Why fines cannot solve the criminal stance of JPMorgan Chase ?

JPMorgan Chase is ritually fined for criminal conduct by the US Department of Justice (like it happens also to other banks), but this don't seems to be enough to stop their criminal stance. Why ?

by Marco Saba, Forensic Accountant, Italian Colony, October 31, 2020

Italian version localized here: CARIGE: misteri di Banca spiegati al pubblico e agli azionisti

 "In a departure from Swiss GAAP FER, no cash flow statement has been prepared." 

 -  Swiss National Bank, page 158 of the 2016 Report

 

The main activity of banks today is deposit creation (money creation). That deposits are money (cash) is stated in the international accounting rules. Under international accounting standards, the definition of cash is cash on hand and demand deposits (IAS-IFRS 7.6 and US GAAP ASC 942-230-20 Glossary). For example, a bank’s granting of a loan by crediting the proceeds to a customer’s demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made.

GAAP ASC 942-230-20 Glossary

Cash

Consistent with common usage, cash includes not only currency on hand but demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. All charges and credits to those accounts are cash receipts or payments to both the entity owning the account and the bank holding it. For example, a bank’s granting of a loan by crediting the proceeds to a customer’s demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made.

What people know:

" How Bank Deposits Work
The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank (unrecorded). In turn, the account is a liability to the bank (recorded). " (Italics mine) https://www.investopedia.com/terms/b/bank-deposits.asp

While the liability is recorded as DEPOSITS in the LIABILITIES side of the CONSOLIDATED BALANCE SHEETS - highlighted below in the JPM-CHASE 2019 Annual Report audited by PWC - i.e. $1,562,431 million, the corresponding ASSET don't appear in the ASSETS side of the balance (Page 148 of the original Annual Report). That's why I wrote above UNRECORDED and RECORDED in the investopedia definition.

The appropriation of the client deposits by the JPMorgan Chase bank don't appear either in the CONSOLIDATED STATEMENTS OF CASH FLOWS (see the highlighted NET CASH PROVIDED BY FINANCING ACTIVITY below, just  $32,987 million...). Page 150 of the original annual report.

So now we understand that the monetary deposit (cash, under GAAP) created by the bank is not recorded anywhere in the report. Deposit creation happens when a bank make a loan or a mortgage to a client, anytime. As the bank appropriate the client deposit, the client maintain the "withdrawal rights" (the liabilities) but the asset counterpart is hidden to accounting. If my thesis is correct, i.e. that the STATEMENTS OF CASH FLOWS are adulterated not including the "loan" that the client do to the bank as "financing activity", then we can solve a very old mystery... Why can't we determine the real wealth status of a bank by simply looking at the Statement of Cash Flows like we do for any other commercial company ?

1. Zhan Gao , Weijia Li, John O’Hanlon, The informativeness of U.S. banks’ statements of cash flows, Journal of Accounting Literature, Volume 43, December 2019, pp. 1-18
https://www.sciencedirect.com/science/article/pii/S0737460718300624

2. Proff. Charles W. Mulford, Eugene E. Comiskey, Cash Flow Reporting by Financial Companies: A Look at the Commercial Banks, Georgia Tech College of Management, July 2009
https://smartech.gatech.edu/handle/1853/29098

(Further literature here: https://centralerischibanche.blogspot.com/2018/11/bibliografia-sulla-questione-contabile.html )

Now it is easy for the reader to understand that by absconding to the public the revenue of deposit creation (the deposit appropriation activity), that in the case of JPMorgan is in excess of $1,56 trillion, the whole banking system - by menacing a nonexistent and impossible bankruptcy - can blackmail the U.S. System forever asking for MORE EASING. At the same time, by paying for fines with the deposit creation activity (i.e. just by simply creating a brand new deposit), the bank don't suffer any pain. The real banking profits are hidden to the public forever.

To give a layman's example: it would be as if a restaurateur were pretending to balance his balance sheet by counting as assets only the tips he receives from his clients (the interest) and not the total balance of the bill he presents to the table (the capital). It is obvious that the restaurant will never be saved, and even increasing its capital (as the requirements of the Bank for International Settlements, the so-called Basel 1, Basel 2, Basel 3 and, then, Basel 4, continually demand) does not cure the accounting pandemic that afflicts the banking system today.

"Most importantly, the meteoric rise of cryptocurrencies should not make us forget the important role central banks play as stewards of public trust..." - Agustin Carstens, Head of the Bank for International Settlements

 

Question: So the whole operation of the primary dealers can be reinterpreted as a gigantic money creation/money laundering operation ? (T-Bonds are bought by creating new deposits)

Answer: Sure.

In Italy we are in the range of EUR 1,000 billion each year as the aggregate commercial bank deposit creation, more than the State budget (which is around 900 B / Year).

One may ask where those enormous funds ends up and by what channel are laundered. But that's a good question for another Deep State story. 

(Hint: Clearing Houses. Historical hint: the original Charles Ponzi intended to unveil the system...)

"Throughout our history, JPMorgan Chase has built its reputation on being there for clients, customers and communities in the most critical times. This unprecedented environment is no different. Our actions during this global crisis are essential to keeping the global economy going and will be remembered for years to come."

Jamie Dimon, Chairman & CEO of JPMorgan Chase & Co.

Congresswoman Porter: Fed Is Playing “Kingmaker on Wall Street” and “Appears Corrupt”

 Congresswoman Katie Porter Says Fed Is Playing “Kingmaker on Wall Street” and “Appears Corrupt”

By Pam Martens and Russ Martens: October 27, 2020 ~

Source: https://wallstreetonparade.com/2020/10/congresswoman-katie-porter-says-fed-is-playing-kingmaker-on-wall-street-and-appears-corrupt/

Congresswoman Katie Porter

Congresswoman Katie Porter has never met an overpaid Wall Street billionaire that she couldn’t reduce to a flummoxed whimperer within a few minutes. (See video clip below of Porter and Jamie Dimon, Chairman and CEO of JPMorgan Chase, during an April 10, 2019 House hearing.)

Porter has had the Chairman of the so-called “independent” Federal Reserve in her radar since he appeared at a House Financial Services Committee hearing on February 11 of this year. At the hearing, Porter held up a photo of Fed Chair Jerome Powell in black tie outside the mansion of billionaire Jeff Bezos, CEO of Amazon. Porter said this:

“Can you imagine how attending a lavish party at Jeff Bezos’ $23 million home, along with Jared and Ivanka and the CEO of JPMorgan Chase, Jamie Dimon, might give off the sense to the public that you are not in fact immune from external pressures.”

Now Porter has taken her criticism of the Fed to a new level, with plenty of ammunition in her arsenal. In a letter to the Fed last Wednesday, Porter wrote that “using billions of taxpayer dollars to play kingmaker on Wall Street—effectively awarding billions of dollars to a handful of corporations—using a decision-making process that you have not made public, appears corrupt.”

Porter was talking about several distinct issues. First, the Fed had stated that its corporate bond buying program would not include the debt of the Wall Street banks. Nonetheless, wrote Porter, the Fed “is using billions of taxpayer dollars to purchase the debt of banks like JPMorgan Chase.” The Fed is making those purchases by buying debt-based Exchange Traded Funds (ETFs).

Porter quotes from a September 21 Yale School of Management study titled “Despite Stated Exclusion, the Fed Is Buying Bank Debt.” The report notes that “a close review of its holdings reveals that by buying exchange traded funds, [the Federal Reserve] has indirectly bought $2 billion of bank bonds—over 15% of its total corporate bond holdings.”

Porter is particularly critical of the fact that the Fed is using money from the pandemic stimulus legislation passed in the spring and known as the CARES Act to facilitate these corporate bond purchases. Porter writes: “Your decision to buy corporate debt with taxpayer dollars directly benefited Wall Street and the world’s richest corporate executives.”

The CARES Act called for the Treasury Department to hand over $454 billion of taxpayers’ money to backstop any losses experienced by the Fed on its myriad lending facilities. The game plan was that the Fed would leverage up the $454 billion to approximately $4.54 trillion and buy up the sludge on Wall Street. For reasons as yet unexplained, the Treasury has not turned over the bulk of those funds to the Fed. Exactly what happened to the rest of the money is unknown. (See $340 Billion of the $454 Billion that Mnuchin Was to Turn Over to the Fed is Unaccounted For.)

According to the H.4.1 data released by the Fed for the week ending Wednesday, October 21, the Fed has received the following amounts from the Treasury: $10 billion for the Commercial Paper Funding Facility; $37.5 billion for the Corporate Credit Facilities; $37.5 billion for the Main Street Lending Facilities; $17.5 billion for the Municipal Liquidity Facility; $10 billion for the Term Asset-Backed Securities Loan Facility; and $1.5 billion for the Money Market Mutual Fund Liquidity Facility – for a total of $114 billion.

The CARES Act was signed into law on March 27 of this year. It’s now exactly seven months later and nobody can explain what’s happened to $340 billion that was allocated by Congress.

Porter’s letter also expresses outrage that the Fed has appointed a Wall Street investment firm that is one of the largest purveyors of ETFs to manage the corporate bond buying programs. Porter writes that the Fed’s decision to “appoint the CEO of BlackRock to administer the largest corporate bailout in history has resulted in windfall profits for a few hand-selected corporations and eroded public faith in an institution that is foundational to our democracy. To begin to remedy these wrongs, I request that you immediately develop and implement stronger safeguards against conflicts of interest. The profits that BlackRock has made off the exchange-traded funds (ETF) market since your March 23 announcement that the Fed would begin to purchase ETFs that invest in bank debt are clear evidence that any current precautions are wholly insufficient.”

The Fed outsourced most of its lending facilities to Wall Street firms during the financial crisis of 2007 to 2010 as well. (See In Last Bailout, the Fed Outsourced Management to the Banks Being Bailed Out – then Paid them Huge Fees for their Work.) Porter tells the Fed it needs to “create and provide a detailed plan to build within the career staff of the Federal Reserve the level of expertise necessary to guide the central bank through the next financial crisis without outsourcing corporate bailouts to Wall Street.”

Read Porter’s full letter to the Fed. The video below is Porter questioning Jamie Dimon at a House hearing on April 10 of last year.

How Criminal Charges Against JPMorgan Went to a Yawn at the New York Times

 

How Criminal Charges Against a Wall Street Icon Went from Front Page News to a Yawn at the New York Times

By Pam Martens and Russ Martens: October 19, 2020 ~

Source:  https://wallstreetonparade.com/2020/10/how-criminal-charges-against-a-wall-street-icon-went-from-front-page-news-to-a-yawn-at-the-new-york-times/

E.F. Hutton Story on Front Page of New York Times, May 3, 1985

On May 2, 1985 the highest law enforcement officer in the United States, the head of the U.S. Department of Justice, Attorney General Edwin Meese, held a news conference to announce that the sixth largest brokerage firm on Wall Street, E.F. Hutton, was pleading guilty to 2,000 felony counts of wire and mail fraud. It had also agreed to pay criminal fines of $2 million and up to $8 million in restitution to the 400 banks it had defrauded. The fraud had lasted less than two years, from July 1, 1980 and February 28, 1982, and consisted of the following according to the Justice Department:

“The essence of the charges was that Hutton obtained the interest-free use of millions of dollars by intentionally writing checks in excess of the funds it had on deposit in various banks.”

On the following day, Friday, May 3, the New York Times put that story on the front page of its newspaper.

Now, carefully consider what happened three weeks ago.

On September 29, 2020, the U.S. Department of Justice sent out a press release announcing that it was bringing two criminal charges against the largest Wall Street bank in the United States. No press conference was held. The press release indicated that JPMorgan Chase had committed “tens of thousands of episodes of unlawful trading in the markets for precious metals” and “thousands of episodes of unlawful trading in the markets for U.S. Treasury futures and in the secondary (cash) market for U.S. Treasury notes and bonds.” The bank agreed to pay $920 million in fines and restitution.

This was the fourth and fifth criminal count to which JPMorgan Chase had pleaded guilty since 2014 — an unthinkable and unprecedented history of criminal conduct by the largest bank in the United States. But the New York Times did not run one word about these latest criminal charges on its front page. In fact, no story at all, that we could find, appeared in the print edition of the newspaper.

JPMorgan has been headquartered in Manhattan where the New York Times is located for more than a century. It has 5,239 federally-insured bank branches spread across the country. It holds $1.7 trillion in domestic deposits for moms and pops, small and large businesses, public pension funds, states and municipalities across America. And yet getting slapped with five criminal felony counts in a span of six years is not front-page news at the New York Times. It doesn’t even warrant coverage anywhere in the newspaper.

The Criminal Information (details of charges) filed by the Justice Department, and linked at the bottom of the press release, indicated that JPMorgan Chase had not, like E.F. Hutton, been engaged in this fraud for less than two years, but had been rigging the precious metals market for more than eight years and the U.S. Treasury market for just under eight years.

In 1985, the U.S. Department of Justice brought a criminal count against E.F. Hutton for each criminal act, i.e., 2,000 counts. Under the William Barr Justice Department of 2020, “tens of thousands” of instances of fraud in the precious metals markets were all lumped into one single criminal count. For the “thousands of episodes” of rigging the U.S. Treasury market, JPMorgan Chase also got those lumped into one single count.

In the 1985 case against E.F. Hutton, in addition to the other fines, the Justice Department made the firm pay an additional $750,000 for the cost to the taxpayer to investigate the charges.

Reading that today seems like a quaint relic of the America we used to be. JPMorgan Chase has been under so many criminal and civil investigations since Jamie Dimon took the helm as Chairman and CEO of the bank that the unreimbursed cost to the taxpayer is likely in the billions of dollars. That fact hasn’t made the front pages of any newspapers in America either.

Consider the rap sheet of JPMorgan Chase that was published by two trial attorneys in the book: JPMadoff: The Unholy Alliance between America’s Biggest Bank and America’s Biggest Crook. Attorneys Helen Davis Chaitman and Lance Gotthoffer provided this chronology:

“In April 2011, JPMC agreed to pay $35 million to settle claims that it overcharged members of the military service on their mortgages in violation of the Service Members Civil Relief Act and the Housing and Economic Recovery Act of 2008.

“In March 2012, JPMC paid the government $659 million to settle charges that it charged veterans hidden fees in mortgage refinancing transactions.

“In October 2012, JPMC paid $1.2 billion to settle claims that it, along with other banks, conspired to set the price of credit and debit card interchange fees.

“On January 7, 2013, JPMC announced that it had agreed to a settlement with the Office of the Controller of the Currency (‘OCC’) and the Federal Reserve Bank of charges that it had engaged in improper foreclosure practices.

“In September 2013, JPMC agreed to pay $80 million in fines and $309 million in refunds to customers whom the bank billed for credit monitoring services that the bank never provided.

“On November 15, 2013, JPMC announced that it had agreed to pay $4.5 billion to settle claims that it defrauded investors in mortgage-backed securities in the time period between 2005 and 2008.

“On December 13, 2013, JPMC agreed to pay 79.9 million Euros to settle claims of the European Commission relating to illegal rigging of benchmark interest rates.

“In February 2012, JPMC agreed to pay $110 million to settle claims that it overcharged customers for overdraft fees.

“In November 2012, JPMC paid $296,900,000 to the SEC to settle claims that it misstated information about the delinquency status of its mortgage portfolio.

“In July 2013, JPMC paid $410 million to the Federal Energy Regulatory Commission to settle claims of bidding manipulation of California and Midwest electricity markets.

“On November 19, 2013, JPMC agreed to pay $13 billion [that’s billion with a ‘b’] to settle claims by the Department of Justice; the FDIC; the Federal Housing Finance Agency; the states of California, Delaware, Illinois, Massachusetts, and New York; and consumers relating to fraudulent practices with respect to mortgage-backed securities.

“In December 2013, JPMC paid $22.1 million to settle claims that the bank imposed expensive and unnecessary flood insurance on homeowners whose mortgages the bank serviced.

“On May 15, 2015, five financial institutions, including JPMC, pled guilty to a criminal conspiracy to fix the foreign exchange market, paying a total of $5.6 billion in fines. JPMC paid $892 million in fines.”

This was all in addition to the focus of the book: the two criminal felony counts brought against JPMorgan Chase in 2014 for its role in the Bernard Madoff Ponzi scheme.

Following the publication of Chaitman and Gotthoffer’s book, the crime spree at JPMorgan Chase continued. In 2016 the bank agreed to charges by the SEC that it had steered its customers into in-house products where it reaped higher profits without disclosing this conflict to the customer. It paid $267 million to settle the charges.

In 2017 it paid $53 million to settle charges that it had discriminated against minority borrowers by charging them more for a mortgage than white customers.

In 2018, JPMorgan was charged multiple times. In October 2018 it agreed to pay $5.3 million to settle U.S. Treasury allegations that “it violated Cuban Assets Control Regulations, Iranian sanctions and Weapons of Mass Destruction sanctions 87 times,” according to Reuters. In December 2018 it settled claims with the SEC for $135 million over charges that it had improperly handled thousands of transactions involving the shares of foreign companies.

In 2019, for the first time that Wall Street veterans can remember, the Justice Department brought Racketeer Influenced and Corrupt Organizations Act (RICO) charges against individual traders working on the precious metals desk at JPMorgan Chase. RICO charges are typically brought against organized crime figures. When the Justice Department brought those charges on September 16, 2019, it was too timid to even name JPMorgan Chase. It simply referred to it as “Bank A”.

And now, a year later, we have two more criminal counts against this serial criminal actor on Wall Street – all while the Board of Directors leaves the same man, Jamie Dimon, at the helm of the bank with an annual compensation package of $31 million. And the New York Times, the so-called paper of record, can’t seem to muster a front-page article on what has gone so terribly wrong at the nation’s largest bank.

The looting plan of the European Central Bank in plain view

The Italian Prime Minister CONTE: gold is and remains of the Bank of Italy
The premier dampens the tone of the controversy that has arisen in recent days over the fate of the gold reserves of the Via Nazionale institution. So no alternative use by the State

by Andrea Montanari 21/02/2019 16:21

Conte: gold is and remains of Bankitalia

 Source: https://www.milanofinanza.it/news/conte-l-oro-e-e-resta-di-bankitalia-201902211633139332

 

(The perverse nature of the misinterpretation of accounting principles allows central banks to rob the population with impunity. Only a thorough forensic accounting investigation could reveal the permanent deception. See also: Lebanon’s Central Bank Submitted Its Documents For Forensic Audit)

The gold of the Bank of Italy is not touched, it remains where it is and will be used according to tradition. No intrusion or, worse, expropriation by the State. The Prime Minister, Giuseppe Conte, is the one who threw water on the fire with respect to the controversies of the last few weeks triggered by a part of the majority of the government and strongly supported by Claudio Borghi, president of the budget committee at the Chamber of Deputies, who had already deposited an ad hoc law.

This at least emerges from the answer given by the President of the Council to the question raised by the Fratelli d'Italia group during question time in the Senate. "With regard to the question put by the questioner, I would like to point out that the gold reserves have always been entered in the Assets of the balance sheet of the Bank of Italy and that the purchase and sale of gold or gold currencies have always been included among the transactions pertaining to it", Conte replied.

The Prime Minister went on to point out that "even after exceeding the gold standard, central banks continued to hold gold reserves, in order to strengthen confidence in the stability of the financial system and currency and to diversify the value of their reserve assets to keep their value balanced. With the Maastricht Treaty, by the will of the Contracting States, sovereign powers in the field of monetary policy were transferred exclusively to the European Union".

For this reason, says the President of the Council, "the holding and management of foreign exchange reserves, including gold reserves, is now one of the core tasks of the Eurosystem, consisting of the ECB and the national central banks of the euro area states".

And to reinforce the concept, Conte pointed out that "the gold reserves in the National Central Banks' holdings can be used not only for foreign exchange market intervention, but also to fulfil commitments to international financial institutions or to service the Treasury's foreign currency debt service. Moreover, it does not seem possible that the gold reserves can be claimed by participants in the capital of the Bank of Italy, whose capital rights are limited to the value of the capital and annual net profits".

Still on the subject, the Prime Minister of the yellow-green government stressed that "national central banks must be able to exercise their powers to hold and manage reserves in full independence. The national authorities, both legislative and governmental, are obliged to respect the independence of the ECB and the CNB under the European Treaties signed by the Contracting States. From the point of view of institutional independence, the ECB and NCBs may not be subject to binding requirements with regard to the performance of their institutional tasks in matters falling within the competence of the Eurosystem, including with regard to foreign exchange reserves".

According to these regulations, States "must also respect the financial independence of central banks, ensuring that they have sufficient financial resources to carry out their tasks. Finally, the Member States have decided to comply with the ban on monetary financing. It prevents national central banks, in order to safeguard the pursuit of the objective of price stability and the maintenance of fiscal discipline, from granting credit to the State and other public entities, including the financing of public sector obligations towards third parties".

Moreover, it should not be underestimated that it was the European Central Bank itself that specified that "the prohibition includes any financial disbursement, even in the absence of a repayment obligation, in order to take into account the ultimate purpose of the rule. The transfer of financial assets from the balance sheet of the Bank of Italy to that of the State would therefore fall within this prohibition. It follows, therefore, from the regulatory framework described above that the ownership of the national gold reserves is held by the Bank of Italy, a public body which performs the functions of central bank of the Italian Republic. The use of the gold reserve is one of the institutional aims of the Bank, to protect the value of money".

Thus, concluded Conte's review, "a regulatory intervention aimed at changing the golden ownership structure of the Bank of Italy, although within the political discretion of the national legislator, should be assessed, in terms of compatibility, with the basic principles governing the European System of Central Banks".

Cancel the Debt | CAFOD

What to Do About Economic Inequality?

Citigroup Is Slapped with a $400 Million Fine for Doing ...

 Citigroup Is Slapped with a $400 Million Fine for Doing Something So Bad It Can’t Be Spoken Out Loud

By Pam Martens and Russ Martens: October 8, 2020 ~ 

Source: https://wallstreetonparade.com/2020/10/citigroup-is-slapped-with-a-400-million-fine-for-doing-something-so-bad-it-cant-be-spoken-out-loud/

Michael Corbat, CEO of Citigroup Since 2012

Federal regulators are rapidly becoming bigger Dark Pools of information than those secretive stock exchanges run by the big banks on Wall Street. On Tuesday, September 29, when all eyes were focused on the presidential debate to occur that evening, the Justice Department issued a press release announcing the fourth and fifth felony counts against JPMorgan Chase in the past six years. In an unprecedented move, the Justice Department did not hold a press conference to explain why the country’s largest bank is allowed to perpetually commit felonies with no change in management. The bank admitted to the charges and was put on a three-year probation – its third such probation in six years. Jamie Dimon, the Chairman and CEO of the bank, who has presided over all five felony counts, was left in place at the bank.

Yesterday, when all eyes were on the vice-presidential debate last night, the Federal Reserve and Office of the Comptroller of the Currency (OCC) announced consent decrees with Citigroup, the third largest bank in the country. The OCC imposed a $400 million fine on Citigroup’s federally-insured commercial bank, Citibank, and stated in its Consent Order that it had “identified unsafe or unsound practices with respect to the Bank’s internal controls, including, among other things, an absence of clearly defined roles and responsibilities and noncompliance with multiple laws and regulations.”

“Noncompliance with multiple laws and regulations” means the bank has broken “multiple laws and regulations.” But, apparently, the laws it broke, how it broke them, and who benefited and by how much is just too explosive a story to see the light of day. The Consent Orders from both the OCC and Federal Reserve failed to specify exactly what crimes Citigroup had committed and instead used vague generalities such as “unsafe or unsound practices.”

The Federal Reserve’s Consent Order did include two deficiencies that jumped off the page: “capital planning” and “liquidity risk management.” Problems with capital and liquidity are not something one wants to read about Citigroup in 2020 because it is the bank that became insolvent and received the largest taxpayer bailout in global banking history during the 2007 to 2010 financial crisis.

The bank has obviously done something very bad because the OCC has put it on a very tight leash – which is done only in extreme circumstances. The OCC’s order requires that “With the exception of ordinary course transactions, such as hedging, market making, and securitization transactions…the Bank shall not complete any new portfolio or business acquisitions until it has received prior written determination of no supervisory objection to the review process from the Deputy Comptroller.” That means that Citibank can’t open new retail bank branches, acquire other banks, or increase its already massive derivatives book (other than hedging) without the express consent of the OCC.

Equally concerning, the Federal Reserve’s Consent Order orders Citigroup (the bank holding company that owns Citibank, the federally-insured bank) to comply with 12 CFR 225.4(a). That statute reads in part:

“(2) Whenever the Board believes an activity of a bank holding company or control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) constitutes a serious risk to the financial safety, soundness, or stability of a subsidiary bank of the bank holding company and is inconsistent with sound banking principles or the purposes of the BHC [Bank Holding Company] Act or the Financial Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et seq.), the Board may require the bank holding company to terminate the activity or to terminate control of the subsidiary, as provided in section 5(e) of the BHC Act.

“(b) Purchase or redemption by bank holding company of its own securities –

“(1) Filing notice. Except as provided in paragraph (b)(6) of this section, a bank holding company shall give the Board prior written notice before purchasing or redeeming its equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10 percent or more of the company’s consolidated net worth. For the purposes of this section, ‘net consideration’ is the gross consideration paid by the company for all of its equity securities purchased or redeemed during the period minus the gross consideration received for all of its equity securities sold during the period.”

Has Citigroup done something improper regarding the tens of billions of dollars it has spent buying back its own stock? Until March 31, 2015, Citigroup was spending hundreds of millions of dollars a quarter to buy back its stock. But beginning with the quarter ending June 30, 2015, it started to spend billions of dollars a quarter. And, as we headlined on July 24, Citigroup Has Been Paying Out More than It Earned for Years; Now It Has $102.5 Billion in Debt Maturing within Three Years.

Also, as we previously reported, Citigroup (as well as other Wall Street banks) is trading its own stock in its own Dark Pool, potentially manipulating share prices. As the last financial crisis deepened in 2009, Citigroup’s share price touched 99 cents. Thus, it is highly motivated to attempt to protect its share price in the current financial crisis.

In June we reported that the Fed had quietly reimbursed Citibank $3.077 billion under the Fed’s Paycheck Protection Program Liquidity Facility, a program that reimburses banks for the loans they made under the CARES Act PPP program, which are guaranteed by the Small Business Administration. The Fed accepts the PPP loan as collateral and charges the bank a miniscule interest on the loan of 0.35 percent. As of the Fed’s last PPP report dated August 31, 2020, no other major Wall Street bank had asked to be reimbursed by the Fed – just Citibank, raising further questions about its “liquidity risk management.”

Whatever laws Citigroup/Citibank has broken, they must be quite serious. Jamie Dimon is still at the helm of his bank after an unprecedented five felony counts in six years. But on September 10 of this year, the CEO of Citigroup, Michael Corbat, abruptly announced he would be stepping down in February. In addition, the OCC noted in one of its orders that it was reserving the right to limit the bank’s payment of dividends, and reserving the right to require the bank “to make changes to its senior executive officers or any and/or all members of the Board.”

The OCC also noted that there had been “inadequate reporting” to the Citigroup Board, which “hinders its ability to provide effective oversight.”

To put this whole fiasco into perspective, just 12 years ago Citigroup became such a basket case that it required the following to rescue its sinking carcass: an infusion of $45 billion in capital from the U.S. Treasury; a government guarantee of over $300 billion on its dubious “assets”; a guarantee of $5.75 billion on its senior unsecured debt and $26 billion on its commercial paper and interbank deposits by the Federal Deposit Insurance Corporation (FDIC); and a secret revolving loan facility from the Federal Reserve that sluiced a cumulative $2.5 trillion in below-market-rate loans to Citigroup from 2007 to the middle of 2010.

Just as now, Federal regulators refused to tell the American people just how bad the situation was at Citigroup. Sheila Bair, the chair of the FDIC during the last financial crisis, wrote the following in her book, Bull by the Horns.

“By November [of 2008], the supposedly solvent Citi was back on the ropes, in need of another government handout. The market didn’t buy the OCC’s and NY Fed’s strategy of making it look as though Citi was as healthy as the other commercial banks. Citi had not had a profitable quarter since the second quarter of 2007. Its losses were not attributable to uncontrollable ‘market conditions’; they were attributable to weak management, high levels of leverage, and excessive risk taking. It had major losses driven by their exposures to a virtual hit list of high-risk lending; subprime mortgages, ‘Alt-A’ mortgages, ‘designer’ credit cards, leveraged loans, and poorly underwritten commercial real estate. It had loaded up on exotic CDOs and auction-rate securities. It was taking losses on credit default swaps entered into with weak counterparties, and it had relied on unstable volatile funding – a lot of short-term loans and foreign deposits. If you wanted to make a definitive list of all the bad practices that had led to the crisis, all you had to do was look at Citi’s financial strategies…What’s more, virtually no meaningful supervisory measures had been taken against the bank by either the OCC or the NY Fed…Instead, the OCC and the NY Fed stood by as that sick bank continued to pay major dividends and pretended that it was healthy.”

For years now, we have explained in grotesque detail why the Federal Reserve and its surrogate, the New York Fed, are both incompetent and incapable of overseeing the mega banks on Wall Street. For starters, these banks literally own the New York Fed. Secondly, the New York Fed has the ability to create money by pushing an electronic button and bailing out its incompetent supervision of these banks by creating $9 trillion out of thin air to prop up Wall Street banks it refuses to name.

There is no better proof that things are completely out of control at the Fed than the fact that Federal Reserve Chairman Jerome Powell has had the audacity to tell the American people, repeatedly, that the big banks are “a source of strength” during the current crisis. How could that possibly be true when the largest bank in the country, JPMorgan Chase, was charged with two more felony counts just last month for turning its precious metals desk into a racketeering enterprise and rigging the U.S. Treasury market – the market that allows the federal government to pay the bills of this nation. And just yesterday, Citigroup, the third largest bank in the U.S., is said to be operating in an “unsafe or unsound” manner.

And let’s not forget that Goldman Sachs paid $3.9 billion in July to settle a bribery and kickback scandal with Malaysia over its sovereign wealth fund, 1MDB. According to Goldman’s August 7, 2020 10-Q filing with the Securities and Exchange Commission, it remains under a criminal investigation in that matter by the U.S. Department of Justice.

Unless one is a capo in a crime family, this doesn’t sound like an industry operating from a “source of strength.”

The New York Fed, Pumping Out More than $9 Trillion

The New York Fed, Pumping Out More than $9 Trillion in Bailouts Since September, Gets Market Advice from Giant Hedge Funds

By Pam Martens and Russ Martens: October 1, 2020 ~

Source:  https://wallstreetonparade.com/2020/10/the-new-york-fed-pumping-out-more-than-9-trillion-in-bailouts-since-september-gets-market-advice-from-giant-hedge-funds/

John Williams, President of the New York Fed

The New York Fed, the unlimited money spigot in times of need by Wall Street’s trading houses, has been conducting meetings with hedge funds to get their input on the markets. More on that in a moment, but first some necessary background.

Millions of Americans have seen the movie The Big Short, based on the Michael Lewis bestselling book by the same name. A key character in the movie is Mark Baum, played by Steve Carell. The character is based on Steve Eisman, who, during the financial crisis of 2008, was employed at FrontPoint Partners LLC, a hedge fund unit of Morgan Stanley. As widely acknowledged, FrontPoint was shorting subprime residential mortgages that were packaged into CDOs (Collateralized Debt Obligations). Shorting means to make a bet that a financial instrument will lose value. FrontPoint was, in fact, hoping American homeowners would be foreclosed on and their subprime mortgages would become worthless.

But here’s what else FrontPoint was shorting. Lewis writes in his book that during the financial crisis Eisman, while at FrontPoint, “shorted Bank of America, along with UBS, Citigroup, Lehman Brothers, and a few others.” Lewis notes further that “They weren’t allowed to short Morgan Stanley because they were owned by Morgan Stanley, but if they could have, they would have.”

The New York Fed was in charge of almost all of the secret $29 trillion in bailouts during the 2007 to 2010 financial crisis. Congress never approved these loans or was even aware of where the money was going. After the Fed lost a multi-year court battle to keep its bailouts a dark secret from the American people, we learned that Morgan Stanley was one of the largest recipients, receiving a cumulative total of $2.04 trillion according to the audit conducted by the Government Accountability Office (GAO).

Buried deep in the GAO audit is this bombshell:

“Morgan Stanley funds include TALF borrowing by funds managed by FrontPoint LLC, which was owned by Morgan Stanley at the time TALF operated.”

TALF was one of the Fed’s bailout programs. Which means the Fed was subsidizing FrontPoint with super cheap funding as it was shorting the hell out of the very banks that the Fed was desperately attempting to prop up with trillions of dollars in secret loans.

How viable was Morgan Stanley at the time the Fed was flooding it with emergency lending? According to the Financial Crisis Inquiry Commission report, both Lehman Brothers and Morgan Stanley had reached leverage ratios of 40:1 by the end of 2007 – “meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm.”

Neil Barofsky, the former Special Inspector General of the Troubled Asset Relief Program wrote a book about the crisis titled: Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street. Barofsky writes in the book that then Treasury Secretary Hank Paulson told him “that he believed Morgan Stanley was just days away from collapse, and Ben Bernanke, the chairman of the Federal Reserve, similarly confided that he believed that Goldman Sachs would have been the next to go. After that, all bets on the country’s financial system would have been off.”

Which brings us to today. The New York Fed is back in charge of a vast roster of emergency lending facilities. It won’t provide information on to whom or how much it has loaned individually in three of those facilities: the Primary Dealer Credit Facility; the Commercial Paper Funding Facility; and the Money Market Mutual Fund Liquidity Facility.

On top of those facilities, beginning on September 17, 2019 – months before the first case of COVID-19 was reported in the United States – the New York Fed embarked on a massive emergency repo loan operation, which had reached $6 trillion cumulatively in loans by January 6. (See Federal Reserve Admits It Pumped More than $6 Trillion to Wall Street in Recent Six Week Period.) The Fed has provided data on the total amounts of the daily loans, but not the names of the recipients. All it will say is that the loans are going to its 24 primary dealers, which are the trading units of the big banks on Wall Street. The last time we tallied its data in March, it had sluiced over $9 trillion cumulatively to these trading houses.

According to a research report released in December by the Bank for International Settlements (BIS), four large banks and hedge funds were responsible for the repo blowup in September.

Which brings us to the New York Fed’s Investor Advisory Committee on Financial Markets (IACFM) which it initiated in the midst of the last financial crisis on July 24, 2009. Today, half of the Committee’s participants are executives of giant hedge funds, including: William A. Ackman, Chief Executive Officer, Pershing Square Capital Management, L.P.; Paul Tudor Jones, Co-Chairman & Chief Investment Officer, Tudor Investment Corp.; Ray Dalio, Chairman & Co-Chief Investment Officer, Bridgewater Associates, LP; Dawn Fitzpatrick, Chief Investment Officer, Soros Fund Management; Bob Jain, Co-Chief Investment Officer, Millennium Management; Scott Minerd, Global Chief Investment Officer and Managing Partner, Guggenheim Partners.

The group meets quarterly. The minutes are so scrubbed that they barely provide any idea of what was actually discussed. The October 9, 2019 meeting minutes, which followed the onset of the New York Fed’s massive repo loan operations, contains this well-scrubbed assessment:

“They [the participants] also noted that the Fed repo operations had alleviated funding strains, though they remained focused on year end pressures. Some of these attendees thought that over time some investors may set aside cash to deploy in the event of a reoccurrence of funding pressures, which may also mitigate some of these pressures in the future.”

Since the Fed’s inception in 1913, the statutory role of the Federal Reserve has been to serve as lender of last resort to commercial banks – so that those commercial banks could help the overall economy by making sound business and consumer loans. The statutory role of the Fed has never been to be a lender of last resort to the trading houses on Wall Street or hedge funds. But beginning with the 2007 to 2010 financial crisis, the New York Fed has simply arbitrarily decided to provide an unlimited money spigot to Wall Street’s trading houses whenever they are at risk of blowing themselves up as a result of their own hubris.

To say that Congress has been negligent in reining in this abuse barely captures the reckless irresponsibility of what the New York Fed has been allowed to continue to do with barely a whimper from Congress or mainstream media. For just a sampling of its captured regulator status, see the related articles below.

Related Articles:

These Are the Banks that Own the New York Fed and Its Money Button

New York Fed’s Repo Loans Are Foaming the Hedge Fund Runways

New York Fed Considering Becoming Sugar Daddy to Hedge Funds as their Distress Grows

The New York Fed Is Exercising Powers Never Bestowed on It by any Law

Instead of Draining the Swamp, the Swamp Is Draining the U.S. Treasury via the New York Fed

New York Fed Has Allowed Dangerous Wall Street Banks to Have Lower Loan Loss Reserves than at time of 2008 Crash

The Man Who Advises the New York Fed Says It and Other Central Banks Are “Fueling a Ponzi Market”

Here’s Why the New York Fed Doesn’t Want You to See a Photo of Its Wall Street-Esque Trading Floor

Forex Guilty Pleas and the New York Fed’s Blinders

As Citigroup Spun Toward Insolvency in ’07- ’08, Its Regulator Was Dining and Schmoozing With Citi Execs

New Documents Show How Power Moved to Wall Street, Via the New York Fed