Courtesy of Pam Martens
Rodgin Cohen Speaking at a Bloomberg Conference in 2015
There is a little noticed audio tape of an interview conducted on August 5, 2010 by investigators for the Financial Crisis Inquiry Commission (FCIC), a body convened under the Fraud Enforcement Recovery Act of 2009 to investigate the 2008 financial collapse on Wall Street. The interview is with Rodgin (Rodge) Cohen, Senior Chairman of Sullivan & Cromwell, the preeminent go-to lawyer on Wall Street.
Cohen makes a number of eyebrow-raising admissions during his interview. First, in response to a question, Cohen concedes that he was personally involved in the amendment contained in the Federal Deposit Insurance Corporation Improvement Act (FDICIA) that changed the Fed’s emergency lending powers under Section 13(3) of the Federal Reserve Act.
That one-sentence amendment to Section 13(3) was interpreted by the Federal Reserve from December 2007 to mid-2010 as giving it carte blanche to shovel $29 trillion in cumulative loans for as long as 2-1/2 years to Wall Street banks, broker-dealers, investment banks, hedge funds and foreign global banks, backstopped in many cases by dodgy collateral. In one of the Fed’s lending programs, the Primary Dealer Credit Facility (PDCF), it made revolving loans totaling $8.95 trillion, a significant portion of which was based on accepting stocks and junk bonds as collateral at a time when the prices of both were in freefall. (See chart below.)
Cohen also admits that during his negotiations on behalf of the Board of Bear Stearns, he effectively provided a legal interpretation of the law to the Fed. Cohen stated during the interview: “We did say that we thought 13(3) provided broad power; that the ability was there if the Fed could satisfy itself on the collateral.”
In fact, all that the amendment to Section 13 says in the FDICIA legislation is this: “Section 13 of the Federal Reserve Act (12 U.S.C. 343) is amended in the third paragraph by striking ‘of the kinds and maturities made eligible for discount for member banks under other provisions of this Act.’ ”
…
