Federal Reserve Data on Repo Bailout Make an Urgent Case for Glass-Steagall

Following the publication on Jan. 5 of the protocols of the last Federal Reserve Board meeting in December, during which several board members pointed to the seriousness of the inflation wave, financial media and institutions are speculating about an interest rate increase soon, perhaps in Spring. Such a move would have a similar effect on the financial system as cutting heroin to a drug-addict, so that even the IMF and the Bank of France, in two separate reports, have warned of the threat of a global crash.

Just how addicted to central bank liquidity the system is, is seen in the data released by the Federal Reserve on the repo market bailout in Q4, 2019. During that quarter, $4.5 trillion went to 24 banks, and the top borrowers were the largest financial institutions trading in derivatives, such as JP Morgan, Goldman Sachs, Citibank and Bank of America. Faced with the sudden crisis of the repo market, the Fed launched its bailout on Sept. 19, 2019. Beginning with overnight loans, it soon added others with 14-day terms and eventually even some longer term. Between Nov. 12 and Nov. 25, for instance, it loaned $30 billion to JP Morgan securities, a trading unit of JP Morgan Chase, in 13, 14 and 42 day loans. (That exposure to the Fed probably increased in 2020, but those figures are not yet available.)

JP Morgan has the largest derivatives notional exposure of U.S. financial institutions, at $52.3 trillion. Together with three other banks, Goldman Sachs, Citigroup and Bank of America, it owns 89.3% of the total derivatives exposure of the U.S. banking system. Those same four banks are listed among the largest recipients of the Fed repo bailout loans in Q4, 2019, which are, in order of importance: JP Morgan, Goldman Sachs, Nomura Securities International, Citigroup Global Markets, Deutsche Bank, Bank of America Securities, Cantor Fitzgerald, etc.

One needs no more evidence to prove that the financial system is hopelessly bankrupt. Nonetheless, derivatives speculation continues for the benefit of the Davos billionaires and the like, while households and producers are left with shrinking income and credit. Revealingly, Pam and Russ Martens’ Wall Street on Parade website was the only media that covered the Fed’s data on Q4, 2019 figures, although the duo mailed their article to all major financial journalists. Among the reasons for the Wall Street-controlled news blackout, the Martens cite the fear that such news, adding to the big Fed trading scandal of recent days, might revive the call for Glass-Steagall.

“If the media were now to focus on yet another scandal at the Fed—such as it bailing out the banks in 2019 because of their own hubris once again—there might be legislation introduced in Congress to strip the Fed of its supervisory role over the megabanks and a restoration of the Glass-Steagall Act to separate the federally-insured commercial banks from the trading casinos on Wall Street.” (https://wallstreetonparade.com/2022/01/theres-a-news-blackout-on-the-feds-naming-of-the-banks-that-got-its-emergency-repo-loans-some-journalists-appear-to-be-under-gag-orders/).

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