The Federal Reserve will release the results of its stress tests of the mega banks on Wall Street on June 24. That exercise is nothing more than a shell game to mislead Congress and the public into believing that actual due diligence is being done by the Fed on these massive federally insured banks with their inhouse trading casinos. (See Three Federal Studies Show Fed’s Stress Tests of Big Banks Are Just a Placebo.) In reality, the Fed is a completely captured appendage of Wall Street.
The Fed has outsourced the nitty-gritty supervision of Wall Street banks to the New York Fed, which is, literally, owned by the same banks. (See These Are the Banks that Own the New York Fed and Its Money Button.)
That the Fed is still allowed by Congress to have anything to do with supervising these banks shows just how far down the rabbit hole Wall Street’s money and influence in Washington has taken the country.
There is only one institution in America that has less credibility than the mega banks on Wall Street. That’s the Federal Reserve. Despite not having one elected official among its ranks, the Fed has unilaterally altered the U.S. financial system into a grotesque version of itself.
Let’s start with what the Fed did beginning in December of 2007 without any approval from Congress. The Fed created a sprawling octopus of bailout programs for the mega banks and their foreign derivative counterparties. The Fed then battled in court for years to keep Congress and the public from learning the astronomical sums the Fed had spent to prop up failed banks across Wall Street. When the government finally released an audit of the Fed’s bailout programs on July 21, 2011, the tally came to a cumulative $16 trillion. (See chart below.) But when the Levy Economics Institute added in other Fed bailout programs that the government audit had bypassed, the actual tally came to $29 trillion.
In what kind of democracy does an institution lacking even one elected official get to unilaterally prop up insolvent banking behemoths after those same banks cratered the U.S. economy through the creation of fraudulent mortgage products?
When the government audit was released, the office of Senator Bernie Sanders of Vermont released a statement, which read in part:
“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”
Sanders stated at the time, “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”
That statement from Sanders came almost a decade ago in July 2011. Not only has the Fed not been reformed but it has unilaterally given itself new powers to replace the free market’s setting of interest rates for its own regime of Fed administered rates.
How is the Fed administering rates? It has ballooned its balance sheet to $7.9 trillion (yes, trillion) by gobbling up Treasury securities and mortgage-backed bonds from the surpluses on Wall Street and parking them on its own balance sheet. It’s been engaged in this sleight-of-hand, which it quaintly calls “quantitative easing” since the financial crisis of 2008.
