Courtesy of Pam Martens
If anyone needs one more reason to break up the mega banks on Wall Street, simply look at what happened following the Federal Reserve’s quarter of a percentage point rate hike on December 16 of last year. On that date, the Fed moved off its seven year zero interest rate policy (ZIRP), which had been a bonanza for the banks and a starvation plan for seniors living on fixed income investments like Treasury notes and CDs, and raised its benchmark rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent from its former 0.0 to 0.25 percent.
The following then happened in short order in 2016:
By Friday, January 15, Citigroup closed down on the day a gut-churning 6.41 percent, bringing its share price losses to a whopping 30 percent from its July 2015 high. Citigroup had been the largest recipient of bailout funds from the government in 2008 as well as the largest bank bailout in the history of finance, receiving $45 billion in equity infusions, over $300 billion in asset guarantees, and more than $2 trillion cumulatively in secret loans from the Fed. It could ill afford to be bleeding off its equity capital as banking regulators were attempting to convince the public that they had fixed the too-big-to-fail problem.
By the close of trading on January 18, Morgan Stanley had lost 37 percent in share value from its July high; Goldman Sachs had lost 29 percent since the prior June; Bank of America was down 22 percent from July with JPMorgan Chase down by 19 percent in the same period.
By January 20, a mere 35 days from the Fed’s quarter point rate hike and promise of more to come, the U.S. domestic crude, West Texas Intermediate, was trading at a new 12-year low of under $28 a barrel; globally, stocks had lost $15 trillion since the prior May; the 10-year Treasury note which had closed at a yield of 2.29 percent when the Fed announced its rate hike and plan to begin gradually normalizing rates back up, had gone rogue from the Fed and moved in the opposite direction. Instead of moving up in yield, the benchmark 10-year Treasury was trading on January 20 at a yield of 1.97 percent. (This morning it’s at 1.74 percent.)
On that same day, January 20, Howard Silverblatt, the Standard and Poor’s Dow Jones Indices Senior Index Analyst, tweeted that as of 10:30 a.m. that morning, the Dow Jones Industrial Average’s loss of 10.03 percent year-to-date was the worst ever start to a new year since 1897.
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