Saturday 28 March 2020

Throw The Banks And The Fed In Jail.

Once we get out of The Greatest Depression, our only solace will be if bank management and Fed members are thrown in jail. But, of course, just like in 2008, nobody will end up on the inside. Too bad that.

First off, financial and credit derivatives traded by banks over the OTC market are not regulated by The Fed nor legislation enacted by Congress. Exchange-traded derivatives are subject to SEC and CFTC regulation. No one is minding the store to control, limit or ban OTC leverage derivative trading between banks.

As for the banks, they are willing advocates of inflating the Ponzi stock markets, more particularly, inflating their own stock price through share buybacks and the payment of special and increasing dividends to shareholders. In short, that's where bank capital reserves went, leading to last September's freezing up of the bank-traded Repo Market. Hence, trillions upon trillions of Fed phoney money injected each night, otherwise the largest American banks go into immediate insolvency. And lately, those nightly drops have become classified. Wonder why?

In short, we've learned absolutely nothing about banking and financial services' robust regulation requirement, such as that Dodd-Frank, the Volker Rule, etc. are as essential to market confidence as a strongly beating heart is to a human being. But no, banks and its allies in Congress and the Administration propose and/or roll-back regulation as much as they can. Remember, greed always remains king in crony-capitalism.

Another example of why Fed members are quite deliberately complicit in this con job is to examine bank financial reserve requirements: they were set by The Fed at 10% of reserves for the largest banks and 3% for medium-sized banks. Small banks were not required to maintain a Fed reserve minimum. But surprise, surprise, earlier this month, The Fed took the capital reserve ratio down to zero for all domestic banks.

So, what's the end game? Frankly, The Fed can inflate its balance sheet for only so long. They can buy Treasuries, bonds, mortgage-backed securities, debt, ETFs and stocks but that can't and won't reverse the current downward trend in markets and bond yields.

The bond market is already singing the theme from The Titanic. Only The Fed and stock markets remain entirely clueless as to the inevitable end-game, that will make 1929 look like a walk in the park.




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