Courtesy of Pam Martens
Fed Chair Jerome Powell
There is fresh evidence that Citigroup, the mega Wall Street bank that was insolvent but still illegally propped up by the Fed during the last financial crisis (to the tune of $2.5 trillion cumulatively in secret loans for two and one-half years) is back to drinking at the Fed’s trough.
The Fed has set up a program called the Paycheck Protection Program Liquidity Facility (PPPLF). That Fed program is reimbursing small banks for the small business loans that they made under the Paycheck Protection Program which was established by Congress in the CARES Act and being overseen by the Small Business Administration (SBA). According to the Fed, the idea is to reimburse these banks around the country for the PPP loans so that they can make fresh loans to other struggling consumers and businesses. The banks simply post the PPP loans they have made as collateral and the Fed reimburses them. As of last Wednesday, the Fed had reimbursed $57 billion thus far. The SBA has guaranteed the loans against default so the banks are not at risk if they choose to keep the loans on their books.
As of last Wednesday, not one mega Wall Street bank other than Citigroup had taken any of this Fed money. There was no JPMorgan Chase, no Wells Fargo, no Bank of America, no Morgan Stanley, no Goldman Sachs Bank USA on the Fed’s list of reimbursements. The name of Citigroup’s commercial bank, Citibank, however, appeared 34 times. The tally of Citibank’s reimbursements on PPP loans from the Fed totaled $3.077 billion. That fact doesn’t square with the narrative from Fed Chairman Jerome Powell about the condition of these mega banks on Wall Street.
Powell has had two consistent messages at his press conferences and testimony before Congress: those messages are that the mega banks that the Fed supervises went into the coronavirus crisis “well capitalized” and that has made them “a source of strength” in the crisis. If this turns out to be a lie, Powell will be humiliated in Congressional hearings in a manner similar to the feckless former Fed Chairman Alan Greenspan. The Fed would then, necessarily, be stripped of its supervisory role over Wall Street banks for allowing two unprecedented banking collapses in a period of 12 years. Thus, it’s essential to Powell to deal decisively with any facts that get in the way of his narrative.
Yesterday, Powell testified at a House Financial Services Committee virtual hearing. He was asked multiple times about the dangers of Collateralized Loan Obligations (CLOs) to the big banks. That danger has been raised in recent days in an attention-grabbling headline at The Atlantic, “The Looming Bank Collapse.” The article was penned by law professor Frank Partnoy, who likely has a better grasp of these matters than Powell since he was previously a fixed income derivatives specialist at Morgan Stanley and CS First Boston.
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