When Ben Bernanke gave his last speech as Fed Chairman on Friday, he used the opportunity to “reflect on some accomplishments of the past eight years,” to set the record straight, demolish the “sceptics,” as he called the uppity creatures that still doubted that the Fed was the best thing since sliced bread, and pat himself on the back. Under his heroic leadership, the Fed’s “forward guidance and large-scale asset purchases have helped promote the recovery,” he explained.
The “recovery” of what? Asset bubbles – he called it “boost asset prices” – and banks. Albeit not all banks, or most banks, or even many banks, but a few select huge banks, of which the Fed has become the “regulator,” protector, benefactor, and savior. Bernanke’s praise for the Fed and himself is perfectly on target; the “recovery” of these too-big-to-fail banks is nothing short of marvelous – as is the concentration of assets and power in their hands.
The five largest banks in the US – JP Morgan, Bank of America, Citigroup, Wells Fargo, and US Bancorp – held $6.46 trillion in assets as of the third quarter, according to a report released this week by business intelligence provider SNL Financial (Wall Street Journal). That’s 44.2% of all US banking assets, up from 43.5% in 2012 and from 38.4% in 2007.
Rather than let the financial crisis do its work of creative destruction among the bloated mastodons of Wall Street that were responsible for the crisis and whose executives had profited wildly from its run-up, the Fed bailed them out lock, stock, and barrel and concentrated even more power in them. And now, US banking assets on the books of these five banks amount to 38% of GDP!
In 1990, before they were allowed, nay encouraged by Congress and successive administrations, to run amok, these five banks held 9.7% of all US banking assets. If one or more of them had toppled, it could have been managed.
Years of mega-mergers and acquisitions, plus consolidations encouraged by the government and the Fed during the financial crisis, have created the largest most powerful financial monsters that, as per official policy, will be kept alive no matter what the cost, and whose bondholders and stockholders will be made whole by wealth transfers from taxpayers, either directly or indirectly, at every squiggle of the market.
Then there are seven more megabanks. These twelve megabanks, as “everyone and their sister knows,” were “at the epicenter” of the financial crisis—“whose owners, managers, and customers believe themselves to be exempt from the processes of bankruptcy and creative destruction,” according to, not Bernanke but his colleague, Dallas Fed President Richard Fisher. And they have amassed 69% of all US banking assets.
The remaining 31% of the US banking assets? They’re divided over the rest of the banking industry, what used to be 18,000 banks in 1984, now reduced to fewer than 7,000 banks, either through consolidations or because they were shut down by the FDIC, a real banking regulator, unlike the Fed.
“Despite the rhetoric of the regulators, it is hard to find any regulation they have put into place” since passing the Dodd-Frank Wall Street Reform and Consumer Protection Act “which has not decidedly and dramatically benefitted the big banks at the expense of the small and medium sized banks,” lamented Scott Shay, chairman of Signature Bank, a New York bank with $21-billion in assets.
So Bernanke’s praise for how the Fed has engineered the “recovery,” namely the recovery of the largest banks, is beautifully accurate.
He also raved about the Fed’s new transparency under his leadership. But when Carmen Segarra, an auditor at the New York Fed, was assigned to examine Goldman’s legal and compliance divisions, the Fed’s “transparency” turned into murk. After seven months of auditing, she determined that Goldman did not have the required policies in place to prevent conflicts of interest – conflicts of interest being an essential and profitable part of Goldman’s business model: for example, New York Fed President Dudley, who is ultimately responsible for the audit of Goldman, used to be partner and managing director at Goldman.
Alas, her superiors at the New York Fed worried that the report would damage Goldman’s business and pressured her to water it down. When she refused, she was fired. Thus she became a whistleblower and took her grievances to court. It would be a miracle if she can prevail against the combined forces of the Fed and Goldman. But Bernanke, so in love with the Fed’s “transparency,” failed to mention that in his speech.
Nothing could have been a more pungent metaphor for the current investment climate than the headline, “Macau gambling revenue hits record $45 bn in 2013.” Read…. Fizzing Optimism For Wild Financial Engineering In 2014