EDITOR NOTE: Author and Fed expert G. Edward Griffin explains in a PBS documentary that “The Federal Reserve is a cartel — it’s a banking cartel. And like all cartels, it only has one purpose — and that is to serve the benefit of the members of the cartel, period.” The members are big banks and other financial institutions deemed too big to fail, which is why they’ve been repeatedly bailed out by the Fed. Banking expert Chuck Butler concurs, explaining that 40% of the wealth in this country is concentrated in four banks — JPMorgan Chase, Bank of America, Wells Fargo, and Citibank. These institutions also hold a whopping 90% of all risky derivatives. These banks know they’re too big to fail in the Fed’s eyes and continue to make gambles without considering the consequences. As anyone who gambles knows, though, eventually you lose. However, Big Banking doesn’t care because they know the Fed will always be there to bail them out. The economy survived the bailouts in 2008, but another post-pandemic round could be catastrophic.
The Federal Reserve is owned by “Member Banks” that have now merged into huge brokerage, investment firms; many deemed “Too big to be allowed to fail”.
G. Edward Griffin explains:
“The Federal Reserve is a cartel- it’s a banking cartel. And like all cartels, it only has one purpose – and that is to serve the benefit of the members of the cartel, period.”
A PBS documentary titled, “The Power of the Fed” reinforces Mr. Griffin’s explanation. Host James Jacoby (JJ) interviewed several experts, including current and former Federal Reserve employees who, in their own words, explain what has been happening since the first bank bailout in 2008.
After interviewing experts about the trillions of dollars the Fed flooded into the banking system, he summarized, “One of the problems was the banks were holding on to a lot of the money, instead of making it available to borrowers.”
Does that mean what I think? When it comes to the Federal Reserve, I contact friend and banking expert, Chuck Butler. He can decode the message in common sense terms.
I sent Chuck the PBS link.
DENNIS: Chuck, thank you for your time.
I want to start with a premise. Prior to the repeal of the Glass-Steagall Act, the banks were not allowed to be investment houses, they were banks. They were required to LEND their money to businesses and individuals and earn their profits on the interest rate differential.
So far, so good right?
CHUCK: My pleasure Dennis. I always enjoy the opportunity to communicate with your readers.
Yes, the big investment firms were not allowed to be connected to any banking institution. Like any other private business, they sank or swam on their own.
DENNIS: OK, I’m going to create a pretend business, “Denny’s Distribution”; a company that sells critical medical supplies. This little business buys in bulk, then resells smaller quantities to hospitals.
The saying, “You can’t sell from an empty wagon” applies. The success of the little business depends on having products in stock for sale. This is where the bank comes in. They lend Denny’s Distribution money so they can buy inventory.
You worked for a bank. While Denny’s stocks physical product, would it be fair to say, money available to lend is a bank’s product?
CHUCK: Dennis, you defined what commercial banking is all about. The banks hold deposits and pay interest on that capital. They lend out that money, at a higher interest rate, and make their profit on the interest rate spread. Yes, money is their inventory, historically bigger banks, with more money to lend, were more profitable.
DENNIS: Since the repeal of Glass-Steagall, big banks not only gobbled up smaller banks, becoming “Too big to fail”, they also merged with investment houses. Didn’t the change then allow them to take huge investment risks they were previously not allowed to take?
Would it be fair to say their investment income dwarfs what they used to earn from commercial and retail lending?
CHUCK: Glass-Steagall was in effect for over 60 years. Up until they repealed it, no bank was too big to fail. Casino banks are now investment/brokerage companies that underwrite and package investments and sell them to their customers and the public, many times as part of mutual funds…which earns them never-ending fees.
Part of this came via mergers. Prior to the repeal of Glass-Steagall there were over 10,000 federally insured banks. Today the number is around 5,000.
The concentration is enormous. The assets of JPMorgan Chase, Bank of America, Wells Fargo and Citibank are around $9 trillion of a total of $22.6 trillion. 40% of the wealth is concentrated in four banks…now deemed too big to fail.
In addition, they invest themselves. The top four banks hold almost 90% of all the risky derivatives. Their investment income is much more than the commercial banking side.
DENNIS: I thought the Dodd-Frank bill was supposed to end derivatives, so there would be no more bailouts.
CHUCK: It was. A recent Wall Street On Parade article explains what happened behind the scenes:
“The Dodd-Frank legislation did not envision derivatives remaining at the federally-insured, deposit-taking commercial banks of America. Dodd-Frank contained what was called the ‘push out rule’ where the derivatives would move out of the federally-insured bank and into another unit of the bank holding company that could be wound down without a taxpayer bailout in case of insolvency.
But Citigroup, the recipient of the largest taxpayer and Fed bailout in the 2008 crisis, used its lobbyists to force the repeal of that part of Dodd-Frank in December of 2014.
…. The office of the Comptroller of the Currency (reports):
‘The four banks with the most derivative activity hold 89.0 percent of all bank derivatives….’
Those four banks are not the investment banking units of the Wall Street mega banks. They are the federally-insured, taxpayer-backstopped, commercial banking units of these Wall Street behemoths.”
What that means is that one of the banks, that had been heavily bailed out, lobbied Congress to take the teeth out of the Dodd-Frank bill, which Congress did. Derivative exposure today is huge compared to what it was in 2008.
The Fed, with an assist from Congress, has allowed the problem to grow even more…just sayin….
DENNIS: The bailouts appeared to be limited to banks. The PBS documentary says it expanded, with trillions for other areas, like shadow banking, foreign banks and risky corporate bonds.
Theoretically, the bailout was to allow companies to borrow cheaply, build plants and create American jobs.
JJ interviewed Andrew Huzar, former Fed employee who was put in charge of the bailout program. He told us:
“The idea was the Fed was trying to get more credit and cheaper credit into the hands of the average American. .… How could the Fed use its financial tools to actually help the average American?”
Huzar left his job as the Fed continued creating more money, calling it Quantitative Easing. AH tells us:
“…. Nobody was giving us a coherent explanation as to how the Fed showering trillions of dollars on to Wall Street banks was actually, directly benefitting the average American.
And I’ll tell you why they weren’t talking about it – because it doesn’t!”
When I read Jacoby’s comments about the banks not making the money available to borrowers, I went nuts…and called you.
Isn’t the Fed giving the big banks money (inventory) for virtually nothing, anticipating they would lend to big and small companies (like Denny’s Distribution) to invest in their business and create jobs – but instead they grab a large portion and invest elsewhere because they can make more profit?
CHUCK: It sure looks that way; at least with most of the money. Cheap money should fuel an economic boom, but it fell far short of expectations.
DENNIS: Dion Rabouin, Financial writer at Axios told us:
“It used to be, the Fed would lower interest rates, businesses would then take on more debt, they would use that debt to hire more workers, build more machines and more factories.
Now what happens is the Federal Reserve lowers interest rates, businesses use that to go out and borrow more money, but they use that money to buy back stock and invest in technology that will eliminate workers and reduce employee head counts.”
Doesn’t this mean that both the big banks and corporate America took trillions of taxpayer dollars and used it for their own benefit, as opposed to the stated intention?
CHUCK: Much of corporate America borrowed trillions to buy back their stock and pay dividends, instead of reinvesting in their businesses and creating jobs.
Companies generally don’t build new factories until there is increased demand for their products, but the economy was flat. You borrow to make more money, not pump up stock prices.
I agree with Andrew Huzar, it was more effective in boosting stock prices, than actually helping the economy.
DENNIS: Today investment banks and corporate America are addicted to continual government stimulus; meaning taxpayers are on the hook for more money. Yet small businesses and the average American worker is not really better off.
Two-part final question…. How do we stop this madness? Our readers are doggone concerned, what can they do?
CHUCK: Let’s start with the first one. Investment houses, shadow banks, and corporate America should sink or swim on their own, without being bailed out by the taxpayers.
I cringed when Citibank pushed Congress to repeal the derivatives portion of Dodd-Frank; and I wrote about it. What happened was predictable. If you don’t fix the cause of the problem, so the FDIC is assisting depositors, not risky casino banks, things will continue to get worse. Glass-Steagall worked for over 60 years. It should be reinstated with teeth. No business or bank should be too big to fail!
I would also make stock buybacks illegal.
Some want to break up the Fed…. That sounds good, but I want to see how they would create a new, effective central bank. Government solutions to problems have a history of causing bigger problems.
As far as our readers, we know continually printing money eventually leads to high inflation. We can hope to reign in the political class, we still must protect ourselves and families. When things come to a head, it won’t be pretty. I’ve said many times – got gold?
DENNIS: Chuck, thanks again for your time.
CHUCK: My pleasure.
On The Lighter Side
I want to end this interview on a personal note.
DENNIS: Chuck many readers wrote me during your absence, inquiring about your health, particularly when I filled in for you on the recent webinar. Can you give us an update?
CHUCK: As I told our Pfennig readers, we went to Florida for our normal summer vacation. I ended up in the hospital with Covid and then pneumonia.
I got great treatment, and today I am getting back to normal.
One point I want to make for readers is this. I was fully vaccinated against Covid and pneumonia. We wore masks and took reasonable precautions. I thought I had a cold and ignored it, feeling it would go away. The vaccines gave me an unjustified sense of security.
I’d like to tell readers not to fool around. At the first sign of any symptoms, go get it checked out.
DENNIS: As we were finishing up, Chuck and I were overwhelmed. Subscriber James M. donated to the Pan-Mass Challenge – in our honor.
“The PMC supports the innovative work of doctors, nurses, and scientists at Dana-Farber Cancer Institute and their search for cures for cancer and related diseases. Your gift is a tribute to Dana-Farber’s outstanding work and gives faith to patients, families and friends who seek the most effective and advanced care available today.”
Chuck, your thoughts…
CHUCK: It was awesome. I framed the letter. It’s truly a cherished item in my man cave.
Dennis, we should never forget that it was research done before our cancer that allows us the gift of life. Hopefully they will not only find a cure for cancer, but also reduce the lingering after-effects of treatment.
I was deeply touched by his kind and thoughtful gesture.
DENNIS: I echo Chuck’s comments, and also have the letter displayed. When people question why I spend so much time producing something for free, I now show them the letter. That is what keeps me motivated. I really LOVE what I do and thank all our readers for their encouragement and support.
Original post from Miller, on The Money