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The Fed Has Pumped $9 Trillion into Wall Street Over the Past Six Months, But Mnuchin Says “This Isn’t Like the Financial Crisis”

Courtesy of Pam Martens

Steve Mnuchin Gives Interview to CNBC Outside of White House on Friday, March 13, 2020

U.S. Treasury Secretary Steve Mnuchin Gives Interview to CNBC Outside of White House on Friday, March 13, 2020

On February 12, 2020, the Dow Jones Industrial Average closed at 29,551.42. Yesterday, March 13, the Dow closed at 23,185.62 -– a loss of 6,365.80 points in one month’s time, or 21.54 percent. In 2008, the greatest financial calamity since the Great Depression, the Dow had lost 2,339.60 points or 21.4 percent one month after the frightening events of September 15, 2008 when Lehman Brothers filed bankruptcy, Merrill Lynch had to be taken over by Bank of America, and one day before the U.S. government seized the giant insurer, AIG, because it couldn’t pay the tens of billions of dollars in derivative bets it had made with the mega banks on Wall Street.

On this past Friday morning, in what appeared to be an effort to restore confidence on Wall Street, U.S. Treasury Secretary Steve Mnuchin gave an interview on CNBC. Mnuchin said “there’s lots of liquidity” and “this isn’t like the financial crisis.” But savvy folks on Wall Street, and readers of Wall Street On Parade, clearly understand that there is not lots of liquidity and this is exactly like the financial crisis of 2008 in terms of mega Wall Street banks losing massive amounts of their common equity capital and being on a liquidity feeding tube inserted by the Federal Reserve.

Since September 17, 2019 – six months ago, the Federal Reserve has loaned billions of dollars to Wall Street every single business day that the stock market has been open. This is the first time this has been necessary since the financial crisis of 2008. That fact, in and of itself, makes this very much on a par with the financial crisis of 2008.

Since the Fed began its repo loan operations on September 17, the tally of the Fed’s cumulative loans to Wall Street’s trading firms comes to more than $9 trillion (using the Fed’s own Excel spreadsheet of the data; you have to manually remove the Reverse Repo dollar amounts.)

According to the Fed audit conducted by the Government Accountability Office (GAO), from December 12, 2007 to July 21, 2010, a period spanning more than 31 months during the worst financial crisis since the Great Depression, the Fed’s cumulative loans to Wall Street tallied up to $16.1 trillion. (See chart below from the GAO audit.)


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