At first, banks leveraged the repo market to force the Fed to ease liquidity & capital rules; now they leverage the coronavirus. Whatever it takes.
By Wolf Richter for WOLF STREET.
The largest bank lobbying group in the US, the Bank Policy Institute, is now leveraging the coronavirus to pressure the Fed to relax nettlesome banking regulations imposed on banks after the Financial Crisis. These regulations, particularly the liquidity and capital requirements, were imposed on banks in order to avoid a replay of the Financial Crisis.
BPI’s lobbying piece, released yesterday – “Actions the Fed Could Take in Response to COVID-19” – was authored by three people, including BPI CEO Gregory Baer, who’d been Managing Director and General Counsel for Corporate and Regulatory Law at JP Morgan Chase from 2010 through 2015, and Deputy General Counsel for Corporate Law at Bank of America from 2006 through 2010. Both banks were massively tangled up in the Financial Crisis.
BPI’s bord is comprised of bank CEOs, including the CEOs of the four largest banks in the US: Jamie Dimon (CEO, JP Morgan), Brian Moynihan (CEO, Bank of America), Michael Corbat (CEO, Citigroup), and Charlie Scharf (CEO, Wells Fargo). And they can’t stand the limits that bank regulations impose on them.
This comes just months after the biggest banks, spearheaded by JP Morgan, blamed the nettlesome liquidity requirements imposed on banks after the Financial Crisis for the repo market blowout. Dimon admitted during the Q3 earnings call in October last year that JP Morgan could have lent to the repo market as repo rates were surging, and could have eased the problem, but refused to because of the liquidity requirements.
There have been allegations that the biggest banks purposefully refused to lend to the repo market in order to force the Fed to ease the liquidity regulations.
In its current attack, the BPI used the coronavirus outbreak as an explicit lever. Among several items that the BPI exhorted the Fed to change, were:
- Easing liquidity requirements to “encourage banks to deploy their liquid assets….”
- Easing capital requirements to “support the ability of banks to provide credit to the economy and be able to accommodate large amounts of deposit inflows in the event of a flight to safety.”
And today, Better Markets – a non-profit founded after the Financial Crisis “to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again” – launched a blistering counter-attack, with a statement, titled “Wall Street Biggest Banks Shamelessly Trying to Use Coronavirus to Get Federal Reserve to Weaken Rules”:
“It is shameless but not surprising, that Wall Street’s biggest banks would use the coronavirus to attack the financial rules they have been trying to weaken for a decade, including weakening critically important capital and liquidity requirements.
“It is even less surprising that they would direct their request to their favorite regulators at the Federal Reserve, which secretly doled out trillions of dollars bailing out Wall Street in 2008-2009 with virtually no public transparency, oversight or accountability. That was great for Wall Street’s biggest banks, but a disaster for Main Street and should not be repeated now.
“As the coronavirus-created uncertainty mounts and the possibly of financial deterioration increases, the worst thing anyone could do is reduce the biggest banks’ ability to withstand a downturn or shock, which is exactly what Wall Street’s biggest bank lobby group is arguing.
“Reducing capital and liquidity while preemptively taking action under Section 13(3) just tees up more taxpayer bailouts and makes them more likely.
Better Markets added that the best way to shore up bank capital and liquidity in times of stress isn’t to change regulations but to stop distributing capital and liquidity via dividend payments and share buybacks:
“Finally, to the extent Wall Street’s biggest banks are genuinely concerned about having enough capital and liquidity to support the real economy, then they should immediately stop making any additional distributions of capital via dividends or [share] buybacks until there is certainty regarding the threat posed by the coronavirus.
“If Wall Street’s biggest banks are unwilling to take that action immediately, then their real motives will be clear, and their deregulatory requests should be seen for what they are: part of their ongoing, years-long attack on the rules.”
That banks would explicitly leverage the coronavirus – after having already leveraged the repo market – to force the Fed by hook or crook to loosen capital and liquidity requirements adds another wrinkle to what’s going on here.
When and how will the reaction by consumers to the coronavirus – dollars spent or not spent – become visible in the overall economic data? That’s the question going forward. In January, consumers were still in hunky-dory land. Read... Has the Coronavirus Hit US Consumer Spending Yet?
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Bernie, where art thou Bernie
Lol and they wonder what the attraction of socialism is. For a lot of these people it’s giving these guys the middle finger. Afterall, welfare for the rich, welfare for the poor, and nothing for the middle is bound to make people in the middle say screw that. Maybe the money will be there, maybe it won’t, but the existence of the insanely rich feels like a tax just as much as a real tax does since so many of us work for these people. It’s the feels that matter, and it feels like feudalism.
Socialism in practice has a better than average chance of making the money/power pyramid *worse*.
How many major gvt programs in the US have been successfully run? If so, why does the US gvt *already* have a debt greater than the (alleged) GDP?
The gvt has a long history of putting a pretty name on something that in practice falls far, far short of what was promised.
the list goes on
Then we can get to more locally run government agencies
should I continue?
Oh I forgot to mention the VA, it’s pretty universally approved of. Also Medicare/Medicaid.
Maybe at one time, but for the last 17 yrs it has fought to a draw with an opponent with the industrial capacity of Barstow. The US spent trillions.
Korea – draw. Vietnam – loss. The US mil actual record of accomplishment is not that different than a lot of other Gvt programs.
VA – you have got to be kidding. Compare their budget with their bad reputation.
SS and Medicare…along with the Mil are the *overwhelming* drivers of US gvt spending…which has an almost unbroken record of 50 yrs of deficits – leading to a gvt debt greater than the claimed GDP.
Take 10 minutes and learn something (anything) about the Gvt’s horrible budgetary record of the last 50 years.
Handing them more resources will simply result in more ruin unless massive reforms are undertaken.
I’ve seen zero discussions of gvt spending reform
The VA should actually be a full fledged part of the military with an appropriate portion of the DOD budget. They now run a “you break it you fix it” policy until one is discharged. Why stop there?Beats hell out of this new division.
cheaper to cook at home = less risk
so sorry restaurants
Here’s the thing…even I am starting to think that maybe it is time to force the breakup of the TBTF banks (b/c they simply won’t stop with the manipulation/abuse, despite near death experiences and huge bailouts). And the more you learn about the inside baseball of banking, the more you realize that in modern practice, concentrated banking has become more and more an arm of the State anyway..
But…one reason why efforts may fail is because of a lack of focus or insisting on an “everything” Revolution rather than making a tightly focused case by single, incremental steps.
No Congressperson has to wait 4 years and run for Prez in order to file tightly focused bills and use the Dems MSM advantage to push for them.
A split Congress would likely block a bill…but the process would focus and increase popular support…perhaps to a point where some version might pass.
But coming out with a laundry list every four years…is more about electioneering than legislating.
Or we could just appoint regulators with some backbone who will not only resist lobbying and manipulation but be savvy enough to use the “MSM” to explain why regulation is a good idea. It’s not really a complicated concept.
So the “Franken Rule” then – that maybe you shouldn’t be buying your regulatory agency anymore.
Describe the Franken rule.
i think you have it a bit backwards… the State is becoming more and more an arm of concentrated banking.
I’ve been defending him a bit on Facebook in preparation for Super Tuesday. Kind of fun actually – the mainstream media stokes such fear of outsiders. I offended and shocked plenty of people last time supporting Trump and a head change for the R-team, now I’m offending and shocking plenty more by supporting Bernie and a head change for the D-team.
The markets have been fascinating lately – the coronavirus fears shutting down the large parts of the economy while the central bankers fight to keep the asset bubble inflated and the President calls out all the stops to fight the emergency … the emergency that stock prices are falling that is.
We live in interesting times.
I find it personally offensive when people tell me that my candidate is ‘not electable’ and therefore I should not vote for them. That is some grade-A anti-democratic b.s. there.
It reminds me a bit of the ‘basket of deplorables’. Go ahead and sh** on us and tell us that our opinion doesn’t matter. You’ll see what happens.
“Addicts know no shame. You disgrace yourself so many times you become immune to it.”
– John Grisham
Looking good, Billy Ray. Feeling good, Louis.
BRAVO! classic. Financial manipulation knows no bounds. As an aside, today the Australian Reserve Bank cut the official interest rate by 0.25 per cent. That should solve everything!
I thought their whole economy went up in flames
Yeah, and the FED just cut 50 points to let us all know who the boss is, eh
If rate cuts cure disease maybe they will put out the fires?
The unfolding of the pandemic in the U.S. will probably help the big banks in their quest as the pyramid structure of the spreading virus becomes public. Deaths at the top of the pyramid with infection levels moving from high too low flowing to the base which would be common fevers and slight cold symptoms. The real numbers after mass testing may at some point create panic in D.C.
The DC politicians will get access to a special stockpile of pharmaceuticals plus doctors and suffer very little. Right now, with access to proper medical treatment the death rate is up to 3%, but, thats without knowing best way with existing pharmaceuticals to fight it. The best way will be figured out and to those with the money and connections, the death rate will plummet; But, supply shortages will keep average civilians from benefiting during the first wave of the virus.
Pharmaceuticals aren’t the thing for this disease, it’s ICU care and ventilation. But I agree that wealthy will reserve access at the finest hospitals
Who knows? The virus may have already come to that great nursing home in the sky known as Congress. With them hacking, spitting and blowing hot air BS on each other it may not be good.
I think what made the Chinese leaders soil their pants and then shut down the whole country was the realisation that access to the “hidden” levels of nation state healthcare would not get them out from under the hammer.
Based on what I know about China, I think it’s possible the CCP was dumb enough that they thought they could quarantine everybody for the Chinese New Year holidays and actually defeat it. Because in preparation for the holiday, factories always stockpile 3 weeks of goods, the CCP seemed like it actually planned possibly ahead of time for that exact date. They might have actually thought wait until Chinese New Year and then quarantine everyone for 3+ weeks, catch all infected, and then just start everything back up, declare the CCP great, and go on like normal.
Great write and excellent sources. Keep it up!
The more you feed them, the hungrier they get. They can eat my shorts.
-Would those ‘shorts’ be stock or apparel? :-)
Sounds like a great idea to decrease capital requirements if they also agree to issue stock to the government at 90% of book value in exchange for any bailout money. You get something, you give something.
Lol, I bet they secretly want more regulation, because they would have a bigger moat.
But hey, everyone should watch Margin call again.
Spilled milk under the bridge ?
Leverage is not going to work..
Swine flu, Bird flu, Mad Cow, Sars, West Nile, Ebola, Zika, Corona, etc. I didn’t die of any of these things along with 99% of everyone else who saw the newzac bobbleheads peddle their various virus fears.
The latest virus scare will fizzle out but the new containment procedures will be institutionalized. This is a drill and the banksters are not letting a good crisis go to waste.
Fear is selling, so they are selling it hard…
Made a bundle buying sector rotation friday, It was the cause of the sell off…
Shorts had the best chance to cash in Friday…any short who held over the weekend got greedy and got what they deserve….more coming…
Apparently you don’t know as much as you think you do.
Everyone who gets lucky with a bet thinks they’re a genius.
Looking at monthly charts markets are just getting started.
Relentless on the way up may mean relentless on the way down
We don’t live in a free enterprise, capitalist society, economy anymore. It is all propped by government programs, socialism, bailouts and high taxation of the people that pay most of the taxes. Corporations don’t pay taxes, people pay taxes as it all ends up being paid by the consumer, depositor, taxpayer and any end user.
It makes me sick that people are getting more fooled and basically moronic. The biggest example is lower to low to now interest rates that charge depositors, fixed income investors, savers. I will not use their stupid language on interest rates.
I don’t use negative rent or negative parking fees because it is so dumb. Electronic and digital money, credits whatever crap you want to call it will destroy even more people’s lives, savings, incentive to do much anything. Bankers, governments and others will make us more into slaves they have never dreamed was possible. I feel sorry for the new generation or anyone that has more than 20 years left on this earth. They have no idea what is about to hit them hard.
Corporations don’t pay taxes, people pay taxes as it all ends up being paid by the consumer, depositor, taxpayer and any end user.
That said, people don’t pay taxes either, because they all get their money from somewhere else, many of them from corporations. So corps pay people’s taxes.
But using your logic, nobody pays taxes. Hence the ginormous national debt, I suppose.
This type of argument originated with Sophists in the 6th century BC. I collect examples.
I feel sorry for the new generation or anyone that has more than 20 years left on this earth. They have no idea what is about to hit them hard.
Sure they do. I’ve been telling them, here. Ask anybody.
One must pity the children, knowing they have no future.
Now for the good news, Jack Welch is dead and Chris Mathews retired. The week is off to a good start.
An attitude worth developing is to be a critical thinker, maybe even cynical about the ruling class, but stop well before turning into a Zero Hedge dweller; the basement land of conspiracies and crass. Hard to do.
From Wall Street
Gordon Gekko: “The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge, has marked the upward surge in mankind and greed, you mark my words, will not only save Teldar paper, but that other malfunctioning corporation called the USA. Thank you very much.”
Gekko is not scary, he is correct.
But in our mind , it’s always the others who are greedy.
I don’t know anyone who isn’t greedy, including myself.
@Memento mori, then you misunderstand greed. Greed does not simply mean you want more stuff, or desire to be wealthy. Greed is an insidious compulsion for more that can never be satiated. In my experience, if there is logic to someone’s apparent ‘greed’ then they are probably not greedy (want a flasher house/car to keep up with the jones etc – that is a different issue). It is when there is no logic to their desire for more that you have truly come across an individual with the pathological condition, and in my experience you are well advised to have nothing to do with such people if you value your sanity (and own financial health).
In my book, greed is simply knowing that someone is in need and knowing you can help them. But choosing to hold on to your stuff, because its yours.
MORES THE PITY.
“In the end there can only be only won (instead of one).
The basis of Capitalism.
For the record I prefer Capitalism to all other forms, with the exceptions of Benevolent Despotism or Monarchy.
Plato’s philosopher kings?
…….. a Zero Hedge dweller; the basement land etc. etc. Hold on Paulo, that’s unkind, where else can we go but to bath ourselves in conspiracies and crass? Zero Hedge is therapy, an outlet for Fake News and other items of questionable value and purpose. Imagine having to troll through endless web sites to satisfy our hidden lust for such joutnalistic gems. Come out of the intellectual closet and admit that you also indulge. How else would you know about ZH.
I indulge daily. Its either that or start drinking heavily. I can do math, so I’m not too concerned.
The zh articles mostly stimulate my unconventional thinking but the comments are often stupid, wrong, or impulsive. We would think this about any social application that isn’t moderated by the state or their approved proxies.
I do indulge. I do. Sometimes I am disgusted and sometimes the comments are hilarious. Unfortunately, many of the comments simply try to one-up the previous ones. It is always interesting, especially about how Hillary Clinton rules the dark and hidden world of _______, along with George Soros and Jeffery Epstein. They had a field day about Biden’s new political support, and quickly mentioned a new Ukranian investigation on him. Amazing how no other news organisation picks this stuff up….well, maybe Fox.
I believe that “greed is good” but it is a monster that must be corralled…….chain-mailed….or it will devour humanity.
That’s why we have “regulations”; “….rules of the game”.
The Greed of the global financiers have destroyed many of those crucial “rules of the game” and it is that which puts us in the disastrous position we hold now.
“Greed” is now the cancer. And, it is out of control.
All games must have regulations and even more important, boundaries…….and strict enforcement of both.
All intended to keep the player’s chances of earning point$ fair and reasonable so everyone can enjoy a good game…………otherwise it’s not fun at all.
Wolf – I thought I read a while back you weren’t going to short the market again? You just know the Fed is coming to the rescue with more cheap/free money.
There could be 10 strains of corona virus and countless natural disasters but as long as the free money spigot is on look out! No high is too high IMO
Trump cares more about the stock market than saving people from the Coronavirus. Truly a messed up situation.
links please, hyperbole is prevalant in every message board
Sheeple are funny
Sadly, I think that’s true. He’s on the record as (once again) cajoling the Fed to lower interest rates while publicly announcing it’s safe to attend his rallies.
BUT but but but (!!!) …
There is nobody else as reliable for nominating conservatives to the Federal judiciary. He hasn’t folded on that.
Is there any difference between a banker and a pirate?
Pirates have honor.
A pirate could die in a million ways: of diseases now treated in a fortnight with easily available drugs, of wounds, drowned, of starvation after being shipwrecked, of “staggers and jags” or hanged after being captured. The General History of the Pyrates, now attributed to Daniel Defoe, presents them in a sympathetic light, not unlike contemporary penny dreadfuls reciting the (largely fictional) exploits of highwaymen such as Dick Turpin, but in reality these people lived each day with the noose of the hangman just a hair’s breath away.
At least since the days of the Lex Rhodia the policy towards pirates has been to make an example of them.
But these conmen? They are celebrated in the media in a way Henry Avery and Claude Duval could have only dreamed of and when they are caught they aren’t keelhauled or hanged but let go with the promise to never do it again.
The different thing is that highwaymen and pirates were folk heroes or, to quote one of my professors, folk antiheroes: they were hugely popular figures among ordinary people. The aforementioned General History was a smashing financial success despite being (for the time) a hefty and expensive tome of over 300 pages.
People just wanted to see these folks thumb their noses at haughty noblemen and become a thorn in the side of incompetent admirals, incarnations of the inadequate authority figures they had to deal with every day. Call it escapism if you want, but most people have a family to feed.
Pirates? Governments? You should read up on “letter of marque and reprisal.”
I think you mean privateers or corsairs, basically government-sanctioned private commerce raiders. “A letter of marque came from the King to the scummiest vessel I’ve ever seen”. St Malo, Dunkirk and many other cities on the Channel grew rich from it during the neverending wars in the Cockpit of Europe.
Pirate comes from the Greek “peirates”, which can be interpreted as “sea robber” or “sea brigand”. Robbers tend to be free agents and to work without a government contract. ;-)
MC01-“…now I’m a broken man on a Halifax pier…”.
may we all find a better day.
i have seen the argument made that pirates were exemplars of democracy. if the captain failed to provide a decent life for his crew, the majority could easily depose him. not so much in the republic our forefathers so diligently created to avoid such mob rule. probably why no pirate tried to have a 300 million strong crew.
No one loves a banker.
Except his trophy wife – pure of heart as she surely must be…..
Yeah, just ask the gardener or the tennis pro…..but you knew that was coming.
‘Keeping Mum’ is a British black comedy film from 2005. The late Patrick Swayze plays a golf instructor who has an affair with the vicar’s wife (Kristin Scott Thomas). Thank you for making me recall this film NBay!
My bank, Bremer Bank, is in a litigation fight between Bremer Financial Corp and the Otto Bremer Trust. Otto Bremer created a charitable foundation to split the profits of his bank, which is privately held.
My banker at Bremer is a great person in my opinion by the way.
Is there any difference between a banker and a pirate?
Bankers have immunity from prosecution. Pirates get pardons from other pirates.
The first head of the Bank of England was William Patterson. Occupation, pirate.
I have dealt with bankers all my professional life — both as retail customer and as business customer. And every single one of the bankers I dealt with was a decent person and competent at what they were doing. When you run an over-leveraged company, the single most important relationship is that with your lender because, when things get tough for you, and you’re losing a ton of money because of some downturn or other, a lender can help you stay in business through the rough spot.
On the other hand, there is the agenda of the banking lobby, big banks in general, and their incestuous relationship with regulators and Congress and the Fed, and there is a lot to despise in this department.
So I’m leery of generalizing “bankers.”
The “big investment bankers” are the questionable ones. The typical “green eye shade bankers with spreadsheets” of old are the ones small retail customers deal with. The latter are just responding to market pressures caused by the former.
The rate cuts can be justified by the yield curve inversion (or at least that’s the fig leaf that will be used).
If the markets recover and they tighten later in the year (~ 2x 0.25% moves), that would make sense.
The financial markets need some “pressure” or the deviation from mean is going to get too big. Bubble? I don’t know for sure.
You may have done it before (and if so I apologize) but could you step through the reasons why non-TBTF banks can’t lend into the Repo mkt, directly or indirectly.
To have a successful lenders strike, you pretty much have to have a small, cohesive group.
After 20 yrs of ZIRP, there is a universe of capital holders standing ready to profit from any interest rate spike – what keeps them from simply elbowing aside the handful of money center banks wilfully standing on the sidelines of the Repo mkt?
Is it Fed rules for only dealing with “Primary Dealers” (I thought that only had to do with the initial sale of Treasuries and Repos have much more to do with inter-bank lending of surplus reserves).
Unless there is some sort of legal restriction on the number of lenders into the repo market, why don’t non-TBTF entities step into the breach and defeat the gamed environment?
My sentiments, too.
Years back, when I or one of my children needed credit, I was never turned down by a local banker. The relationship was one of mutual trust, never betrayed.
Did you pay back all your loans?
If so, then you were just a customer and they made the money off of you that they predicted they would.
Where is the altruism in that?
After 2008 they were called Banksters. Think they changed??
I really like my Credit Union. Of course I’m just a blue collar Canadian commie pinko. But credit unions are pretty good from my experience. Yesterday, I had to go in and get a big wad of cash for some building materials. No muss, no fuss, and they know my name. Excellent service with smiling unionised staff that earn a liveable wage. I have a ballot to fill out on the new slate of directors as opposed to some overpaid bank CEO back east.
Have some retired friends from Black Creek visiting at my sister’s right now. Both NDP commie pinkos.
Everytime the same old tactic: A problem (Repo market, Corona) are used by the banks lobbyists to roll back regulation, that is indeed shameless! Banks are bailouted in the GFC with billions of dollar taxpayer money and now they would continue as before and again hoping the taxpayer solve problems when they make mistakes again.
And why shouldn’t Jamie and long list of criminals NOT make the Fed act as their personal ATM machine? They where shown they were above the law, shielded from prosecution of their crimes in 2008 by the powers that be, vassel Eric Holder.
Holder’s boss even bragged about it:
“I’m the only one standing between you and the pitchforks.”
I suppose he thought that was a clever way to tell them they’d better donate to his re-election. He always delivered his points so round-a-bout as if oatmeal we clung the roof and sides of his mouth.
And why shouldn’t Jamie and long list of criminals NOT make the Fed act as their personal ATM machine?
Because it’s grossly corrupt, dishonest, and depraved.
Never mind. I keep forgetting those are virtues now, widely admired in the empire. Some pandemics are not caused by microorganisms.
And the person who replaced Holder as head of the Department of Justice, Loretta Lynch, sat on the Federal Reserve Bank of New York’s Board of Directors from 2003 to 2005 under then President of the NY Fed Timothy Geithner.
“Shielded from prosecution of their crimes in 2008 by the powers that be, …”
My favorite statement from the BPI’s lobbying piece (first sentence, fifth paragraph):
“Another prudent step the Federal Reserve could take would be to prepare for a broader liquidity if subsequently desired.”
Please correct me if I’m wrong, but doesn’t that translate into, “Print more money to give to Wall Street.” I think they should have left out the ‘if subsequently’ and replaced it with ‘is’. Heck, just cut to the chase with, “Broader liquidity is desired.”
And, wouldn’t it just be easier to give each to them their own printing personal press? It would make a bit easier for them to do that thing they do.
One printing press at Jamie at JPMorgan, one for Blankfein, we should include an Investment Firm/Hedge fund I suppose, too…how about Fidelity. They have heated marble floors in their lobby at South Station in Boston and they don’t have a bad a rep as the more vulturous firms. We should at least try to be democratic about this.
We could even replace the pictures of Presidents on the paper currencies with Jamie, Lloyd…
“In Goldman Sachs We Trust”
Holders practice counted many of the big banks, he was corrupt as they come
Required reading for everyone who comes to this site (or to understand how manipulated, corrupt our banking system is)
“Wall Street and the Financial Crisis” 2011
(“Anatomy of a Financial Collapse, Cosimo Reports)
This is the senate staff report on the GFC.
“US Senate Permanent Subcommittee on Investigations”
Of course extra credit is given to those who labored thru all the congressional hearings that followed the disaster.
I watched them all.
It was/is clear we are ruled by a loose cabal of corrupt plutocrats.
Like the famous guy said:
“It’s a big club, but you ain’t in it!”
and yet so many delude themselves into thinking someday they will gain entry to the club. steinbeck put it well when he said “the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” in his day, the poor didn’t even have access to credit cards and sub-prime loans to stoke their delusions of grandeur.
What’s the surprise. Freedom is about whatever you can get away with…
Not mine – it depends from avoidance of the need to deal with such people.
Mine too. GMTA.
Augusto-‘Freedom’ assumes acceptance of its inherent responsibilities in order to maintain its existence. ‘License’ is about whatever can be gotten away with. Unfortunately, it appears that the first term is too-often used as a short-circuit cover for the second…
May we all find that better day.
The 5 yr treasury is yielding below 1%. That does not cure the common cold.
A Costco in Washington State had its food shelves stripped bare by panicked shoppers. Toilet paper and twenty pound bags of rice are gone.
The number of reported active virus cases in China continues to drop. Toyota is reopening all its plants in China.
The internets are saying, those low yields mean the Fed HAS to cut rates .50% asap.
How nice for them.
When I grow up I want to be an internet.
what i’ve noticed the past few year, when the market actually does have a “decline” treasury’s will decline by an even greater percentage, but once the markets start going back up, treasury’s never do and find a new low plateau to hold at until the next decline which takes yields even lower.
Did you read the BPI article?
“The Fed could cut reserve requirements, currently set at 10 percent of transaction accounts, to zero. Banks are currently required to maintain about $140 billion on deposit at their Federal Reserve Banks in order to satisfy such reserve requirements (such deposits are called “reserves”). Because required reserves are not included in the stock of liquid assets that satisfy liquidity requirements (“high-quality liquid assets” or “HQLA”) but excess reserves are, the change would boost banks’ HQLA by about $140 billion immediately. As a result, banks could use those funds to finance credit to the real economy.”
“Under the Fed’s current floor system for monetary policy, reserve requirements serve no purpose, so this change comes at no cost. (An alternative way to achieve the same result would be to amend Regulation D to allow a bank to use its required reserves to meet a liquidity exigency, which would allow for their inclusion in HQLA.)”
Many overseas banks who deal in US dollars do not have reserve requirements. The “US dollars” lent by these banks have no constraints and the Fed knows it. In my opinion, the Fed lost control to overseas banks and their foreign Eurodollars in the GFC. Today’s FFR cut and the repo market are just additional examples. The Fed doesn’t control dollar liquidity, the overseas banks who make unconstrained dollar loans do.
“Because required reserves are not included in the stock of liquid assets that satisfy liquidity requirements ”
Is this accurate? If so, that seems like a double stacking of reserve rqmts.
“Under the Fed’s current floor system for monetary policy, reserve requirements serve no purpose,”
Please elaborate – I thought the whole point of rqd reserves was to provide a bank-owned buffer of capital to offset losses (and force banks to have skin in the game) before any FDIC or gvt money has to bail out bad loans in order to protect depositors.
Iamafan quoted those two paragraphs from the BPI lobbying piece that I had linked in the article. It’s what the banking lobbying group, whose board of directors includes the CEOs of the big four US banks, wants us to believe.
Did you see Fed Repo this morning?
Both the overnight and term repo are OVERSUBSCRIBED.
Overnight $100 billion
Term $20 billion
Yes both repo operations oversubscribed. Net-net, the Fed added $41.86 B in liquidity this morning (but final total TBD after accounting for the reverse repo operation still to come later today).
Unlike the dis-informative headlines on certain websites, these oversubscribed operations have little to do with overnight funding rates and everything to do with greed. Overnight funding rates have been stable for months.
Today’s repo operations were simply a mad dash for cash to deploy in the casino. Looks like the meter flipped from Extreme Fear to Extreme Greed in just a few trading sessions.
Yes and it wasn’t mostly MBS like it has been the last few weeks. First the Fed destroys the yield curve then they open the REPO window for unlimited stock trading script, meanwhile Congress firewalls investment and retail banking practices, while preventing local banks from making business loans which is why every town looks like the same version of corporate franchise America. In testimony JP takes copious notes on the problems in local economies, while he manages the system that destroyed them.
This is what happens when you create regulations that allow cartels to form and grow in power and global reach. This is our legislative body at work, so, by default, it’s what we want. And we’re gonna keep getting it, good and hard.
The idea that Jamie Diamond and Gerome Powell sit in a room and have a shouting match is a quaint fairy tale. In reality they exit a quiet meeting and pat each other on the back. Always been this way since JP Morgan himself. It is part of American style capitalism. Good and bad comes out of it. Mostly good. Get over it. After the GFC we started monetizing debt and bailing out too many bad actors, and that is not good. That’s a problem.
Wow. The Fed cut 50 basis points this morning.
They talk finance because that’s all they know how to talk. If serious quarantine gets put in place, none of that will matter. No matter how much credit I can access, I can’t buy food or drugs from a locked store.. that haven’t been delivered.. that haven’t been produced.. because all the store clerks, warehouse and factory workers are isolated in quarantine. Finance and financiers would be irrelevant then.
Here comes the uh oh moment, Jay cuts by 0.5%, and the market doesn’t do much…. in fact, it goes up and then reverses course.
He was better off raising rates I think. Accelerate the downward spiral, let it hit some bottom, and then save your ammunition for when it matters.
He didn’t cut faster enough. He didn’t cut deep enough. He didn’t announce Not QE5, QE5 or QE4, or whatever it’s called now. He didn’t use all the tools in the tool box. He won’t NIRP’m.
The markets can never fail they can only be failed.
Agreed, a rate hike would have been the prudent course.
Fed will need all the ammo it has (and then some) post election, regardless of the winner.
Depends what you mean ammo post election.
If the “wrong guy” wins, the Fed will need to deploy lots of rate hikes to make he loses in 4 yrs. So, cutting rates now give the Fed more ammo, not less.
It can work both ways, dotcha know.
This is what I can’t stand about this country these days. Everything gets politicized.
You’ll note that in China, they did it differently, they care about the economy, but they are squelching down the external factor first by taking the pain now.
Xi is doing the right thing if you ask me. All the complaints about transparency and data is BS, it hasn’t stopped the media from speculating like mad anyway. I can’t believe I’m evolving my position this way, but I look at this idiocy we’re going through with the Fed, it’s nuts.
I blinked, and they cut .50%.
The Flu is cured. All is well. Everyone just relax. Because now, again we have yet more confirmation that goal#1 at the Fed is to always, always make stocks go up.
Because stocks are the whole economy and nothing but the economy. Nothing else matters. So if everyone else is in a recession it’s not a recession if stocks go up.
Nobody needs to care about anything else…so long as stocks go up.
i agree *cough, cough* wholeheartedly *sniffle* with your assessment of the omnipotence of our overlords. and sorry, i’ve been suffering from an allergy attack the past few weeks…
Welcome to a government (oligarch)-controlled economy, top to bottom (well, the top, anyway; you folks at the bottom? best of luck to you).
Emergency rate cut my ass, Powell just made a 120B contribution to the president’s reelection campaign. Move comes after the DOWs biggest gain in the history of the index. Or maybe he telegraphed the move to his bank cronies? The Fed is the banks, in theory, so they only regulate themselves, if only for that pesky Congress. All Fed did today was put an asterisk on this bear market rally. Money is bleeding out, they don’t really know where it’s going, and giving more of it to the wrong people won’t fix anything. The banking system is broken.
The banking system is broken, and has been for a long time. But whats more important is that the political system is broken. Nothing will change in banking until the political will exists to fix it.
Trent, you are so right. “Nothing will change in banking until the political will exists to fix it.”
Congress alone has power to change banking in the USA, and I’m afraid that the power structure between K Street, Wall Street and Capital Hill will never be broken (at least, in my lifetime) – no matter what happens on Main Street.
the banking system is working just fine. the banking system doesn’t work for you. therein lies your (and the vast majority’s) problem.
p coyle, yes the banks work to make profit. I own a few of them as equities in my portfolio. I want them to make money and have their stock price go up!
My problem with the banking system is two fold. First, the effects of the Graham-Leach-Bliley Act from November 1999, and second, the control of the issuance of the US dollar by a privately held banking cartel – not the Treasury of the USA – since December 1913.
I have never missed a vote in my life, and I do not intend to until dead, but that’s the limit to my ability to have any influence over what happens to our laws and to our currency.
he told you on Friday it was coming….why surprised…
again, any short who didn’t get out during a once in a lifetime non financial related sell off based off rotation that had to happen because of positioning was greedy and got what they deserved….
Check the markets.
looking to hid in rural America as defense against the virus ?
I think the Fed made a mistake in cutting .5% as regardless of it being a big move, it will not offset the effects of the pandemic in any way. They will simply show they are powerless to help in this situation. Perhaps it is a good thing, as it will begin to dispel the notion that the Fed is all powerful and can dictate market and economic conditions.
The concept of “diminishing returns” is applicable here. After years of this kind of easing/central bank intervention, it is indeed running out of impact.
If it were ~30 years ago and/or at a different point in the business cycle, it would have a big impact. Now, it will have some impact, but probably marginal.
The financial markets are in need of a correction and the yield curve needs help.
I suspect they’ll get things to do OK through ~ Nov-Apr of 2021. After that, the economy and financial markets look pretty weak to me.
There’s not much ammo left anywhere.
Looking at the recent Dow Jones chart showing extreme volatility of aggregate stock prices:
It looks quite like the chart of 1929 – 1933:
Volatility: “Nothing goes to Hell in a Straight Line”.
Chart 1929 -1933:
(Dow down 600 points, at the moment.)
So basically all inter-bank lending, as we’ve found out with so many of our prior “institutional norms,” has always just happened in “good faith” but now Dimon is using it to take hostages?
The internets are saying the Fed didn’t do enough. It’s suppose to cut rates more and do QE. And what about coordinated bank response? The Fed should explain to other banks that they, too, need to help the stocks go up.
Stocks are falling. I guess the Fed didn’t cure the flu, yet?
The Fed better do something to make the stocks go back up.
Maybe they should cut rates every half hour, until the stock go up again.
Since ignorance is bliss, I have decided to provide some light on a word that is spoken by many and known to few. Hearing this word constantly bandied about, I hope it helps those to guide their future conversations as it relates to governance towards enlightenment.
Provided by Merriam Webster:
so·cial·ism | \ ˈsō-shə-ˌli-zəm \
Definition of socialism
1: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods
2a: a system of society or group living in which there is no private property
b: a system or condition of society in which the means of production are owned and controlled by the state
3: a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done
Definitions designed by predators to be deliberately dishonest and denigrating. Note that the collective ownership of a corporation by investors necessarily makes it collectivist, so predators talk out of both sides of their mouths.
My commune is a private corporation. No government ownership. We’re Marxists, like medical or dental or accounting practices, because we own our means of production, but we’re capitalists averaging an 8% ROI who invest in our own private enterprise, debt-free. Our balance sheets are all zeroes, yet the least of us would be worth millions if we bothered with public markets, and the art galleries alone are priceless, much less the real estate, plants, and equipment. No coronavirus here, no income taxes, no bankruptcies, no poverty, and no predators taking a thick percentage out of our eminently productive hides.
We break all your so-called ‘definitions’ and make them look stupid.
Hi Wolf, I enjoy your website and have gotten into the habit of checking daily for new content. I also follow Peter Schiff and George Gammom on YouTube. I will also post notes to their videos requesting this. Hopefully, between the three of you guys, one might be able to tackle the request.
I’m trying to wrap my head around how it’s possible that countries like the US, Japan, China and Europe are able to simply print fiat currency and build beautiful cities with shiny sky scrapers. And at the same time, poor countries like Mexico and Peru remain poor eternally. I suspect the military plays a heavy role in all of this, and any time I try to explain to friends why I think the deficit spending and $23T debt and defaulting auto loans are a big problem in the not too distant future, my friends all say the dollar will always be ok because of the military.
I’d love to see someone address this and explain why this works for the US and China but not Peru and Mexico. Is it simply the military? Thanks…. 911Truther
Using your own example: China used to be dirt poor too and now it’s “able to simply print fiat currency and build beautiful cities.” So look at how China did it. Many other countries succeeded as well in getting their fiat currency to do all these things.
Thanks Wolf, I understand China has come a long way with fiat currency. But I’m still not understanding why Peru & Mexico don’t simply print their own fiat currencies and do the same?
Also, even though it defies logic, why couldn’t the Federal Reserve just buy all the bad auto loans from the banks and keep buying all the federal debt? A good friend of mine (in his 50’s, not some young guy with no experience) is now convinced the US will never experience a recession ever again because “they’ve” figured out all they have to do is print more money and keep the military strong. In other words, the “system” faces no accountability.
I wish I understood this better, but I clearly don’t. When I see buyers of US treasuries buying long term debt that a.) no longer represents the government’s ability to make good on the debt thru taxation and b.) guarantees the purchaser will lose purchasing power if he holds to maturity… well, it’s been going on for a 11 years, hasn’t it? It is clearly a ponzi but why can’t it keep working forever?
I’m with you, I’m short this market. My thesis is common sense (I think) but I’m wondering if common sense matters anymore!?!?!?
“why Peru & Mexico don’t simply print their own fiat currencies and do the same?”
A fiat currency is a confidence game. If the people who use it (the locals) and if the markets that trade with it (local and international) have confidence in the currency, it retains its value. If the people and the market lose confidence, the value of the currency collapses via inflation. This happens a lot. See Argentina. No one in Argentina trusts the peso. They all exchange it for dollars as soon as they can. Creating this confidence takes time and commitment by the government. And the people must believe in it. But that confidence can get destroyed too — and then the currency starts to lose value (inflation).