The rollback, noted the Wall Street Journal, hands “Wall Street one of its biggest wins of the Trump administration.”
By Jake Johnson of Common Dreams.
Bank stocks jumped and lobbyists rejoiced Thursday after U.S. regulators voted to gut the so-called Volcker Rule, a set of regulations imposed in the wake of the 2008 Wall Street collapse limiting the ability of financial institutions to engage in high-risk behavior that threatens the systemic health of the economy.
“Instead of protecting our financial system in the middle of an unprecedented economic crisis, Trump-appointed regulators are plowing ahead with their dangerous deregulatory agenda,” tweeted Sen. Elizabeth Warren (D-Mass.). “The big banks couldn’t be happier about it.”
CNBC reported that the shares of JPMorgan Chase, Goldman Sachs, Wells Fargo, and Morgan Stanley “were all trading more than 2% higher” after the changes to the Volcker Rule were announced by five regulatory agencies, including the Federal Reserve, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation.
The changes, set to take effect on Oct. 1, will make it easier for big banks to devote more of their resources to investments in venture capital funds and other vehicles—the kind of risky speculation that sent the entire U.S. financial system into a tailspin in 2008.
Regulators on Thursday also eliminated a requirement that banks set aside a certain amount of financial cushion to protect against trading losses. The rollback could free up tens of billions of dollars for Wall Street banks.
The Wall Street Journal reported that the combined deregulatory moves hand “Wall Street one of its biggest wins of the Trump administration.”
Sen. Jeff Merkley (D-Ore.), one of the authors of the original Volcker Rule regulations, warned in a statement Thursday that the changes further destabilize the U.S. financial system at a time when the economy is already reeling from the coronavirus crisis.
“Deregulation of the banks is exactly the wrong way to boost our economy in this moment,” said Merkley. “The last thing we need is to follow a public health crisis that has cratered our economy with another Wall Street-driven financial meltdown.”
“It was only a decade ago when millions of Americans paid the price for Wall Street gambling in lost jobs, homes, and life savings,” Merkley continued. “Reopening the Wall Street casino is the wrong path forward, one that puts all Americans’ financial stability at greater risk.”
Bartlett Naylor, financial policy advocate at consumer group Public Citizen, echoed Merkley’s warning in a statement Thursday.
“This is no longer the Volcker Rule,” said Naylor. “In the hands of revolving door regulators, it turns banks into Trump casinos. Will the inevitable Trump casino bankruptcy be far away?”
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ANSWER: The Federal Reserve does not need permission to create elastic money. It has the authority to expand or contract its balance sheet. However, it cannot simply print money out of thin air. The ECB is the only institution that can authorize the printing of euro banknotes. The Federal Reserve must back the banknotes by purchasing US government bonds. The Fed buys and sells US government bonds to influence the money supply whereas the ECB influences the supply of euros in the market by directly controlling the number of euros available to eligible member banks. This structure was created because of Germany’s obsession with its own hyperinflation of the 1920s.
Each member state retained its central bank and those central banks issue the banknotes — not the ECB. Therefore, the ECB works with the central banks in each EU state to formulate monetary policy to help maintain stable prices and strengthen the euro. The ECB was created by the national central banks of the EU member states transferring their monetary policy function to the ECB, which in effect operates on a supervisory role.
The Bloomberg article, by Lisa Lee and Shahien Nasiripour, cast the Federal Reserve in an unfavorable light over its failure to halt dividend payments at the biggest Wall Street banks, something that European bank regulators have done during the pandemic crisis. Eight of the largest U.S. banks announced in unison on Sunday, March 15, that they would halt share buybacks through the first and second quarter, but they’ve continued to pay cash dividends to shareholders, whittling away critical capital that could serve the struggling U.S. economy far better as loans to consumers and businesses. (Two-thirds of U.S. GDP consists of consumer spending.)
The Bloomberg article dropped this bombshell nugget on what Bank of America, Citigroup, JPMorgan Chase and Wells Fargo had spent on share buybacks and dividends since 2017:
“From the start of 2017 through March, the four banks cumulatively returned about $1.26 to shareholders for every $1 they reported in net income, according to data compiled by Bloomberg. Citigroup returned almost twice as much money to its stockholders as it earned, according to the data, which includes dividends on preferred shares. The banks declined to comment.”
We need to pause right there for a moment because both Fed Chairman Jerome Powell and the Fed’s Vice Chairman for Supervision Randal Quarles have been telling Congress and the public for months now that these mega banks, which it is in charge of supervising, have “adequate capital” and are a “source of strength” in this crisis. There is no accounting alchemy in the world that can make Citigroup a source of strength if it’s been paying out twice as much money as it’s been earning for 3-1/4 years
In addition, the Fed appears to have been ignoring the looming risks hiding off these bank balance sheets. See our report: Three of the Biggest Banks on Wall Street Have $7.4 Trillion In Off-Balance Sheet Exposures.
It appears that the Fed has been doing the exact same thing it did during the financial crisis of 2007 to 2010 – hiding the truth from the American people while it makes trillions of dollars in secret loans to the largest Wall Street financial institutions…
Lacking in saving and wanting to invest and grow, the US typically borrows surplus saving from abroad, and runs chronic current-account deficits in order to attract the foreign capital. Thanks to the US dollar’s “exorbitant privilege” as the world’s dominant reserve currency, this borrowing is normally funded on extremely attractive terms, largely absent any interest-rate or exchange-rate concessions that might otherwise be needed to compensate foreign investors for risk.
That was then. In COVID time, there is no conventional wisdom.
The US Congress has moved with uncharacteristic speed to provide relief amid a record-setting economic free-fall. The Congressional Budget Office expects unprecedented federal budget deficits averaging 14% of GDP over 2020-21. And, notwithstanding contentious political debate, additional fiscal measures are quite likely. As a result, the net domestic saving rate should be pushed deep into negative territory. This has happened only once before: during and immediately after the 2008-09 global financial crisis, when net national saving averaged -1.8% of national income from the second quarter of 2008 to the second quarter of 2010, while federal budget deficits averaged 10% of GDP.
… Hence, I foresee a 35% drop in the broad dollar index over the next 2-3 years.
Shocking as that sounds, such a seemingly outsize drop in the dollar is not without historical precedent. The dollar’s real effective exchange rate fell by 33% between 1970 and 1978, by 33% from 1985 to 1988, and by 28% over the 2002-11 interval…
They issued a statement explaining the decision:
Temporary coin order allocation in all Reserve Bank offices
and Federal Reserve coin distribution locations effective June 15, 2020
The COVID‐19 pandemic has significantly disrupted the supply chain
and normal circulation patterns for U.S. coin. In the past few months,
coin deposits from depository institutions to the Federal Reserve have
declined significantly and the U.S. Mint’s production of coin also
decreased due to measures put in place to protect its employees. Federal
Reserve coin orders from depository institutions have begun to increase
as regions reopen, resulting in the Federal Reserve’s coin inventory
being reduced to below normal levels. While the U.S. Mint is the issuing
authority for coin, the Federal Reserve manages coin inventory and its
distribution to depository institutions (including commercial banks,
community banks, credit unions and thrifts) through Reserve Bank cash
operations and offsite locations across the country operated by Federal
The Federal Reserve is working on several fronts to mitigate
the effects of low coin inventories. This includes managing the
allocation of existing Fed inventories, working with the Mint,
as issuing authority, to minimize coin supply constraints and maximize
coin production capacity, and encouraging depository institutions to
order only the coin they need to meet near‐term customer demand.
Depository institutions also can help replenish inventories by removing
barriers to consumer deposits of loose and rolled coins. Although the
Federal Reserve is confident that the coin inventory issues will resolve
once the economy opens more broadly and the coin supply chain returns
to normal circulation patterns, we recognize that these measures alone
will not be enough to resolve near‐term issues.
Consequently, effective Monday, June 15, Reserve Banks and
Federal Reserve coin distribution locations began allocating coin
inventories. To ensure a fair and equitable distribution of
existing coin inventory to all depository institutions, effective June
15, the Federal Reserve Banks and their coin distribution locations
began to allocate available supplies of pennies, nickels, dimes, and
quarters to depository institutions as a temporary measure. The
temporary coin allocation methodology is based on historical order
volume by coin denomination and depository institution endpoint, and
current U.S. Mint production levels. Order limits are unique by coin
denomination and are the same across all Federal Reserve coin
distribution locations. Limits will be reviewed and potentially revised
based on national receipt levels, inventories, and Mint production.
This coin rationing occurs as Americans are hording cash in record amounts due to the COVID crisis.
As Viv Forbes warns at The Epoch Times, don’t let our cash money become the biggest COVID casualty. Swapping paper money for a monopoly of electronic money is a bad deal.
We should always be free to save our cash and protect the value of our savings by investing in real assets or sound money like gold and silver.
For many people in the world, a store of gold coins, silver coins, gem stones, or a bit of productive land has allowed them to survive or escape when their government became too oppressive or lost a war, and the local fiat money became a cubic currency.
Unless, of course, history repeats…Gold confiscation?
Go to Source
Author: Tyler Durden
Comment by tonytran2015: U.S. Federal Reserve Banks are privately owned.(https://en.m.wikipedia.org/wiki/Federal_Reserve)
We’ve seen plenty of looting during the ‘peaceful protests,’ but the looters we saw on TV are amateurs compared to what’s going on at the top.
The Federal Reserve no longer consults Congress to create and distribute their debt currency. Not only has the Fed routinely bailed out its owners—the globalist central banks—it has also engaged in nonstop quantitative easing to prop up the stock market. Just this morning I saw the Dow was down over 700, but then for some reason it flew up to nearly 300 in the green. Was there fantastic news to trigger a nearly 1,000 point turnaround? No. It was the Federal Reserve at work. The market needed ‘liquidity’ just as a dry drunk needs more booze.
If the Federal Reserve is buying their own treasuries as well as bonds and stocks, who owns those financial instruments? Certainly not the poor or middle class. The top 1 percent benefits.
… After the U.S. Government added nearly $3 trillion more debt in just the past eight months (fiscal year), the interest paid on the public debt actually declined versus last year.
According to TreasuryDirect.gov, the U.S. public debt increased from $22.8 trillion to $25.7 trillion during fiscal 2020 (October to May). Thus, total U.S. federal debt has increased by nearly $3 trillion in eight months compared to $1.2 trillion last year… for the entire year!! So, with $3 trillion more debt on the U.S. Government’s balance sheet, you would think the interest expense would have also increased.
NOPE… the U.S. Government paid $337 billion of interest expense so far this year (Oct-May) compared to $354 billion during the same period last year:
How did the U.S. Government get away with paying less interest expense on $3 trillion more debt?? The U.S. Government was able to lower its interest expense because the interest rate on the debt declined significantly over the past 12 months. The average interest rate on U.S. public debt in May 2019 was 2.50% compared to 1.84% in May 2020, highlighted in (YELLOW).
However, the biggest factor that pulled down the average interest rates was the change in the rate of U.S. Treasury Bills highlighted in BLUE. The Treasury Bill’s interest rate fell from 2.47% in May 2019 to 0.40% in May 2020. That’s a massive decline in the interest expense paid to Treasury Bill holders.
And, if we look at the next chart, we can see that in May 2020, the outstanding U.S. Treasury Bills, which accounted for $4.6 trillion, was 45% of the $10.2 trillion of Treasury Notes. But, the total interest expense paid during Oct-May from these Bills was only $26 billion (18%) compared to $141 billion paid from the outstanding Treasury Notes. Simply put, with total U.S. Treasury Bills being a little less than half of the Treasury Notes, the interest paid on these Bills was only 18% of the Notes.
Of course, the falling interest rate on the Treasury Bills was partly due to the enormous Stock Market sell-off as investors moved out of stocks and into Treasuries for protection. But, the Treasury Bill interest rate should have bottomed in March to coincide with the bottom in the U.S. stock indexes… CORRECT? NOPE.. again. Here are the Treasury Bill’s interest rates for the past five months:
Treasury Bill’s Interest Rate:
Jan 2020 = 1.68%
Feb 2020 = 1.64%
Mar 2020 = 1.22%
Apr 2020 = 0.60%
May 2020 = 0.40%
With the Dow Jones Index ROARING BACK from a low of 18,200 on March 23rd to a high of 25,750 at the end of May, a staggering 41% increase, wouldn’t the Treasury Bill’s interest rate head back higher???
Telling citizens to “Stay home” and “Avoid contact” was tantamount to telling my grandfather to cease and desist in providing for his family; that he should shutter the ploughs and the reapers and the milking stations; that his sons and daughters need not feed the chickens or slop the hogs because the government was going to “protect them” from harm. Well, not only would promises like that go unheeded by the generations that preceded us; they would be treated with the utmost of distrust and the vilest of response. The reason that citizens of North America fled Europe and the British Isles to become settlers in the New World was because acceding to government orders and laws and rules and edicts had left them wallowing in a sewer of social and economic slavery while the elites inhabiting the privileged classes prospered. Sadly, over the last century or so, starting around 1934 with the creation of the first U.S. “central bank” (The Federal Reserve), citizens have been purposefully softened by the availability of social safety nets that started innocently and well-intentioned in the 1930’s with programs like the Tennessee Valley Authority and later Freddie Mac and Fannie Mae but at every sniff of an economic downturn, political responses have grown progressively more rapid and more extreme. With the mainstream media (which is now social media more than print or TV/radio media) providing a wonderful symphony of accompaniment, the political grandstanders have been able to generate a cavalcade of panic which has provided the perfect cover for clandestine enrichment of the corporate sector, once again as in 2009 from the public purses on the pretense of economic Armageddon.
Fellow citizens, I ask you: How many times must you be subjected to this moral hazard rot before you arm yourselves with torches and pitchforks and enact change?
Back in late February when the fear mongering was just shifting into gear, I was ranting and raving about the REPO operations back in late September and asking why the Fed was bailing out the hedge funds. I was waving the red warning flag long before COVID-19 conveniently arrived on our doorsteps to present a “Clear and Present Danger” to all aspects of western civilization to the extent that the U.S. central bank alone has authorized an injection of $10 trillion into the corporate pig trough and that is a pittance when one adds the BOJ, the BOC, the ECB, the PBOC, and all of the other purveyors of counterfeit currency to the mix.
Where was it ever written that an elected official has the right to impair the purchasing power of years of labour and prudence and savings of the average citizen? What gives ANY politician the right to debase my money upon which I deserve to rely as I move into retirement?
In their initial attempt at managing the economic cycle, the Fed ushered in the most severe depression in our country’s history beginning with the stock market crash in 1929. Even former Fed chairman, Ben S. Bernanke agrees:
“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”…Remarks by Governor Ben S. Bernanke (At the Conference to Honor Milton Friedman, University of Chicago -Chicago, Illinois November 8, 2002)
But they did do it again.
Six years after his speech, Governor Bernanke presided over another catastrophe in the financial markets. Cheap credit and ‘monopoly’ money had blown bubbles in the debt markets that popped.
Who would have thought that Brexit would result in a convergence of the European and UK bond markets.
With the UK swept by a debate whether it should follow Europe into negative interest rates, the bond market appears to have made the decision for it, when this morning the UK sold £3.75 billion in 2023 gilts at a negative yield of -0.003% for the first time, with a fall in inflation piling even more pressure on the fiscal and monetary policymakers to take new action to prop up the economy.