Since mid-September, the Federal Reserve has been funneling hundreds of Billions of dollars each week into 24 primary Wall Street dealers. This money is created electronically, from nothing, and dispersed to these dealers. These dealers are not commercial banks who may have used the money to make local business or housing loans to boost their local economy. They are almost all either stock brokerage firms or investment banks who traffic in leveraged bets in the stock, bond, commodities, and derivatives markets. The sole outlier of the group is a foreign bank.
This information alone would cause any reasonably-minded person to stop and think–why is the “lender of last resort” printing money and distributing them across non-banking financial institutions save one foreign bank?
Fortunately, one government official who caught wind of this strange activity had the insight to connect the dots and ask questions. During his testimony before the Joint Economic Committee of Congress, Federal Reserve Chairman Jerome Powell was asked about this intervention in the repo loan market by only one courageous congressman, Rep. Kenny Marchant (R-TX).
This is important because the Fed is not supposed to be a bailout lender for Wall Street. In fact, the Fed’s Discount Window, which can legally make an emergency or seasonal loans when it is deemed necessary, can only make these loans to deposit-taking banks, not Wall Street trading houses.
Even with these restrictions, this is exactly what the Fed has been engaging in over the course of the last few months. And, this is not the first time they have done it to an alarming degree. During the financial crisis in the late-2000s, they secretly gave out an astonishing $29 trillion to these types of financial institutions. While the Fed does have some authority to do this in emergency situations, the period has to be brief and defined. Powell testified that they are currently planning to keep this money flowing to Wall Street into early 2020, at least. Powell told Congress that, “The core of the financial sector appears resilient, with leverage low and funding risk limited relative to the levels of recent decades.”
Except that this is just not true!
Powell of all people knows that leverage is not low on Wall Street. It is only low if you ignore the hundreds of trillions of notional derivatives residing at the biggest Wall Street banks.
The Fed is calling this “routine.” Routine? It is anything but. It hasn’t happened since the 2008 Financial Crisis, which was certainly not routine, and it also includes incredibly low-interest rates, between 1.55 and 1.59 percent.
In his exchange with congressman Marchant, Powell showed what the new Fed talking points would be regarding the disruption in the repo market. Powell passed it off as if what is going on is too technical for the common brain to understand so no one outside of the geniuses at the Federal Reserve should worry about it and the old standby, nothing to see here because it does not impact the economy or the public.
This is dangerous propaganda. It is a kind of propaganda that operates by omission, obfuscation, and the appearance of status quo normalcy.
The simple fact is, the Fed is again funneling Millions, secretly, to Wall Street, just like it did during the financial crisis. And, just like then, they are doing their best to keep it a secret from the American people. This is because what they are doing is simply creating more wealth for the already wealthy on the backs of the U.S. taxpayer.