Courtesy of Pam Martens
Randal Quarles, Vice Chair for Supervision at the Federal Reserve
What the United States desperately needs is less Financial Stability Reports and actual financial stability – rather than the Wall Street Casino in drag as Federally-insured banks.
The Office of Financial Research (OFR), created under the Dodd-Frank financial reform legislation of 2010, publishes a Financial Stability Report; the Financial Stability Oversight Council (F-SOC), also created under Dodd-Frank legislation, publishes an annual report to call attention to any emerging threats to financial stability; and, not to be left out, the Federal Reserve has decided it needs to have its own say in its own Financial Stability Report – ostensibly to make it appear that it’s on top of the threats emanating from its charges on Wall Street – which it decidedly is not.
Another reason the Fed may want its own Financial Stability Report is to create the illusion that things have dramatically changed in the structure of the Wall Street mega banks since the financial collapse of 2008 when the Fed secretly funneled $29 trillion into the collapsing hulks of the mega banks it was supposed to be prudently regulating, in order to prop them back up. In fact, very little has materially changed since 2008. The mega banks are bigger than they were in 2008; the mega banks are still paying the ratings agencies to rate toxic debt; the Volcker Rule has been rendered meaningless by the banks simply calling proprietary trading a hedging function; the mega banks are still trading the stock of their own bank in their own Dark Pools, potentially manipulating their share prices; and the hundreds of trillions of dollars in derivatives, which the public was assured under Dodd-Frank financial reform legislation would be moving out of the darkness onto exchanges or central clearing houses, remain largely in the dark as private contracts of unknown terms between the bank and an unknown counterparty.
As we will explain in a moment, derivatives played a central role in the financial collapse of 2008. In its recent Financial Stability Report, the Federal Reserve has moved from illusion to outright lying about the state of derivatives at the mega banks.
The Fed first correctly notes that at the time of the 2008 financial collapse “Over-the-counter derivatives markets were largely opaque. And banks, especially the largest banks, had taken on significant risks without maintaining resources sufficient to absorb potential losses.” But then the Fed goes on to deliver this monstrous falsehood, implying that 60 percent of derivatives at the mega banks have moved out of the darkness and are now centrally cleared. The Fed writes:
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