Courtesy of Pam Martens
Following a lack of liquidity on Wall Street, which necessitated the Federal Reserve having to provide $53 billion on Tuesday and another $75 billion on Wednesday to normalize overnight lending in the repo market, the Chairman of the Fed, Jerome (Jay) Powell held his press conference at 2:30 p.m. yesterday. The press gathering followed both a one-quarter point cut in the Fed Funds rate by the Fed yesterday as well as the first intervention by the Fed in the overnight lending market since the financial crash. (The Fed had to intervene again this morning, making another $75 billion in repo loans available.)
The week’s unsettling events should have provided the basis for reporters to fire questions at the Fed Chair along the following lines: (1) Did the overnight repo lending rate jump to an historical high of 10 percent on Tuesday because some of the largest Wall Street banks backed away from lending? (2) With six mega banks on Wall Street holding 90 percent of the risky $272 trillion U.S. derivatives market and also a disproportionate share of Federally-insured deposits, could the U.S. see another 2008 type of crash on Wall Street? (3) Are these six banks too interconnected with each other, meaning that if one of them gets into trouble as Citigroup did in 2008, could it spill over to every other mega Wall Street bank?
While every major business news outlet was represented at the press conference, not one of the above questions was asked. One reporter, however, came close.
Hannah Lang, a reporter with American Banker, asked Powell about reports out yesterday that Bank of America was being investigated by the Consumer Financial Protection Bureau for opening unauthorized accounts. She asked if the Fed was also investigating this and said that given the pending order against Wells Fargo for the same kind of behavior, if Powell was concerned that these banks are too big to manage.
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