The latest column of Pam Martens's widely-read "Wall Street on Parade" blog takes on the Federal Reserve's hyperinflationary money-printing policy with Glass-Steagall. Entitled, "The Official Video from the Federal Reserve on How It Creates Electronic Money", the piece describes the Fed's process of filling the big four banks with trillions, to the point where they control almost 60% of all U.S. bank deposits; and then how they've used the trillions to avoid lending in favor of speculation (with the example of Morgan's London CIO). The issue is credit:
"The legions of economists at the Fed know that the trillions of newly created electronic funds it is pumping out need to actually make it into the real economy to create jobs and improve the standard of living of ordinary Americans. But the massive bank mergers the Fed has approved is [sic] creating a blockade against that happening.
"Bank of America, JPMorgan Chase, Wells Fargo & Co. and Citigroup, now control a combined $3.511 trillion in domestic deposits, a stunning 58.8 percent of all 6,940 U.S. banks' domestic deposits of $5.966 trillion. The market share of these four giants has increased by an astonishing 24 percent in just 4 years.
"We got an unpleasant look at what JPMorgan Chase was doing with its deposits when the U.S. Senate's Permanent Subcommittee on Investigations released a lengthy report in March of this year on the bank's London Whale debacle.
"According to documents in the report, as of the close of business on January 16, 2012, JPMorgan's Chief Investment Office held $458 billion notional (face amount) in domestic and foreign credit default swap indices. Of that amount, $115 billion was in an index of corporations with junk bond ratings, which the bank was not allowed to own. To get around that, according to the Office of the Comptroller of the Currency, JPMorgan transferred the market risk of these positions into a subsidiary of an Edge Act corporation, which took most of the losses. An Edge Act corporation refers to the ability of a bank to obtain a special charter from the Federal Reserve. By establishing an Edge Act corporation, U.S. banks are able to engage in investments not available under standard banking laws.
"JPMorgan was not making loans to worthy businesses to help create jobs for the unemployed, it was engaging in high risk gambles on exotic derivatives, out of its London offices, far from the prying eyes of its regulators. The gamble soured and it lost at least $6.2 billion of depositor funds.
"There is now a growing concern that the Fed's ability to press a button and create trillions of dollars in money for the banking behemoths to deploy as they see fit, is causing a stock market bubble and setting up the U.S. for another crash....
"In June of this year, Thomas Hoenig, former President of the Federal Reserve Bank of Kansas City and now Vice Chair of the FDIC, told the House Financial Services Committee that the largest Wall Street banks are woefully undercapitalized. He characterized the situation as a very vulnerable financial system. Hoenig is considered an insider's insider. He was a member of the Federal Reserve Systems Federal Open Market Committee (FOMC) for 20 years, from 1991 to 2011. The FOMC is the body that decides when to create money and when to drain it away.
"Hoenig believes the only means of reining in the abuses of Wall Street is to separate the insured banks from their casino cousins by restoring the Glass-Steagall Act. Wall Street On Parade strongly agrees with that assessment."
