in a report by the GAO. (See Table 8 in the linked report to learn which banks got the lion’s share of the $16 trillion.)

The pent up anger of the American people, evidenced in the outcome of the November 8 election, has been brewing since the 2008 crash. Senator Bernie Sanders, in a 2012 Senate floor speech below, talks about the secret $16 trillion bailout by the Fed and puts his finger on the pulse of Americans’ continuing anger at a system that is only working for the one percent.

 

California Imposes Sweeping Sanctions On Wells Fargo Amid Scandal

State Treasurer John Chiang (right) at a news conference in Sacramento, Calif., in May. On Wednesday, Chiang announced he is suspending major parts of the state's business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts. Rich Pedroncelli/AP
State Treasurer John Chiang (right) at a news conference in Sacramento, Calif., in May. On Wednesday, Chiang announced he is suspending major parts of the state’s business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts.
Rich Pedroncelli/AP

California’s state treasurer has announced he is suspending major parts of the state’s business relationship with Wells Fargo because of a scandal involving unauthorized customer accounts.

In a letter to Wells Fargo, John Chiang asked, “how can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their well-being in its care?”

As we reported, “Wells Fargo said earlier this month it had agreed to pay $185 million to settle charges that it opened some 2 million deposit and credit card accounts for its customers without their permission over a five-year period.”

The new sanctions include the bank’s “most highly profitable business relationships with the state,” as Chiang’s letter read.

In an interview with The Two-Way, California’s deputy treasurer for public finance, Tim Schaefer, laid out the sanctions against Wells Fargo. They fall into three categories.

First, Schaefer said that the state won’t “buy any more of their debt securities,” which he said currently amount to approximately $800 million. He added that “we’re not going to go out and liquidate that tomorrow morning, because we don’t want to put the taxpayers of California at risk of a loss, but we’re not going to renew it. And that will all be gone over the next couple of months.”

Second, Schaefer said the state will no longer use Wells Fargo as a broker-dealer for buying securities. The value of that relationship is not clear, he says, but the state has “engaged in about $1.65 billion worth of trades with them, in that way, over the last 18 months. That $1.65 billion would be expected to produce high hundreds of thousands of dollars if not low millions of dollars in revenue for them.”

Third, Schaefer said the state will no longer use Wells Fargo to underwrite bonds. Over the last 18 months, the state has appointed Wells Fargo to five bond offerings, he said. “Two of those were terminated Monday afternoon, so that left them with three.” Those remaining three have amounted to about $1.75 million during that time period, he added.

He said two major aspects of California’s relationship with the bank will remain in place. Local governments can still use Wells Fargo to wire money to the state government. And two major public pension funds — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — have at least $2.3 billion invested in the bank’s fixed income and equity. That money will remain where it is.

The message of these sanctions, Schaefer said, is that “ethics and responsibility in the community matter.”

In a statement to NPR after Chiang’s announcement, Wells Fargo said that it has “diligently and professionally worked with the state for the past 17 years to support the government and people of California” and “stand ready to continue delivering outstanding service.” It added that it is “very sorry and take full responsibility for the incidents in our retail bank.”

Yesterday, the company announced that its CEO and former retail-banking head will forfeit tens of millions of dollars in outstanding stock awards. CEO John Stumpf will forfeit such awards totaling about $41 million, while former retail-banking head Carrie Tolstedt will forfeit awards worth about $19 million. Neither will receive bonuses this year, the bank said.

Stumpf is scheduled to testify before the House Financial Services Committee on Thursday. As we reported, he was questioned by the Senate Banking Committee last week, which was “widely seen as something of a public relations disaster.”

Fed’s Kashkari ‘shocked’ black unemployment isn’t better understood.

Chart unemploymentKashkari plans on pressing for more research by central-bank economists on racial disparity in the labor market.

Minneapolis Fed President Neel Kashkari said Wednesday he was “shocked” that the persistently higher national black unemployment rate relative to the rate for whites was not better understood.

“There is a really troubling statistic in the U.S. economy where black unemployment is almost always twice white unemployment,” Kashkari said in a conversation at the Amherst H. Wilder Foundation charity in St. Paul.

“If it is a booming economy, and white unemployment is 4[%], then black unemployment is 8[%]. If it is a recession and white unemployment is 8, black unemployment is 16,” Kashkari said.

“What’s shocking to me is we, as a country, still don’t know why that is. We have to know why that is if we hope to solve it,” he said.

Kashkari said he would press the “world class research capabilities at the Minneapolis Fed and Fed system” to understand why blacks are being left behind “and hopefully Congress…can get involved.”

The Fed president, who has been in office since the beginning of the year, said he was surprised by the racial disparity in his district.

“To be blunt, whites doing really well. But then there are huge gaps to people of color, in general, around Minnesota,” he said.

At Fed’s Jackson Hole retreat, demonstrators push for economic change

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It’s the day central bankers and top global financial figures have been waiting for. U.S. Federal Reserve Chairwoman Janet Yellen delivers long-awaited remarks to cap off the Jackson Hole Symposium. Outside the meetings, some demonstrators say full employment in the U.S. should be a top priority.

CCTV America’s Hendrik Sybrandy reports.

 “We are here to do everything we can to remind Fed policymakers that we need an economy that works for all of us,” Shawn Sebastian, Fed Up Coalition Field Director said.

As Federal Reserve officials gathered here in Jackson Hole to plot the next steps for America’s economy, some members of the Fed-Up Coalition of community and labor groups spoke of their financial struggles.

“I’ve been looking for a job for like seven months and it just seems like I go on interviews and I just haven’t gotten a job yet,” said demonstrator Ramona Charles, who is still unemployed.

To help low-wage workers, this group wants the Fed to keep fueling the economy by keeping interest rates very low.

“[If] The Federal Reserve starts slowing the economy, it starts halting progress in reducing unemployment before the benefits of that reach the last people to be hired,” said Josh Bivens from Economic Policy Institute.

At a highly unusual meeting Thursday, ten central bankers heard that message in person.

“We’re going to keep this economy growing. We’re going to run it hot, and get unemployment down lower,” Federal Reserve Bank of San Francisco President, John Williams said.

Federal Reserve officials said full employment is one of their goals.

“My objective is absolutely not to slow down the economy. That would be irresponsible,” Federal Reserve Bank of Kansas City President Esther George said.

But they also worry raising interest rates too late could cause inflation to roar to life.

“One of the ways that you get maximum employment is to make sure that you don’t allow excesses to build up to the point that you have a recession which hurts everybody in the room,” Federal Reserve Bank of Boston President Eric Rosengren said.

Besides, they added, those who need to save, like the elderly, are also weighing in on this issue.

“You’re killing me. When are you gonna raise interest rates so that senior citizens have enough income that they can get by,” said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.

It’s a tricky balance, these bankers said, making the economy work for everyone.

The debate over monetary policy and the Federal Reserve’s role in steering the economy is front and center like never before.

“And so honestly this meeting today is enormously helpful,” said Neel Kashkari, the president of Federal Reserve Bank of Minneapolis.

“This is not the first discussion. It’s one of many and they’re many more to come,” Neel Kashkari said.