Don't Read This Post: Wall Street Wants to Keep the Fed's Illicit $48 Trillion Repo Bailout Secret
NY Fed quietly dumps data on tens of trillions in repo loan bailouts to Wall Street
Stop reading. Seriously, stop reading this post, and first go read this incredible, Pulitzer-worthy bombshell:
The Fed’s Secret Repo Loans, another News Blackout, and a French Bank Scandal, Wall Street on Parade, available at https://wallstreetonparade.com/2022/03/the-feds-secret-repo-loans-another-news-blackout-and-a-french-bank-scandal/
Well, are you outraged yet? You should be! If not, we’ll try to explain why 99% of Americans should be seething mad at our unelected, unaccountable policy makers at the Fed and our elected members of Congress who fail to oversee them.
Below are some key FAQs about the insanely reckless, illicit & corrupt emergency repo bailouts the Fed pumped into to the trading arms of Wall Street and overseas(!) megabanks in late 2019 and 2020.
What are repos? One of the Fed’s “monetary policy tools” is executing repurchase agreements (“repos”) with approved trading houses called “primary dealers.” In a repo, a lender provides a cash loan to a borrower, which is secured by collateral from the borrower. In the Fed’s case, this means Fed-approved primary dealers (1) pledging collateral (US Treasuries and agency mortgage-backed securities listed on spreadsheets) that Fed never really intends to seize, and (2) receiving massive amounts of $USD cash digitally from the Fed every day for months on end. As we’ve discussed before, the Fed went hog wild pumping repo loans to primary dealers in late 2019 when JP Morgan broke the overnight lending market and rates mysteriously spiked to 10%(!).
How many repos are we talking? According to term-adjusted cumulative totals, the Fed extended $19.87 TRILLION in repo loans to the trading arms of Wall Street and foreign megabanks in Q4 of 2019 alone. And then the Fed pumped another $28.06 TRILLION more repo loans in Q1 of 2020. That comes to a mind-boggling, astronomical $47.93 TRILLION in repo bailouts! You can see transaction detail spreadsheets for yourself here.
Are you for real? Yes. The sums of money are nearly unfathomable, but this is all too real. Remember when Chair Powell talked about “flooding the system” with digital cash on 60 Minutes? Well, this wasn’t just a flood of free cash for Wall Street, it was a biblical deluge. The main pushback from Fed apologists is over the use of term-adjusted cumulative trade totals in reporting on repos. The criticism is meritless. The NY Fed reports trade data as if an overnight loan that is extended night after night and pancaked on top of tens of billions more in loans amounts to a single trade. But in reality, the Fed is rolling its cash loans over and over again, materially altering the purported nature of the repo program and the risk of nonpayment.
Why do cumulative totals matter? The Fed has made concerted efforts to portray the 2019 repo bailouts as “purely technical measures” in response to a temporary market liquidity issue. The Fed’s actions were anything but ordinary. As the Fed itself admits in a footnote: “Other than occasional test operations, the FRBNY had not conducted a repo since December 2008.” And now we know the extent to which repos extended beyond Q4 2019 into 2020. Wall Street on Parade has explained further why it is not appropriate to rely solely on data that is unadjusted for loan term:
“Why is a cumulative total essential and relevant? Because one institution in 2008, Citigroup, was insolvent for much of the time the Fed was flooding it with cheap loans. (Under law, the Fed is not allowed to make loans to an insolvent institution.) And when an insolvent institution is getting loans rolled over and over by the Fed for a span of two and a half years, at interest rates frequently below one percent when the market wouldn’t loan it money at even double-digit interest rates, it’s highly relevant to know the cumulative tally of just how much Citigroup got from the Fed. According to the GAO, that tally came to $2.5 trillion for just some of these Fed loan programs.” [See also Wall Street on Parade articles here and here].
Why did the Fed do this? The Fed will say it was simply to support overnight lending liquidity. The data tells a very different story. In fall 2019, over 60 percent of the repo loans went to just 6 trading houses: “Nomura Securities International ($3.7 trillion); J.P. Morgan Securities ($2.59 trillion); Goldman Sachs ($1.67 trillion); Barclays Capital ($1.48 trillion); Citigroup Global Markets ($1.43 trillion); and Deutsche Bank Securities ($1.39 trillion).” These firms are all massively exposed to risky derivatives, especially Japan’s Nomura. Moreover, Germany’s Deutsche Bank was literally on the verge of total failure at the time. The Fed lavished the usual suspects with massive repo loans again in Q1 2020: J.P Morgan ($3.6 trillion); Goldman Sachs ($2.85 trillion); Nomura ($2.7 trillion); Citigroup ($2.67 trillion); Barclays ($2 trillion); and this time a staggering $3.84 TRILLION to the trading arm of France’s biggest bank — BNP Paribas. As you may recall, BNP’s exposure to certain risky derivatives called subprime mortgage-backed securities was a major catalyst for the Global Financial Crisis.
How are the Fed’s actions legal? This is a great question and one without a satisfactory answer. Experts have opined that the Fed “broke the law” with their repo program. Indeed, the Dodd Frank Act, enacted in response to the Global Financial Crisis, was supposed to prevent exactly these kinds of massive, selective bailouts of “failing” financial institutions. The Fed and their cronies on Wall Street will argue that the megabanks were all well capitalized and were not at risk of failing. If that was true, why did the Fed drop reserve requirements to zero in March 2020? And why has the Fed failed to reverse the supposed “emergency” action for more than 2 years?!
Why do repo bailouts in 2019 and 2020 matter today? The Fed only releases transaction detail for repos on a two-year lag (which is bullshit if you ask us!). Now that the details are becoming public, the reason for the bailouts has become clear — these were not “purely technical measures” but rather massive and illicit bailouts for megabanks overexposed to risky derivatives and on the verge of imploding. And guess what? The megabanks are all still massively overexposed to risky derivatives. Do you think they righted their balance sheets during 2 years of the most “accommodative” policy imaginable? Nope. Instead, Wall Street engaged in massive buybacks and the largest bonus payouts in history! And when their bad bets implode yet again, the Fed wants to normalize its corrupt, illicit bailouts with a standing repo facility!!!
In our view, the Fed’s $48 Trillion (and counting!) Wall Street repo bailout is the biggest financial bombshell since the Global Financial Crisis. And that’s saying a lot consider that the Fed:
Nearly doubled its balance sheet to $9 Trillion dollars with QE purchases of USTs and RESIDENTIAL MBS causing the worst inflation in generations, especially in rent and home prices
Has apparently lied about ending QE purchases, seems to be buying more QE than its principal “reinvestment” estimates, and is the furthest “behind the curve” on rate hikes in history
Had the biggest government official insider trading scandal in history that forced the early retirement of two Fed presidents, the Vice Chair and directly implicates the Fed Chair.
But where’s the public outcry? Corporate media, now owned and controlled by Wall Street, refuses to print a single story on the repo bailouts (or Chair Pro Tempore Powell’s illicit trading and disclosure violations for that matter). And worse still, President Biden and the Senate want to reward Powell’s corruption and lawlessness (not to mention policy failures) at the Fed with four more years as Chair!
So, are you fuming mad yet? Well you can do something about it! Spread the word on as many social media platforms as possible. The American public deserves to know what’s going on and the true extent of Fed-Wall Street corruption.
*We can’t take any credit for breaking this story, but we hope this helped some people learn more about it. All credit and praise should go to the incredible journalists at Wall Street on Parade. If you have any questions though, feel free to reach out in the comments, on Twitter (@OccupyTheFeds) or email (OccupyTheFed@protonmail.com).
*It should go without saying that everything Occupy The Fed writes is for informational purposes only and represents the writers’ opinions based on publicly available information. Nothing we write is ever intended as, nor should it be relied upon as, investment advice. The best investment advice in this Golden Age of Fraud seems to be based on inside information from government officials, so who are we to compete with that.