Courtesy of Pam Martens
Remember the phrase “putting lipstick on a pig.” It became popular after the dot.com bust when it was learned that the big Wall Street banks had glowingly recommended “hot” new issues of stocks to their customers while secretly calling them “crap” and “dogs” in internal emails.
Putting lipstick on a pig is what the Federal Reserve is attempting to do in the Financial Stability Report it released yesterday afternoon. Both the lipstick and the pig are captured in this paragraph on page 8 of the Fed’s report:
“Banks remain well capitalized, and leverage at broker-dealers is low. Measures of hedge fund leverage are somewhat above their historical averages, but the data available may not capture important risks from hedge funds or other leveraged funds.”
To unpack the scope of the Fed’s deception in this paragraph, one needs to first understand that as a result of the repeal of the Glass-Steagall Act in 1999, the largest federally-insured banks on Wall Street now own the largest broker-dealers (trading casinos). If the “data available” is not capturing the full scale of risks between the hedge funds and the mega banks and the broker dealers they own, then there is zero evidentiary support for the Fed to state that “Banks remain well capitalized.”
Making certain that the mega banks remain well capitalized should be the number one priority of the Fed and its team of bank examiners, since the last time the Fed was caught with its blinders on resulted in $29 trillion in cumulative bailouts to resuscitate a pulse back into the financial system of the largest super power in the world.
In 2008, century-old Wall Street firms were blowing up faster than Roman Candles in a fireworks factory explosion: Bear Stearns, gone. Lehman Brothers, gone. Citigroup, insolvent and propped up by the Fed. Fannie Mae and Freddie Mac, put into government conservatorship – where they remain. AIG, propped up with government money in order to bail out its derivatives contracts with the mega banks. And on and on.
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