The New York Fed has now pumped out upwards of $3 trillion in a period of 63 days to unnamed trading houses on Wall Street to ease a liquidity crisis that has yet to be credibly explained. In addition, it has launched a new asset purchase program, buying up $60 billion each month in U.S. Treasury bills. Based on the continuing escalation of its plans, it appears to be testing the limits of what the public will tolerate. We thought it was time to answer the question: who exactly owns the New York Fed and its magical money spigot that can pump trillions of dollars into Wall Street at the press of a button.
The largest shareowners of the New York Fed are the following five Wall Street banks: JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon. Those five banks represent two-thirds of the eight Global Systemically Important Banks (G-SIBs) in the United States. The other three G-SIBs are Bank of America, a shareowner in the Richmond Fed; Wells Fargo, a shareowner of the San Francisco Fed; and State Street, a shareowner in the Boston Fed.
G-SIBs have the ability to inflict systemic contagion on the entire global banking system (as happened in 2008) and thus must be monitored closely for financial stability. JPMorgan Chase, Citigroup, Goldman Sachs, and Morgan Stanley are also four of the five largest holders of high-risk derivatives. (Bank of America is the fifth.)
The five mega banks that are the major shareowners of the New York Fed are also supervised by the New York Fed, despite participating in the election of two-thirds of its Board of Directors. James Gorman, Chairman and CEO of Morgan Stanley, currently sits on the New York Fed Board. Jamie Dimon, Chairman and CEO of JPMorgan Chase, previously served two three-year terms on the Board.
These same Wall Street banks also participate in various advisory groups with the New York Fed where they hash out “best practices” for their industry. Those “best practices” were not sufficient to prevent JPMorgan Chase from becoming a three-count felon, Citigroup a one-count felon, and four of the banks (all but Bank of New York Mellon) from actively engaging in creating and selling subprime investments that blew up the U.S. financial system, the nation’s economy and a good swath of Wall Street in 2008.
There are 12 regional Federal Reserve banks of which the New York Fed is only one. But during the financial crisis, the New York Fed was given unprecedented powers by the Federal Reserve Board of Governors in Washington, D.C. to create over $29 trillion in electronically-engineered money to bail out Wall Street…
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Michael Bond comments
An analogy to what happened after the great financial crisis is a game of monopoly where the banker uses the bank money freely anytime he gets in trouble while forcing everyone to stick to the rules. It guarantees that in the end the banker will own everything.
But have you ever considered what happens after one person owns all the properties and everyone else is out of cash – the next move. All those properties become worthless because no one can afford to stay in them and a depression sets in. The game is over and so is the economy.
The lesson is concentration of wealth and power kills the economy in the end. It also weakens democracy. Growing inequality and slower economic growth are correlated for a reason. Bloated stock valuations and slower economic growth are correlated for the same reason.
Most industries in the US are now concentrated in the hands of one or a few regional monopolies. Profit margins were elevated due to monopoly power. Wages are not rising due to monopoly power. The top .01% reaped all the gains since the financial crisis. It’s not getting better, it is getting worse.
There is less future growth in earnings and cash flow to support stock prices today. Valuations are stretched to the point of zero long-term returns above inflation. But markets rarely flat-line, there will be a day of reckoning as our own Fed Chairman alluded to recently.