Courtesy of Pam Martens
Fed Chairman Jerome Powell at Press Conference, September 18, 2019
The Fed is in deep fear, while also in deep denial, about what happened last December. Its fear is that it could happen again this December. Its denial is that its lax supervision of the Wall Street mega banks is largely responsible for the mess.
The stock market news on December 24 of last year was not what folks want to be reading about on Christmas Eve. The Dow Jones Industrial Average had plunged 653 points on Christmas Eve and headline writers across major media were declaring the month to have been the worst December for stocks since the Great Depression.
But the declines in the broader stock market averages paled in comparison to the December carnage that occurred in the share prices of the mega banks on Wall Street and, to the Fed’s consternation, the insurance companies that are stealthily interconnected to the mega banks as their derivative counterparties.
Despite all of the warnings that have come out of the Office of Financial Research (OFR), and the implosion of the giant insurer, AIG, during the financial crisis as a result of its derivatives ties to the big Wall Street banks, the Federal Reserve has not reined in these interconnections.
The two charts below show the companion collapses in December in the share prices of the Wall Street banks with the heaviest exposure to derivatives and the insurance companies serving as counterparties to those derivatives. (Banks are also derivative counterparties to each other.)
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