Yesterday, Neel Kashkari, the President of one of the 12 regional Federal Reserve banks known as the Minneapolis Fed, wrote an OpEd for the Financial Times. In the piece he seemed to acknowledge that time is running out for these Wall Street mega banks. Kashkari wrote this:
“Large banks are eager to be part of the solution to the coronavirus crisis. The most patriotic thing they could do today would be to stop paying dividends and raise equity capital, to ensure that they can endure a deep economic downturn. Unlike the rest of us, banks have the ability to essentially vaccinate themselves against this crisis. They should do so now. When financial strains emerged in 2007, US officials urged large bank chief executives to raise equity to make sure they had the wherewithal to survive a crisis. The most common answer was: ‘We’re fine. We don’t need it. Our balance sheet is rock solid.’ They only realized that they had serious problems after the deep losses were obvious to everyone, especially financial markets.”
There are two giant fallacies in what Kashkari writes and he knows it because he oversaw the government’s Wall Street bailout program known as TARP in 2008-2009. The first fallacy is that the mega banks are eager to jump in and help the economy. One or more of these banks triggered the repo loan crisis in September 2019 by backing away from making loans, thus forcing the Fed to begin an unprecedented $9 trillion revolving loan facility that continues to this day. Just yesterday JPMorgan Chase announced it won’t be making any further home equity loans after two days prior announcing that it is raising its borrowing standards for new home mortgages by requiring a credit score of 700 or higher and a 20 percent down payment. So let that sink in for a minute. JPMorgan is currently paying dividends of 90 cents per share per quarter on just over 3 billion shares for an annual payout of $10.98 billion to its shareholders but it can’t find the cash to make home equity loans to the 22 million Americans who have lost their jobs over the past month.
The second preposterous assertion by Kashkari is that these Wall Street banks only “realized that they had serious problems after the deep losses were obvious to everyone, especially financial markets.” Many of these banks knew in advance that the system was going to blow up because whistleblowers inside their own bank told top management that they were securitizing liar loans on subprime mortgages that were in direct violation of the bank’s loan standards. Management overruled the whistleblowers, sent them packing, and actually shorted (bet on price declines) in the very instruments they had brought to market and sold to other investors as a quality investment.
Americans need to use this time at home to call their Senators and Reps in Congress and demand the separation of federally-insured, deposit-taking banks from the casinos on Wall Street. We’re talking about nothing less than the survival of this country and how the next generation is going to view the character and courage of our generation.
