Friday, April 15, 2016

Pam Martens and Russ Martens — The Fed Sends a Frightening Letter to JPMorgan and Corporate Media Yawns

Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.…
At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.”…
It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”…
How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase.…
The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis. The two regulators released background documents yesterday as part of flunking the wind-down plans (living wills) of five major Wall Street banks. (In addition to JPMorgan Chase, plans were rejected at Wells Fargo, Bank of America, State Street and Bank of New York Mellon.)…
Wall Street On Parade
The Fed Sends a Frightening Letter to JPMorgan and Corporate Media Yawns
Pam Martens and Russ Martens
ht Don Quijones at Raging Bull-Shit


Ralph Musgrave said...

There's a simple solution to the threat posed by large banks. It's a solution advocated by Irving Fisher, Milton Friedman and others. It consists of treating every bank same way money market funds will soon be treated. It goes like this.

Entities / banks / MMMFs which lend money must be funded just by shares & bonds, not by deposits. In contrast, entities / banks / MMMFs which accept deposits which are supposed to be totally safe cannot lend on those deposits. They just plonk them at the central bank or invest them in short term government debt.

As to the loss of liquidity that would cause, the state (as every MMTer knows) can supply infinite amounts of liquidity at the press of a computer mouse: i.e. the state can create and spend into the private sector whatever amount of money is needed to keep the economy operating at the maximum level that is consistent with acceptable inflation.

MRW said...


Banks cannot "lend on those deposits.” Against the law in the US and Britain. All loans BECOME deposits, not the other way around.

A new deposit can leave Bank A in the blink of the eye to the account of someone at Bank B. Bank A in the US must move the reserves it must have at the central bank for the loan/deposit to Bank B within a set amount of time that the deposit transferred.

Neither is the bank allowed to “invest them [deposits] in short-term government debt.” It can only invest its profits (from interest on its loans) in bonds or other instruments. (1) the deposit belongs to the borrower. (2) see previous paragraph.

State doesn’t “create and spend.” The order of procedure here is Congress “spends” first, by law. Or, it’s supposed to as its fiscal responsibility, not much of which Congress has shown in the last three decades and that has degraded wages.

THEN the authorized “spending” is keyboarded into vendor accounts in the non-federal government sector. That “creates" the money...and increases the money supply in the real economy until the US Treasury issues treasury securities in the amount of the “spending” to restore the money supply to balance. This is known to Federal Reserve insiders as “Reserve add before reserve drain."

All this is the business of Congress and the US Treasury. It’s charged with the general welfare of the economy before the fact.
The Federal Reserve manages any inflationary forces as its mandate because that happens after the fact.

MRW said...

There’s another interesting article written by Pam Martens and Russ Martens here:

"Did Small Investors Get Fleeced in the 1089-Point Plunge on August 24?” written in 2015.