Bank Stress Test Results at 4:30 Today: Will the Fed Whistle Past the Graveyard?
by Pam Martens and Russ Martens, Wall Street on Parade Results of the first leg of this year’s Federal Reserve stress tests, which measured capital adequacy of 31 of the most systemically important banks under a hypothetical market crash and deep recession, were released on March 5. Every institution passed that phase of the tests. At 4:30 p.m. today, the Federal Reserve will release its findings on the second leg of the tests: risk management capability, corporate governance and internal controls. Wall Street calls this element the “culture” test. For those who have been reading our columns since 2008, when the culture of Wall Street brought about the greatest U.S. economic collapse since the Great Depression of the 1930s, you might be thinking that the Fed’s concern over the culture on Wall Street is a day late and $14 trillion short. (The $14 trillion figure is the amount of secret loans the Fed sluiced into the mega banks between 2007 and 2010 to keep the financial system from completely collapsing. Many of those loans were made at less than 1 percent interest.) Then there is the $4.5 trillion that sits on the Federal Reserve’s balance sheet today. Prior to the crisis in 2008 and its ensuing asset purchases to prop up Wall Street, called Quantitative Easing, the Fed had a balance sheet of approximately $870 billion. To keep Wall Street, and its culture alive, it has ballooned its balance sheet by $3.6 trillion with no exit strategy in sight. Prior to the Wall Street induced economic collapse in 2008, the U.S. Government had a national debt of $9 trillion, as of the end of its 2007 fiscal period. Today, the national debt stands at $18.1 trillion as a result of the unprecedented stimulus programs needed to offset the economic collapse. Thanks to Wall Street’s culture, our national debt has doubled in less than eight years. For reasons that can only be viewed as specious, the Federal Reserve was given a far greater supervisory role over Wall Street under the Dodd-Frank financial reform legislation that was passed in 2010 – despite the fact that it had worn blinders during the reckless buildup to the 2008 crash. This is a small sampling of what the Financial Crisis Inquiry Report tells us about the Federal Reserve’s failed role as a supervisor of Wall Street in the lead up to the greatest financial collapse in the last 80 years:
“…there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner. The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not… “The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup’s excesses in the run-up to the crisis. They did not… [See As Citigroup Spun Toward Insolvency in ’07-’08, Its Regulator Was Dining and Schmoozing With Citi Execs.]