Courtesy of Pam Martens
By Pam Martens and Russ Martens
On Wednesday, March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. From that point on, through March 23, the share price performance of the Standard & Poor’s 500 began to diverge dramatically from the share price performance of the mega banks on Wall Street. (See chart above.)
From the start of the year in 2020, the S&P 500 fell a little more than 30 percent through March 23 while Bank of America, Morgan Stanley, Goldman Sachs, and JPMorgan Chase were down from 40 to 50 percent. Citigroup was down by a stunning 56 percent. (Citigroup had closed at $79.89 on December 31, 2019. By the close of trading on March 23, 2020, it was a $35.39 stock.)
We compared these bank stocks to the S&P 500 because the companies that make up the S&P 500 index are the corporate customers that these banks are supposed to be lending to. Why are the banks’ corporate customers performing better in a crisis than the banks? Why are the mega banks draining confidence from the financial system with tanking stock prices? Why is Citigroup, a basket case in the last financial crisis, performing like a new basket case in this crisis?
What happened as a result of the tanking share prices of the mega bank stocks in the spring of 2020 is that the Federal Reserve had to quickly reassemble many of the same Wall Street bailout programs that it had created in 2008, for example: the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), the Term Asset-Backed Securities Loan Facility (TALF), the Money Market Mutual Fund Liquidity Facility (MMLF), and numerous other programs and bailout measures.
…
