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Margin Calls Coming On US Too-Big-To-Fail Banks

Tyler Durden's picture





 

Authored by Steen Jakobsen via his TradingFloor.com blog,

This week's biggest news is not the Nonfarm Payrolls, or the European Central Bank or even Portugal's government falling. No - this week's big deal is the openness with which the Federal Reserve is preparing a major margin call on the too-big-to-fail banks in the US. 

This has been a long time coming since the introduction of the Dodd-Frank law back in 2010 but it is a game changer. Remember all macro paradigm shifts come from policy impulses, often mistakes.

Fed approves step one in a three step plan

Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organisations. Consistent with the international Basel framework, the rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent and a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets from four percent to six percent and includes a minimum leverage ratio of four percent for all banking organisations. In addition, for the largest, most internationally-active banking organisations, the final rule includes a new minimum supplementary leverage ratio that takes into account off-balance sheet exposures. (See the press release here

I know you are thinking: Wow, this is the most interesting thing I have seen in years :-) but alas it is - because it is in fact a major margin call on the US holding banks.

Note how this adoption is only the first set of a series of new rules. Let me introduce you to: Daniel Tarullo, The Federal Reserve Governor in charge of regulation after the implementation of the Dodd-Frank law in 2010. (As a consequence of Dodd-Frank, the Fed got a permanent regulatory governor.) 

I had nothing else to do so I read his latest speeches which are surprisingly clear (considering that he's a policy guy).

Governor Daniel K. Tarullo At the Peterson Institute for International Economics, Washington, D.C.

May 3, 2013 Evaluating Progress in Regulatory Reforms to Promote Financial Stability

The speech considers the "additional charges" which are coming and today's Basel III was only item number one:

First, the basic prudential framework for banking organisations is being considerably strengthened, both internationally and domestically. Central to this effort are the Basel III changes to capital standards, which create a new requirement for a minimum common equity capital ratio. This new standard requires substantial increases in both the quality and quantity of the loss-absorbing capital that allows a firm to remain a viable financial intermediary. Basel III also established for the first time an international minimum leverage ratio which, unlike the traditional US leverage requirement, takes account of off-balance-sheet items.

 

Second, a series of reforms have been targeted at the larger financial firms that are more likely to be of systemic importance. When fully implemented, these measures will have formed a distinct regulatory and supervisory structure on top of generally applicable prudential regulations and supervisory requirements. The governing principle for this new set of rules is that larger institutions should be subject to more exacting regulatory and supervisory requirements, which should become progressively stricter as the systemic importance of a firm increases.

 

This principle has been codified in Section 165 of the Dodd-Frank Act, which requires special regulations applicable with increasing stringency to large banking organizations. Under this authority, the Federal Reserve will impose capital surcharges on the eight large US banking organizations identified in the Basel Committee agreement for additional capital requirements on banking organisations of global systemic importance. The size of surcharge will vary depending on the relative systemic importance of the bank. Other rules to be applied under Section 165—including counterparty credit risk limits, stress testing, and the quantitative short-term liquidity requirements included in the internationally-negotiated Liquidity Coverage Ratio (LCR)—will apply only to large institutions, in some cases with stricter standards for firms of greatest systemic importance.

 

An important, related reform in Dodd-Frank was the creation of orderly liquidation authority, under which the Federal Deposit Insurance Corporation can impose losses on a failed systemic institution's shareholders and creditors and replace its management, while avoiding runs and preserving the operations of the sound, functioning parts of the firm. This authority gives the government a real alternative to the Hobson's choice of bailout or disorderly bankruptcy that authorities faced in 2008. Similar resolution mechanisms are under development in other countries, and international consultations are underway to plan for cooperative efforts to resolve multinational financial firms.

 

A third set of reforms has been aimed at strengthening financial markets generally, without regard to the status of relevant market actors as regulated or systemically important. The greatest focus, as mandated under Titles VII and VIII of Dodd-Frank, has been on making derivatives markets safer through requiring central clearing for derivatives that can be standardised and creating margin requirements for derivatives that continue to be written and traded outside of central clearing facilities. The relevant US agencies are working with their international counterparts to produce an international arrangement that will harmonise these requirements so as to promote both global financial stability and competitive parity. In addition, eight financial market utilities engaged in important payment, clearing, and settlement activities have been designated by the Financial Stability Oversight Council as systemically important and, thus, will now be subject to enhanced supervision.

A margin call is coming...

To illustrate the case, here's  several quotes and links from today's media:

Crenews.comFederal regulators on Tuesday are scheduled to unveil and vote on the final provisions they have set for the US's implementation of international banking standards that could result in banks pulling back on their commercial real estate activities, including lending, mortgage servicing and CMBS investments. Industry groups are lobbying to lessen the potential impact of the rules.

 

See also USA Today: Most banks are already in compliance with the rule, according to the Fed, though it estimates about 100 banks will need to raise roughly USD 4.5 billion in capital by 2019.The new rules simplify the risk calculations for mortgages, a process that community lenders had argued was too complex and would limit their ability to provide home loans. Community and regional banks comprise more than 90% percent of US lenders, according to the Federal Deposit Insurance Corp (FDIC). The Fed unanimously approved the 792-page set of standards, which were mandated by the 2010 financial overhaul law. The FDIC and the Office of the Comptroller of the Currency are also expected to approve the new standards

 

Reuters: However, the Fed warned it was drafting four more rules that would go beyond what the Basel accord called for, including one on leverage and another on a capital surcharge. (See full version of this story here.)

Conclusion

Why is this important? Because part of the Fed's new remit since Dodd-Frank makes it responsible for bubbles in banking — it is even more interesting because clearly, to me at least, this is a major part of why Bernanke and Dudley at the FOMC are willing to ignore the lower inflation. This low inflation has both monetarist and Keynesians up in arms, and as it is often the case, the REAL reason for major macro paradigm shifts comes from policy mistakes in this case pro-cyclical regulation.

Prepare yourself and please do read the above. If not we are doomed to focus on QE-petering while Fed gives the whole banking industry a major margin call.

 

The Bottom Line (as Jakobsen comments) is that banks run on "leveraged" / borrowed money - Now the Fed is going to reduce their ability to use leverage which technically equates to a margin call - put more money up or reduce position.

 


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Fri, 07/05/2013 - 18:21 | Link to Comment francis_sawyer
francis_sawyer's picture

Time to thin out the herd once again, consolidate their useful assets into 'tribal' hands... & send the bill for the crap to Johnny...

Fri, 07/05/2013 - 18:24 | Link to Comment flacon
flacon's picture

The problem is... Goldman Sachs, JP Morgan ARE the Fed, or at least they are brothers in arms. I am as bearish as any but alas I don't see the Fed causing any harm to it's brothers and sisters. 

Fri, 07/05/2013 - 18:33 | Link to Comment TuesdayBen
TuesdayBen's picture

Uhh, I see this getting the ol' Obamacare push-er-back a year, and then push-er-back another year routine...  I mean, the Affordable Care Act is law, just like Dodd-Frank.  Right?

Fri, 07/05/2013 - 18:36 | Link to Comment flacon
flacon's picture

They could confiscate depositor's accounts... you know... the undersevedly "rich" people like small businesses who have cash on hand to pay their employees. "They don't need that cash."

 

"The Fed unanimously approved the 792-page set of standards" ~ Shit, that's like reading the Lord of The Rings novel. Did anyone of importance actually read all seven hundred and ninty two pages, plus the cover and the back page? There is a full colur naked spread of Lindsey Graham in the centerfold page 396 - POSTER. 

 

Oh, Lindsey is a man. Your milage may vary with that photo. 

Fri, 07/05/2013 - 18:38 | Link to Comment kliguy38
kliguy38's picture

the targets aren't JPM or GS or any of their brothers in arms.....the thinning of the hers will be through the non-"brothers"...and it will be brutal....there will be confiscation that will go directly into the big bank coffers.....after all they ARE "too important" to fail......but YOU aren't....like Carlin said.....you aint in the club

Fri, 07/05/2013 - 18:44 | Link to Comment knukles
knukles's picture

Nah, they'll all just buy a couple hundred shares of the Fosdick Brother's BiTcoiNDealOfTheYear (underwrit by Goldman, JPM and BoAML) and count it as tier 1, no haircut capital, valued as an intangible in level/category 4 with no pricing available, make believe asset.

Basta Fungool!

Fri, 07/05/2013 - 19:22 | Link to Comment macholatte
macholatte's picture

 

Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organisations.

 

Gimme a break! Not even under Glass-Steigal were the banksters properly supervised and regulated. In fact, that imbecile Greenspan even had the gall to say he thought the banks would self-regulate. WTF.

 

From each according to his abilities, to each according to his needs.

Karl Marx

Fri, 07/05/2013 - 22:47 | Link to Comment fourchan
fourchan's picture

suspend mark to market, shift all the tbtf banks bad assets to the fed

aka your grand kids, receive 100 cents on the dollar at zirp buy all

the stock of the productive companies in the usa, own the stock market. clever bit of treason.

Fri, 07/05/2013 - 18:38 | Link to Comment bornlastnight
bornlastnight's picture

They didn't have to read it. They just needed to vote on it.

Fri, 07/05/2013 - 19:33 | Link to Comment bluskyes
bluskyes's picture

The way these bills get rammed through Congress, they should just vote to accept a pallet of blank copier paper - to be filled in at Obama's leisure.

Fri, 07/05/2013 - 20:20 | Link to Comment NoDebt
NoDebt's picture

Don't give them any more ideas.  They have plenty of bad ones already.

Sat, 07/06/2013 - 12:06 | Link to Comment Jam Akin
Jam Akin's picture

Who needs paper these days?

Fri, 07/05/2013 - 19:12 | Link to Comment toadold
toadold's picture

Does anybody have any proff that Lindsey is a man? Why just the other day I heard someone call him a "lying two faced Biatch."

Sat, 07/06/2013 - 11:21 | Link to Comment Translational Lift
Translational Lift's picture

I'm sure he's someones bitch ...........

Fri, 07/05/2013 - 19:19 | Link to Comment MissCellany
MissCellany's picture

"They could confiscate depositor's accounts..."

Tht was my first thought, too. This seems like a potentially dangerous situation. Businesses pass on higher costs of doing business to customers...and a bail-in would be the, er, perfect way for these banks to cover their "losses."

Sat, 07/06/2013 - 08:23 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

If banks do a bail in, they better get real ready to start paying interest on deposits again... 

Fri, 07/05/2013 - 20:20 | Link to Comment All Risk No Reward
All Risk No Reward's picture

With organic growth (GDP-Debt) contracting to the tune of $500 billion a quarter and the banksters orchestrating interest rates higher, something wicked this way comes...

Danger Will Robinson.

Fri, 07/05/2013 - 20:57 | Link to Comment Jake88
Jake88's picture

WTF Are you feeling OK

Fri, 07/05/2013 - 19:18 | Link to Comment SDShack
SDShack's picture

Extend and pretend. Rinse and repeat. If that doesn't work, lobby 0zer0 to suspend the rules, just like he did with 0zer0care. If that doesn't work...bailout. If that doesn't work, pull a MF Global and John Corzine. 0zer0 will either instruct the FDIC, SEC, Justice Dept & Holder to look the other way. There is no way any TBTF banks will ever fail again. Print to Infinity and Beyond. If that's not enough, rape bondholders like 0zer0 did with GM, or the EU/IMF did with Greece and Cyprus with their forced "voluntary" haircuts. Eventually, all retirement savings will be raided before a TBTF bank dies.

Fri, 07/05/2013 - 19:49 | Link to Comment bluskyes
bluskyes's picture

At least not as long as the banks can buy off the ratings agencies.

Fri, 07/05/2013 - 20:21 | Link to Comment All Risk No Reward
All Risk No Reward's picture

No need - guys like Buffett on BOTH the banks and the ratings agencies.

It is all orchestrated by the Big Finance Capital puppeteers.

They control everything big of substance.

That's the benefit to lending the world their money supply at interest.

Fri, 07/05/2013 - 22:57 | Link to Comment illyia
illyia's picture

flacon... bail-in. a la cyprus.

 

Sat, 07/06/2013 - 09:43 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Bail-ins are written into the Dodd Frank bill so very likely. Cyprus was the dry run to see how much they could get away with.

Sat, 07/06/2013 - 01:58 | Link to Comment sessinpo
sessinpo's picture

 flacon      " The problem is... Goldman Sachs, JP Morgan ARE the Fed, or at least they are brothers in arms."

 

Comment:

Why do you see that as a problem? How many firms have come and gone only to replaced by other firms with the same elite?

It's only musical chairs. Very few brothers and sisters are really harmed. They are simply transferred.

Sat, 07/06/2013 - 11:52 | Link to Comment Groundhog Day
Groundhog Day's picture

Flacon,

Consider this alternative theory:

JPM and GS being the most powerfull and closest to the fed has approved the trade so they can shake out 2-3 lower banks and get the assets cheap....perhaps 2 bucks (BS) placing any bail out funds needed on the good ol trustworty US Taxpayer.  Short term pain for them only to come out bigger and stronger.  Perhaps even comingleing some of their crap onto the books of the shitier acquired company.  Who's gonna check and report anything until 2-3 years later when no one cares.

 

It always the same....International Poker

Fri, 07/05/2013 - 18:54 | Link to Comment nmewn
nmewn's picture

Thinning out the herd...completely OT but funny as hell...lol.

"Lauren Fagen, 18, says she was kissing the fur of a male lion named Duma when he suddenly reached through the bars of his cage, grabbed her legs in and began mauling her."

Ms Fagen said she felt a ‘deep connection’ to wild animals, especially big cats, and wanted to explore her ‘passion’ before entering university in September."

http://metro.co.uk/2013/07/04/teenager-mauled-by-lion-she-was-kissing-3869359/

Mzzz Fagen, if I may, big cats tend to look at you as either food or a potential threat.

Professor nmewn ;-)

Fri, 07/05/2013 - 19:48 | Link to Comment Clycntct
Clycntct's picture

I thouoght that's how they made Kidde litter.

Fri, 07/05/2013 - 20:32 | Link to Comment NoDebt
NoDebt's picture

Those animal lovers are a little touched in the head, I think.  They all get "Steve Irwin'ed" in the end.

Had a good friend of mine who loves horses end up in the hospital recently.  After a succession of bad incidents over the last 2 years, this one got him good.  Kicked him in the gut and ruptured his spleen.  (You can bleed out VERY quickly from a ruptured speen, by the way- lots of blood flow through it.)  Got airlifted right out of the field and they narrowly managed to save his life.  Long recovery ahead for him.

Don't hang out with animals that can easily kill you.  It really is a bad idea.  Buy a Hermit Crab.  In a pinch (pun intended) most people can take a Hermit Crab down.

If, however, you are rich and stupid, please feel free to play with Lions as much as you want.  Or get your pilot's license and pretend you're "Top Gun" by flying experimental single seat aircraft on the weekends.  By far my favorite way to hear about some stupid-rich SOB buy the farm.

Fri, 07/05/2013 - 21:00 | Link to Comment JohnG
JohnG's picture

 

 

As for horses, work with them long enough and you WILL have many broken bones.

Fri, 07/05/2013 - 22:25 | Link to Comment logicalman
logicalman's picture

Meeting the ground having fallen from the back of a galloping horse definitely hurts.

Same applies to a mountain bike down a steep hill.

I'll try not to do either again.

Sat, 07/06/2013 - 08:27 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

I like to walk in the woods.  But by no means do I consider that just because I have been in the woods 1000 times that its safe.  When my dog and I step into the woods I am stepping onto another animals territory, plain and simple.

Fri, 07/05/2013 - 20:42 | Link to Comment frostfan
frostfan's picture

My problem with the story is all the big banks like citi, Jpm and. Wells are way over these limits right now.

Fri, 07/05/2013 - 23:30 | Link to Comment max2205
max2205's picture

I call bullshit on this idea...this would make tbtf turn to dust overnight as they are all beyond insolvent for the last 10 years anyway. 

 

Oh and fuck Dodd and double fuck Frank....worthless crminal asshole traitors

Sat, 07/06/2013 - 08:29 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

I imagine it will be  a case of selective enforcement, like with everything else (i.e. the two-tier law system, growing cannabis is bad, ponzi schemes and counterfeiting doublepluss good).  The TBTF will say "Yes, we have enough capital, trust us."

The little guys will say "This shouldn't even apply to us", and TBTF will say "thank you very much, pleasure taking your business".

Sat, 07/06/2013 - 00:50 | Link to Comment MontgomeryScott
MontgomeryScott's picture

Adrian Salbuchi and the Mogambo Guru just got this link.

Sat, 07/06/2013 - 12:53 | Link to Comment sgorem
sgorem's picture

isn't physical AU Tier One now? thought so. looks like everything is working out to the Plan. all the gold should be shaken out of the tree, and into the banksters vaults by the time this shit kicks in. imo. they're gonna sssttttrrrrrrrrrrrreeeeeeeeeccccchhhhhhhhhh this fucker out until the Bankster Puppies get old enough to take over and  carry out the Family Tradition of fleecing the newbie sheeples of the world, cause having EVERYTHING just ain't enough.

Sat, 07/06/2013 - 13:08 | Link to Comment sgorem
sgorem's picture

*and as a side note, IF AU is tier 1, what's that make owning/printing/issuing the majority the Gold ETF's? that would be a shit load of "capitalization" would it not? might be a damn good reason to hold the Precious, like forever............

Fri, 07/05/2013 - 18:20 | Link to Comment ekm
ekm's picture

What did I say?

Fri, 07/05/2013 - 18:27 | Link to Comment NidStyles
NidStyles's picture

No idea, wasn't paying attention. Had too much to catch up on Game of Thrones...

 

 

 

 

/sarc for you morons.

Fri, 07/05/2013 - 18:34 | Link to Comment Uber Vandal
Uber Vandal's picture

Even Tyrion Lannister, the new Master of Coin, understands that being in debt is bad.

https://www.youtube.com/watch?v=-9Rya1JlUac

 

Fri, 07/05/2013 - 18:37 | Link to Comment ekm
ekm's picture

big banks are not in debt, they are hyperleveraged

leverage is NOT debt. Debt exists from entity A to entity B

 

Leverage is money that does not exists. Once collapse starts, it simply disappears into absolutely nothing

Fri, 07/05/2013 - 18:39 | Link to Comment THX 1178
THX 1178's picture

Which means what?

Fri, 07/05/2013 - 18:47 | Link to Comment ekm
ekm's picture

Theoretical. You have $100k but buy $1million stocks at $10/share.

Condition: if stock falls to $7, margin is called.

Nobody lent that money to you, you simply bought $1m of stock by depositing your $100k.

Big banks are allowed to do that. Margin accounts work like that.

 

Stocks drops to $5, bank/broker sells your stocks without asking you and keeps the $100k.

You are broke.

 

Same with big banks. They buy stocks/bonds at 3% capital, the other 97% is leverage, money that does not exist

Fri, 07/05/2013 - 19:09 | Link to Comment darteaus
darteaus's picture

PMI, but how does one buy $1M of stock w/$100K without someone lending you the money?

The seller surely did not surrender the $1M of stock w/o collecting $1M, and you only have $100K, so somebody came up w/$900K to seal the deal, right?

Fri, 07/05/2013 - 19:18 | Link to Comment ekm
ekm's picture

primary dealers can

Fri, 07/05/2013 - 19:29 | Link to Comment THX 1178
THX 1178's picture

What happens when it disappears into nothing though?

Fri, 07/05/2013 - 19:36 | Link to Comment ekm
ekm's picture

$1million of securities will be fire sold to make up for $900k the bank "loaned" you out of nothing.

 

It's a collateral based system.

Assuming you had 10k shares valued @ $10 each, now those shares after the fire sale are worth $1/each.

$9/share disappeared

 

Again, it is a COLLATERAL BASED SYSTEM.

Value of collateral is what matters.

 

For instance: If you have 1lbs of oranges worth $10/lbs, then you have $10

But if oranges go half rotten and you can sell them for $2/lbs, then you have $2.

COLLATERAL BASED SYSTEM

Orange is the collateral

Value is what others are ready to pay for it

 

 

 

Fri, 07/05/2013 - 19:52 | Link to Comment THX 1178
THX 1178's picture

If those securities are equity based: big downward pressure on stock market

If debt based, big spike in yields?

Big feedback loop crash?

Fri, 07/05/2013 - 19:55 | Link to Comment ekm
ekm's picture

Correct.

 

Fri, 07/05/2013 - 19:55 | Link to Comment ekm
ekm's picture

Buying a house is the same thing

Assuming you buy $300k house but put down only $10k.

The bank "lent" you the difference to be paid in 30 yrs.

 

The bank let you nothing, they just make the credit out of nothing, but they expect you to pay ....in cash biweekly. It's leverage.

Sat, 07/06/2013 - 10:29 | Link to Comment maskone909
maskone909's picture

The money is lent out but created from thin air via FRB or fractional reserve banking. The collateral required will not protect portfolios if the market gaps down and wipes out the position, especially at 10X leverage. So yeah the above is correct

Fri, 07/05/2013 - 18:44 | Link to Comment Bay of Pigs
Bay of Pigs's picture

"big banks are not in debt"

Come on man, WTF? I get the leverage, but no debt?

Fri, 07/05/2013 - 18:48 | Link to Comment ekm
ekm's picture

correction

 

Debt is quite small compared to leverage size

Fri, 07/05/2013 - 21:46 | Link to Comment CPL
CPL's picture

LOL!!

 

Shit I haven't laughed that hard in while...thanks man.

Fri, 07/05/2013 - 19:00 | Link to Comment oddjob
oddjob's picture

What did I say?

You throw out generalizations like bird seed and then barf up that self patronizing tripe, very classy.

Fri, 07/05/2013 - 19:05 | Link to Comment A82EBA
A82EBA's picture

i never saw anyone else predict it but ekm

Fri, 07/05/2013 - 19:06 | Link to Comment oddjob
oddjob's picture

predict what?

Fri, 07/05/2013 - 19:11 | Link to Comment fonzannoon
fonzannoon's picture

Dude...I am a big fan of ekm. But anyone with a brain knows this ends with the fed either owning everything, or pulling the plug on QE and watching the collateral chain implode. The only question is when. Ekm says now, and has been saying so for a bit. I guess we will see.

The difference is, ekm has said for a while now, that another big bank or two or three would be sacraficed. I say no way. You don't get two 2008's. The next one, should it come, is the end.

Fri, 07/05/2013 - 19:26 | Link to Comment ekm
ekm's picture

In march I said QE is dead. Now it's July, tapering ongoing since bond yield have skyrocketed

 

Two weeks ago I said it's imminent.

 

As you said: Let's see

I'm big fan of you, also

 

Fri, 07/05/2013 - 19:35 | Link to Comment THX 1178
THX 1178's picture

GAAAAAYYYYYYYYYYY!!!!!!!!!!!!!!

Fri, 07/05/2013 - 19:39 | Link to Comment ekm
ekm's picture

come on...

Fri, 07/05/2013 - 19:42 | Link to Comment fonzannoon
fonzannoon's picture

if lovin ekm is wrong, i don't want to be right.

Fri, 07/05/2013 - 19:43 | Link to Comment ekm
ekm's picture

:)

Fri, 07/05/2013 - 19:58 | Link to Comment oddjob
oddjob's picture

ekm also said 9/11 was just another building collapse...what could be wrong with that statement.

Fri, 07/05/2013 - 22:06 | Link to Comment Blano
Blano's picture

I like both of you, so let's not go too overboard here.

Fri, 07/05/2013 - 21:50 | Link to Comment Jake88
Jake88's picture

Can you give us some good stock picks or may be a lottery number o great one. Can you say narcissist.

Fri, 07/05/2013 - 22:40 | Link to Comment ekm
ekm's picture

some signs of narcisism for sure.

i concede that and it make me stop commenting

Sat, 07/06/2013 - 02:09 | Link to Comment Cathartes Aura
Cathartes Aura's picture

hey ekm, I'm still following your posts these past couple months, and very much enjoy your exchanges with fonzanoon and others - you take the time to explain your point of view, and the to 'n' fro posts are worth skimming threads to read.

I said it before, you're on fire with an idea, watching a theory unfold, so if you sometimes see confirmation as time progresses, who's to say you shouldn't be excited to post about it.

I'm looking out for your opinions as time gets increasingly. . . crunchy. . .and I'm pretty sure others here are too.

keep posting.

Sat, 07/06/2013 - 22:54 | Link to Comment kareninca
kareninca's picture

ekm, don't stop commenting!!!!!!!!

the posters who are criticizing you, are offering NOTHING.  No ideas, no nothing.  They are jealous of someone who has a thought.  I find your posts interesting, whether you are wrong or right.  And even if you were narcissistic (which you aren't), I would find them interesting.

Sat, 07/06/2013 - 22:56 | Link to Comment kareninca
kareninca's picture

What are you contributing, oh Jake88?

You're just jealous because you have NOTHING to add to the conversation.

Fri, 07/05/2013 - 19:23 | Link to Comment McMolotov
McMolotov's picture

Whatever happens, I now think they'll do everything possible to manage the collapse, to draw it out over years if not decades. The only way these people maintain power is if the system persists, even if it's limping along. I've resigned myself to the idea that there simply won't be some big bang that resets everything. It will be a slow grind, and most people on this planet won't even notice when we've transitioned to a new system because it will have been drawn out over such a long period of time.

Or it could all blow up on Monday.

Fri, 07/05/2013 - 19:27 | Link to Comment ekm
ekm's picture

History has shown that the powers go for a trial and then go for maximum damage.

 

Bear stearns was the trial then Lehman

Mf Global was the trial. then.....................we'll see

Fri, 07/05/2013 - 20:41 | Link to Comment NoDebt
NoDebt's picture

"It will be a slow grind, and most people on this planet won't even notice when we've transitioned to a new system because it will have been drawn out over such a long period of time."

Psssst!  Over here! 

You talk about it like it's some future event.  It's almost done already.  And most of us were a part of it, whether we knew it or not.

Fri, 07/05/2013 - 20:52 | Link to Comment McMolotov
McMolotov's picture

It's hard sometimes to notice when you're in the middle of it.

It's like the thing where you travel in a spaceship and time gets wonky, and you get back to earth and 60 years have passed when you think it had only been a few months. Or something. And it's probably even harder to notice after a few drinks.

Fri, 07/05/2013 - 22:30 | Link to Comment logicalman
logicalman's picture

You might live to be 100

You might die tomorrow

Fri, 07/05/2013 - 19:23 | Link to Comment ekm
ekm's picture

Humbled. Thx a lot.

But I predicted nothing.

 

I am just observing reality as it unfolds.

If bond yields are going higher, I said QE is dead, because there's no other reason for yields to go higher.

 

If repo market is clogged and crude oil is skyhigh for 2 years, it's obvious margin will be called on those who are causing it, which is 1 or 2 primary dealers.

Fri, 07/05/2013 - 19:34 | Link to Comment MiltonFriedmans...
MiltonFriedmansNightmare's picture

You da man ekm, but do you really believe the system can withstand another round of consolidation?

Fri, 07/05/2013 - 19:42 | Link to Comment ekm
ekm's picture

Yes of course.

What's bad about closing down 4-5 primary dealers?

Nothing. It's even better, it's equal to debt forgiveness

 

Financial sector unemployemnt will ensue, but hey...

Fri, 07/05/2013 - 18:29 | Link to Comment XRAYD
XRAYD's picture

No wonder the markets ramped heading to new Stan & P highs! About 1750 should take care of the little "margin" problem.

Fri, 07/05/2013 - 18:36 | Link to Comment Everybodys All ...
Everybodys All American's picture

They should be concerned about the Margin calls they are getting on the 10 yr.

Fri, 07/05/2013 - 18:38 | Link to Comment Al Huxley
Al Huxley's picture

I think 'Margin call' isn't compatible with the concept of TBTF.  Of course, there is the chance that 'one of our contestants will soon find out that they are NOT actually in the club.  Last round it was Bear Stearns and Lehman Brothers, who will it be this time?  Time to play our next round of 'So you think you're TBTF?'.

Fri, 07/05/2013 - 19:08 | Link to Comment fonzannoon
fonzannoon's picture

I call bullshit. They have made it clear they have reformed the system so that if a TBTF bank were to go under, this time it would not be bailed out.

Since letting a TBTF bank go under, without bailing out the depositor, would spark the mother of all bank runs, and crash the system, it ain't happening. Unless they are using it as their escuse to cauyse a currency crisis, cause the mother of all global bank failures, and usher in the one world currency. Which I guess, is possible.

So we are either talking about the event horizon, or no margin calls and moar of teh same shit. There is no in between.

Fri, 07/05/2013 - 19:18 | Link to Comment MiltonFriedmans...
MiltonFriedmansNightmare's picture

+1 Fonz, the next down is the last one for this system as we know it.

Fri, 07/05/2013 - 19:34 | Link to Comment fonzannoon
fonzannoon's picture

thanks for agreeing with me despite the most horrific spelling. Wow I sound like an angry shmuck there.

Sat, 07/06/2013 - 10:42 | Link to Comment andrewp111
andrewp111's picture

They would always bail out the depositor up to 250K per depositor per bank, even if they had to print money to do it. Above that is hard to say, especially with the divided Congress and all. The big depositors might get bailed out, and then again they might not. It all depends on how big the hole is, what the Fed and Treasury can do without Congress, and whether the debt ceiling would have to be raised.

Thought experiment: Suppose a really big TBTF (for example: JPM)  suddenly reveals trading losses in the trillions when it can't make payments. What happens then?

Sat, 07/06/2013 - 09:52 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

TBTF or not to TBTF is the question. When there is not enough collateral to support all the boys in the club someone is going to be kicked out. That is basic human nature and personal politics at play. Collateral is finite so is hyper-leverage before the system implodes. Remember bankstas still need to eat and they fear bullets and jute ropes like most other human beings. That is your collateral when you ain't in the club.

Sat, 07/06/2013 - 16:57 | Link to Comment max2205
max2205's picture

How bout this. Say you're loaded...1 mill in cash...they toast your bank accounts and nkw you cant make the car and house payment.  They torch your cash but leave your debt the same.   Instant homeless.   

 

Now the .00001% own 99%

 

When it happens and it will overnight well it will suck

Fri, 07/05/2013 - 18:40 | Link to Comment Schmuck Raker
Schmuck Raker's picture

"....and thirdly, the pirate's code is actually more a guideline than what you might call a rule."

"Welcome aboard The Black Pearl, Miss Depositor."

Fri, 07/05/2013 - 18:41 | Link to Comment Bay of Pigs
Bay of Pigs's picture

"this is a major part of why Bernanke and Dudley at the FOMC are willing to ignore the lower inflation"

This bullshit? AGAIN?

Fri, 07/05/2013 - 18:41 | Link to Comment Jugdish
Jugdish's picture

Rothschild owns the planet. We are all his slaves. We are all eunachs at his court. Please.... Let us join together and hold hands and kneel before our lizard king.

Fri, 07/05/2013 - 19:25 | Link to Comment MiltonFriedmans...
MiltonFriedmansNightmare's picture

Jugs, they, the Rothfucks, are in a Catch 22. They do in fact own the world as you say, but if they were to ever to try to cash in their chips, the final curtain would fall. So they are stuck trying to perpetuate a failed system. It will be interesting to see how it plays out.

Fri, 07/05/2013 - 19:43 | Link to Comment Savyindallas
Savyindallas's picture

let's all collectively step on and squash the lizard king  - who knows what the pages of history might write  - we may all be surprised by what a couple of billion of desparate human beings are able to accomplish. I don't see the elites as omnipotent  - it is the perception of omnipotence that makes them so powerful - in the age of the internet-anything is possbbe.

Do not despair -We may yet find that the emperor has no clothes. History is full of unpredictable surprises.

Fri, 07/05/2013 - 18:44 | Link to Comment Dre4dwolf
Dre4dwolf's picture

All that will happen is, the big banks will be further consolidated into fewer and ever-larger banks.

In the end, we will be left with only one bank, probably some kind of world bank, at which point the global economy will completely turn to shit, because when you have one guy running everything, it gets very very expensive to run everything, imbalances will occur globally, countries will fall - apart others will experience great prosperity.

But in the end, thats the plan isn't it? to suck up the worlds wealth and enrich "the chosen ones".

Just pray that the chosen ones don't endup being some crazy assholes like Hitler or Stalin.

Fri, 07/05/2013 - 19:07 | Link to Comment MiltonFriedmans...
MiltonFriedmansNightmare's picture

I think everyone here knows all too well who the chosen ones are.

Fri, 07/05/2013 - 19:30 | Link to Comment SDShack
SDShack's picture

The NWO guarantees a Hitler or Stalin. You don't get to a one world government through democratic compromise... only through domination by a ruthless and perverse cabal of like minded sociopaths. The result is a human purge the likes of which the world will have never seen before. 

Sat, 07/06/2013 - 09:03 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

WWII was pretty bad...

Lets hope we don't witness anything even close to what happened to civilians and avg soldiers in WWII.

Fri, 07/05/2013 - 18:47 | Link to Comment stant
stant's picture

us coins have no counter party risk

Fri, 07/05/2013 - 18:54 | Link to Comment CH1
CH1's picture

us coins have no counter party risk

Apparently, you just stepped out of a time machine from 50 years in the past. You need to re-assess.

Fri, 07/05/2013 - 18:54 | Link to Comment CPL
CPL's picture

Tin wrapped plastic slugs?

Fri, 07/05/2013 - 18:51 | Link to Comment beaker
beaker's picture

Margin calls and hits in gold prices certainly seem to come in pairs lately.

 

Fri, 07/05/2013 - 18:55 | Link to Comment joego1
joego1's picture

All I know is that somehow I will suffer for this.

Fri, 07/05/2013 - 18:56 | Link to Comment dryam
dryam's picture

Whatever, I'll believe it when I see it.

Fri, 07/05/2013 - 18:59 | Link to Comment starman
starman's picture

"its impossible to win without dopping" Lance Armstrong

Sat, 07/06/2013 - 12:19 | Link to Comment Jam Akin
Jam Akin's picture

"Its impossible to trip without dropping."  Timothy Leary

Fri, 07/05/2013 - 18:59 | Link to Comment involuntarilybirthed
involuntarilybirthed's picture

Press 1 if you want this in English.

Fri, 07/05/2013 - 19:01 | Link to Comment WTFUD
WTFUD's picture

Baffle us with bullshit! 10's of thousands of people can wake up tomorrow morning and create jobs given the correct playing field.
5 years on we are still unable to shake off the shackles! We are delaying the inevitable because cetain entities refuse to let go.

Fri, 07/05/2013 - 19:39 | Link to Comment SDShack
SDShack's picture

Those certain entities will never let go because they are sociopaths. They don't understand the masses, the economy, or government beyond how to extort it for their own power, money and control. Hope & Change was nothing but Hoax & Chains.

Fri, 07/05/2013 - 19:03 | Link to Comment q99x2
q99x2's picture

"Fed's new remit since Dodd-Frank makes it responsible for bubbles in banking"

Fed's going to shit in its hat and pull it over its ears.

This about conquering the world and a few select offspring surviving and has nothing to do with monetary stability. FED is going to continue moving money and wealth to the cartel families until everyone else is down to less than sustainability then when the uprising occurs they are going to try to exterminate the rest of us.

Simple huh?

Whatever else you see is smoke.

You'll know the end is near when I move to Pittsburgh.


Fri, 07/05/2013 - 19:05 | Link to Comment darteaus
darteaus's picture

Good luck getting a home loan after this happens.

Fri, 07/05/2013 - 19:12 | Link to Comment MiltonFriedmans...
MiltonFriedmansNightmare's picture

It will undoubtedly happen at some point, but dude, I sure as fuck don't think they will pre-announce it. This is our concern dude, this is our concern.

Fri, 07/05/2013 - 19:16 | Link to Comment yogibear
yogibear's picture

Expect Jack Lew to come out and repeat his Hank Paulson threat. Pleading for Obama to bail out the banksters again.

Fri, 07/05/2013 - 19:19 | Link to Comment surf0766
surf0766's picture

That is a bullshit story. They will never limit anything on the TBTF

Fri, 07/05/2013 - 19:23 | Link to Comment pasmurf
pasmurf's picture

margin calls on Tuesday next?  This market refuses to die, or give into bears, too many bulls and bullshit. Being a bear sucks unless this happens Tuesday and keeps happening for awhile.

Bad News Bear

Sat, 07/06/2013 - 04:40 | Link to Comment bunnyswanson
bunnyswanson's picture

http://www.austincc.edu/lpatrick/his1302/crash.html

"Speculation financed on credit drove prices higher and higher and some individuals who cashed in early enough realized incredible profits.

The boom was based on credit however and when inevitably the market correction came there was a danger of economic collapse. When the market began to turn down in the fall of 1929, stockbrokers issued "margin calls", demanding that investors pay off their loans.

Many who had taken the speculative credit plunge couldn't pay and defaulted. This created an economic and psychological panic. Investors, facing debts they couldn't possibly pay off, began panic selling for whatever they could get. As more and more investors tried to liquidate, prices tumbled and tumbled as fewer and fewer buyers could be found. The mountain of credit thus came crumbling down. "

"...When municipal lodging houses became overcrowded, men huddled in empty freight cars or in shutdown factories. In Arkansas, men were found living in caves. By 1932, it was estimated that between one and two million men - once home buyers or proud family farmers - were roaming the country in search of work or relief. "

Fri, 07/05/2013 - 19:27 | Link to Comment toadold
toadold's picture

Let's see, they say the job numbers have improved, uh yes there are more people employed in part time jobs and manufacturing has declined some more. They say there is deflation, as long as you don't need fuel, food, medical care, child care or anything dependent on fuel costs, shipping and materials.  

Yeah I believe some book of rules by some wanker in the executive branch is going to have an effect. "You broke the rules! I'm going to sic the Justice Department on you! Stop giggling, I'm serious!"

Sat, 07/06/2013 - 09:07 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

See biflation. 

Also, Ka-poom Theory.

Fri, 07/05/2013 - 19:28 | Link to Comment PaperBear
PaperBear's picture

Which of the too-big-to-fail banks own shares in the private non-federal non-reserve ?

Fri, 07/05/2013 - 19:57 | Link to Comment Trampy
Trampy's picture

Who owns and controls the Federal Reserve

by Dr. Edward Flaherty


Printable Version

 

Is the Federal Reserve System secretly owned and covertly controlled by powerful foreign banking interests? If so, how? These claims, made chiefly by authors Eustace Mullins (1983) and Gary Kah (1991) and repeated by many others, are quite serious because the Fed is the United States central bank and controls U.S. monetary policy. By changing the supply of money in circulation, the Fed influences interest rates, affecting the mortgage payments of millions of families, causing the financial markets to boom or collapse, and prompting the economy to expand or to stumble into recession. Such awesome power presumably would be used to benefit the U.S. economy. Mullins and Kah both argued that the Federal Reserve Bank of New York is owned by foreigners. Although the New York Fed is just one of twelve Federal Reserve banks, controlling it, they claimed, is tantamount to control of the entire System. Foreigners use their command of the New York Fed to manipulate U.S. monetary policy for their own and, as Kah asserted, to further their global political goals, namely the establishment of the sinister New World Order.

This essay examines the accuracy of these claims. Specifically, it investigates the charge that the New York Federal Reserve Bank is owned, directly or indirectly, by foreign elements, whether the New York Fed in effect runs the whole Federal Reserve System, and whether its enormous annual profits accrue primarily to foreigners or to the U.S government. This essay shows that there is little evidence to support the idea of foreign ownership and much that contradicts it. In addition, it presents evidence to show that the New York Fed does not command the entire System, as well as recent data demonstrating that the System's profits are paid to the federal government.

Who Owns the Federal Reserve Bank of New York?

Each of the twelve Federal Reserve Banks is organized into a corporation whose shares are sold to the commercial banks and thrifts operating within the Bank's district. Shareholders elect six of the nine the board of directors for their regional Federal Reserve Bank as well as its president. Mullins reported that the top eight stockholders of the New York Fed were, in order from largest to smallest as of 1983, Citibank, Chase Manhatten, Morgan Guaranty Trust, Chemical Bank, Manufacturers Hanover Trust, Bankers Trust Company, National Bank of North America, and the Bank of New York (Mullins, p. 179). Together, these banks owned about 63 percent of the New York Fed's outstanding stock. Mullins then showed that many of these banks are owned by about a dozen European banking organizations, mostly British, and most notably the Rothschild banking dynasty. Through their American agents they are able to select the board of directors for the New York Fed and to direct U.S. monetary policy. Mullins explained,

'... The most powerful men in the United States were themselves answerable to another power, a foreign power, and a power which had been steadfastly seeking to extend its control over the young republic since its very inception. The power was the financial power of England, centered in the London Branch of the House of Rothschild. The fact was that in 1910, the United States was for all practical purposes being ruled from England, and so it is today' (Mullins, p. 47-48).

He further commented that the day the Federal Reserve Act was passed, "the Constitution ceased to be the governing covenant of the American people, and our liberties were handed over to a small group of international bankers" (Ibid, p. 29).

Unfortunately, Mullins' source for the stockholders of the New York Fed could not be verified. He claimed his source was the Federal Reserve Bulletin, although it has never included shareholder information, nor has any other Federal Reserve periodical. It is difficult researching this particular claim because a Federal Reserve Bank is not a publicly traded corporation and is therefore not required by the Securities and Exchange Commission to publish a list of its major shareholders. The question of ownership can still be addressed, however, by examining the legal rules for acquisition of such stock. The Federal Reserve Act requires national banks and participating state banks to purchase shares of their regional Federal Reserve Bank upon joining the System, thereby becoming "member banks" (12 USCA 282). Since the eight banks Mullins named all operate within the New York Federal Reserve district, and are all nationally chartered banks, they are required to be shareholders of the New York Federal Reserve Bank. They are also probably the major shareholders as Mullins claimed.

Are these eight banks on Mullins' list of stockholders owned by foreigners, what Mullins termed the London Connection? The SEC requires the name of any individual or organization that owns more than 5 percent of the outstanding shares of a publicly traded firm be made public. If foreigners own any shares of Mullins' eight banks, then their portions are not greater than 5 percent at this time. With no significant holdings of the major New York area banks, it does not seem likely that foreign conspirators could direct their actions.

Perhaps foreigners own shares of the New York Federal Reserve Bank directly. The law stipulates a small portion of Federal Reserve stock may be available for sale to the public. No person or organization, however, may own more than $25,000 of such public stock and none of it carries voting rights (12 USCA 283). However, under the terms of the Federal Reserve Act, public stock was only to be sold in the event the sale of stock to member banks did not raise the minimum of $4 million of initial capital for each Federal Reserve Bank when they were organized in 1913 (12 USCA 281). Each Bank was able to raise the necessary amount through member stock sales, and no public stock was ever sold to the non-bank public. In other words, no Federal Reserve stock has ever been sold to foreigners; it has only been sold to banks which are members of the Federal Reserve System (Woodward, 1996).

Regardless of the foreign ownership conjecture, Mullins argued that since the money-center banks of New York owned the largest portion of stock in the New York Fed, they could hand-pick its board of directors and president. This would give them, and hence the London Connection, control over Fed operations and U.S. monetary policy. This argument is faulty because each commercial bank receives one vote regardless of its size, unlike most corporate voting structures in which the number of votes is tied to the number of shares a person holds (Ibid). The New York Federal Reserve district contains over 1,000 member banks, so it is highly unlikely that even the largest and most powerful banks would be able to coerce so many smaller ones to vote in a particular manner. To control the vote of a majority of member banks would mean acquiring a controlling interest in about 500 member banks of the New York district. Such an expenditure would require an outlay in the hundreds of billions of dollars. Surely there is a cheaper path to global domination.

An historical example may make clear that member banks do not control the Federal Reserve's policies. Galbraith (1990) recounted that in the spring of 1929 the New York Stock Exchange was booming. Prices there had been rising considerably, extending the bull market that had begun in 1924. The Federal Reserve Board decided to take steps to arrest the speculative bubble that appeared to have been forming: it raised the cost banks had to pay to borrow from the Federal Reserve and it increased speculators' margin requirements. Charles Mitchell, then the head of National City Bank (today known as Citibank), which was the largest shareholder of the New York Federal Reserve Bank according to Mullins, was so irritated by this decision that in a bank statement he wrote, "We feel that we have an obligation which is paramount to any Federal Reserve warning, or anything else, to avert any dangerous crisis in the money market" (Galbraith, p. 57). National City Bank promised to increase lending to offset any restrictive policies of the Federal Reserve. Wrote Galbraith, "The effect was more than satisfactory: the market took off again. In the three summer months, the increase in prices outran all of the quite impressive increase that had occurred during the entire previous year" (Ibid). If the Fed and its policies were really under the control of its major stockholders, then why did the Federal Reserve Board clearly buck the intent of its single largest shareholder?

This information also eluded fellow conspiracy theorist Gary Kah, who disagreed with Mullins on who owns the New York Fed. His Swiss and Saudi Arabian contacts identified the top eight shareholders as the Rothschild Banks of London and Berlin; Lazard Brothers Banks of Paris; Israel Moses Seif Banks of Italy; Warburg Bank of Hamburg and Amsterdam; Lehman Brothers of New York; Kuhn, Loeb Bank of New York; Chase Manhatten; and Goldman, Sachs of New York (Kah, p. 13). It is impossible to verify Kah's information because it is not known who his "contacts" were. Nevertheless, Kah's list differs substantially from Mullins' compilation. Most interestingly, in Kah's list foreigners own the New York Fed directly without having to own majority interests in U.S. banks, as is the case with Mullins' list. The discrepancies in the two lists mean that at least one of them is wrong, and possibly both. Kah's list is the bogus one because no public stock has ever been issued, so it is not possible for anyone on Kah's list other than Chase Manhatten to own shares of the New York Fed.

Moreover, Kah seemed ignorant of important details about the organization of Federal Reserve stock and management, especially for someone claiming to have done as much research on the subject as he did. He referred to the organizations on his stockholders list as "Class A shareholders," which is curious because Federal Reserve stock is not classified in this manner (Ibid). It can be either member stock, which can be purchased only by commercial banks and thrifts seeking to become members of the Federal Reserve System, or public stock. However, the directors of a Federal Reserve bank are separated into Class A, B, and C categories, depending on how they are appointed (12 USCA 302, 304, 305). Three class A directors are chosen by the member banks. Three class B directors are also elected by the member banks to represent the non-bank sectors of the economy. The final three directors, class C, are picked by the Board of Governors also to represent the non-bank public. This may be the source of Kah's confusion, but it is a relatively simple point that he should have detected had his research efforts been thorough.

Does the New York Fed Call the Shots?

Mullins and Kah further argued that by controlling the New York Fed the international banking elite could command the entire Federal Reserve System, and thus direct U.S. monetary policy for their own profit. "For all practical purposes," Kah stressed, "the Federal Reserve Bank of New York is the Federal Reserve" (Ibid). This is the linchpin of their conspiracy theory because it provides the mechanism by which the international bankers execute their plans.

A brief look at how the Fed's powers over monetary policy are actually distributed shows that the key assumption in the Mullins-Kah conspiracy theory is erroneous. The Federal Reserve System is controlled not by the New York Fed, but by the Board of Governors (the Board) and the Federal Open Market Committee (FOMC). The Board is a seven member panel appointed by the President and approved by the Senate. It determines the interest rate, known as the discount rate, for loans to commercial banks and thrifts, selects the required reserve ratio which determines how much of customer deposits a bank must keep on hand (a factor that significantly affects a bank's ability create new loans), and also decides how much new currency Federal Reserve Banks may issue each year (12 USCA 248). The FOMC consists of the members of the Board, the president of the New York Fed, and four presidents from other Fed Banks. The FOMC formulates open market policy, which determines how much in government bonds the Fed Banks may trade, and is the most effective and commonly used of the Fed's monetary policy tools (12 USCA 263). The key point is that a Federal Reserve Bank cannot change its discount rate or required reserve ratio, issue additional currency, or purchase government bonds without the explicit approval of either the Board or the FOMC.

The New York Federal Reserve Bank through its direct and permanent representation on the FOMC has more say on monetary policy than other Federal Reserve Banks, but it still only has one vote of twelve on the FOMC and no say at all in setting the discount rate or the required reserve ratio. If it wanted monetary policy to go in one direction, while the Board and the rest of the FOMC wanted policy to go another, then the New York Fed would be out-voted. The powers over U.S. monetary policy rest firmly with the publicly-appointed Board of Governors and the Federal Open Market Committee, not with the New York Federal Reserve Bank or a group of international conspirators.

Mullins also made a great to-do about the Federal Advisory Council (the Council). This is a panel of twelve representatives appointed by the board of directors of each Fed Bank. The Council meets at least four times each year with the members of the Board to give them their advice and to discuss general economic conditions (12 USCA 261, 262). Many of the members have been bankers, a point not at all missed by Mullins. He speculated that it is able to force its will on the Board of Governors.

The claim that the "advice" of the council members is not binding on the Governors or that it carries no weight is to claim that four times a year, twelve of the most influential bankers in the United States take time from their work to travel to Washington to meet with the Federal Reserve Board merely to drink coffee and exchange pleasantries (Mullins, p. 45).

A point very much missed by Mullins is that the Council has no voting power in Board meetings, and thus has no direct input into monetary policy. In support of his hypothesis that Council members have been able to impose their will on the Board, Mullins offered no evidence, not even an anecdote. Moreover, his Council theory is inconsistent with his general thesis that the Federal Reserve System is manipulated by European banking interests through their control of the New York Fed. If this were true, then why would they also need the Council?

Who Gets the Fed's Profits?

Gary Kah and Thomas Schauf have also maintained that the huge profits of the Federal Reserve System are diverted to its foreign owners through the dividends paid to its stockholders. Kah reported "Each year billions of dollars are 'earned' by Class A stockholders of the Federal Reserve" (Kah, p. 20). Schauf further lamented by asking, "When are the profits of the Fed going to start flowing into the Treasury so that average Americans are no longer burdened with excessive, unnecessary taxes?"

The Federal Reserve System certainly makes large profits. According to the Board's 1995 Annual Report, the System had net income totaling $23.9 billion, which, if it were a single firm, would qualify it as one of the most profitable companies in the world. How were these profits distributed? By an agreement between the Board of Governors and the Treasury, nearly all of the Fed's annual profits are paid to the federal government. Accordingly, a lion's share of $23.4 billion, which represents 97.9 percent of the Federal Reserve's net income, was transferred to the Treasury. The Federal Reserve Banks kept $283 million, and the remaining $231 million was paid to its stockholders as dividends.

Given that less than one percent of the Fed's net earnings are distributed as dividends, it seems that an investor could easily find much more profitable ways to store their wealth than buying Federal Reserve stock. Regarding Schauf's lamentation, the Federal Reserve System has been paying its profits to the Treasury since 1947.

Conclusion

It does not appear that the New York Federal Reserve Bank is owned, either directly or indirectly, by foreigners. Neither Mullins nor Kah provided verifiable sources for their allegations, nor did their mysterious sources agree on exactly who owns the New York Federal Reserve Bank. Moreover, their central assumption that control of the New York Federal Reserve is the same as control of the whole System is wrong and demonstrates a lack of understanding of the System's basic organizational structure. The profits of the Federal Reserve System, again contrary to the assertion of Kah and Schauf, are funneled back to the federal government, not to an "international banking elite." If the U.S. central bank is in the grip of a banking conspiracy, then Mullins and Kah have certainly not uncovered it.

References:

82nd Annual Report, 1995. Board of Governors of the Federal Reserve System. U.S. Government Printing Office.

Galbraith, John K. 1990. A Short History of Financial Euphoria. New York: Whittle Direct Books.

Kah, Gary. 1991. En Route to Global Occupation. Lafayette, La.: Huntington House.

Mullins, Eustace. 1983. Secrets of the Federal Reserve. Staunton, Va.: Bankers Research Institute.

Shauf, Thomas. 1992. The Federal Reserve. Streamwood, IL: FED-UP, Inc.

Woodward, G. Thomas. 1996. "Money and the Federal Reserve System: Myth and Reality." Congressional Research Service

United States Code Annotated. 1994. U.S. Government Printing Office.

Reprinted with permission.

Return to the Gilded Opinion Library

 

Sat, 07/06/2013 - 09:14 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

Well that was a waste of time.

What a good skeptic that guy is!

Sat, 07/06/2013 - 09:17 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

Griffin at least has bothered to respond: http://www.freedomforceinternational.org/freedomcontent.cfm?fuseaction=m...

Mullins can't, of course.

Fri, 07/05/2013 - 19:45 | Link to Comment Pike Bishop
Pike Bishop's picture

Regardless of the actual mechanics of meeting the policy, this is going to get charged through to us.

Banks don't get screwed. That's the only Rule.

As interest rates rise, we'll get charged (more so) for making deposits.

Fri, 07/05/2013 - 19:52 | Link to Comment working class dog
working class dog's picture

Give me a break,

The appearance of the fourth kind,

That which appears to be true but it is not.

The biggest reason for lack of control over the banks was Dodd-Frank,

Schumer and a host of republican insiders all on the banking committee.

The only thing that will cure the stealing is to shut down the fiat system and give money control back to the treasury, and claw back the trillions and jail all the assholes, including the dream team and Dud and Spank!!

Fri, 07/05/2013 - 21:44 | Link to Comment WAMO556
WAMO556's picture

Can't charge a sitting senator..... The only thing that they can be charged with is TREASON. but that is a dead concept like the constitution.

Fri, 07/05/2013 - 20:03 | Link to Comment zenon
zenon's picture

$4B in itself is nothing for the US banks in total. Heck,, Deutsche Bank probably needs orders of magnitude more than that.

At the same time, one cannot ignore all the newest "tough talk" about allowing for orderly bankcruptcies in the banking sector. Smells like something big is coming. And this time it is something that is planned as opposed as out of the blue ( like who could have seen it coming?).

The sharp falls in gold, silver and anything related to emerging markets corroborates with such a setup. Stock markets at the core (together with crude) don't (yet) reflect such a contractionary scenario. It looks like the "margin call" will be selective to say the least.

The question I guess for alot of us is what makes "them" think that they can contain this to ,say, Spanish or Irish banks ( seeing what happened after Leehman)?

Fri, 07/05/2013 - 20:06 | Link to Comment Tenshin Headache
Tenshin Headache's picture

So they need to raise $4.5 billion by 2019.

The Fed is currently injecting $85 billion per month.

Somehow I don't think the banks will have a problem here.

Fri, 07/05/2013 - 20:34 | Link to Comment slimething
slimething's picture

Maybe bond yields are going higher not because QE is dead, but the effects of QE are. ?

Fri, 07/05/2013 - 21:16 | Link to Comment MsCreant
MsCreant's picture

Go ahead punk, make my day!

Fri, 07/05/2013 - 21:36 | Link to Comment Dr.Engineer
Dr.Engineer's picture

Do you really think they are going to do a margin call and crash the system?  They can pass laws but they won't enforce them.  They may jawbone but that's all.

Riddle me this ...

has been on making derivatives markets safer through requiring central clearing for derivatives that can be standardised and creating margin requirements for derivatives that continue to be written and traded outside of central clearing facilities.

WTF? Can they be serious?  Do they think we will believe that?

There will be world war III first.

 

 

Sat, 07/06/2013 - 03:28 | Link to Comment BurningBetty
BurningBetty's picture

The bond bubble is just a big fat joke. It's more like a childs play. Free access to funny money and you can play the game indefinitely, completey disconnected from the reality. Why care what happens in the world, really? It is more like:

"If you don't sell, and he doesn't sell, and I don't sell, we can all keep buying so the prices only go up." Ofcourse, it's like collecting leaves and piling them up. That's pretty much what the monetary system has become, a pile of worthless leaves floating around in unlimited quantities. The question remains though, for how long will the public have faith in this system? My guess, till there is no more juice to suck dry from the consumer and they own pretty much everything. 

Fri, 07/05/2013 - 21:41 | Link to Comment WAMO556
WAMO556's picture

Ok, here is the QUESTION:

the Federal Reserve will impose capital surcharges on the eight large US banking organizations identified in the Basel Committee agreement for additional capital requirements on banking organisations of global systemic importance.

- Where will these "capital surcharges" come from?

- Is this the BAIL IN's that everyone's been talking about?

- Was "THE THEIF CORZINE" of MF Global infamy the model for this bail in?

Enquiring minds want to know!

Sat, 07/06/2013 - 03:22 | Link to Comment BurningBetty
BurningBetty's picture

As always, from the consumer. Credit will be more expensive, which in turn will make everything else expensive. Either that, or broad world wide selling of stocks, bonds, equitites etc. There is no other way you can raise credit, espeically if the FED stops giving away free Christmas presents to the banks.

This is just another way of screwing the consumer. It's like drinking your lemonade with a straw to quench that unbearable heat. You put those lungs to work to suck up every single drop of "juice" that's left. But, it's hot, and you know the thirst will be back to demand more. 

Sat, 07/06/2013 - 09:20 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

If they do a bail in, or withdraw their 'wealth effect', then currency crisis/collapse is on its way.

There is no way people will put up with being bail in, in return for 0% interest. 

And when the cost of everything is up, the price of everything is up.  Once that happens, expect the 'safe haven' USD to come flooding home.

Sat, 07/06/2013 - 10:23 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

If collateral is king then pawn shops will be the royalty. They just need to get into the 21st century. Think about it, some knave brings his paycheck each week to the pawn shop to cash it. If you can't cash it lower fees than banks charge, then you give them something of tangible value like gold/silver some other physical items then have 6 or so partners/businesses that also take those items in leiu of cash maybe with a traceable barcoded ticket if they don't want anything in the shop so you know the collateral is good at some point. Those partners or anyone else can take those tickets and eventually redeem them for tangible items at the shop. It is like a pseudo gold standard, more like pawn standard. fresh money will eventually come into the chain but in the meantime existing money doesn't bleed out of it and you don't hyper-leverage your collateral.

Fri, 07/05/2013 - 23:47 | Link to Comment Atticus Finch
Atticus Finch's picture

It's all right here, "The new rules simplify the risk calculations for mortgages, a process that community lenders had argued was too complex and would limit their ability to provide home loans. Community and regional banks comprise more than 90% percent of US lenders,...

Wipe out the 90%

Sat, 07/06/2013 - 02:40 | Link to Comment Spanky
Spanky's picture

Governor Daniel K. Tarullo At the Peterson Institute for International Economics, Washington, D.C.

Would that happen to be the Peter G Peterson Inst.? Of CFR fame? My, my... what a small world.

Sat, 07/06/2013 - 15:45 | Link to Comment ZerOhead
ZerOhead's picture

You have mail back at the outhouse my nocturnal friend...

Sat, 07/06/2013 - 10:01 | Link to Comment goldenbuddha454
goldenbuddha454's picture

Inclusion of off-sheet-balance items in Basel III- So if a bank has an asset management division that's off-balance-sheet and has hypothetically lost big money, because of say a commodities crash, they could be margin called?  Seems like all big banks, and I mean all, are subject to being taken over in the blink of a (high- frequency-trading) eye.  Just another reason why asset management and traditional banking should be completely separate entities, not divisions or off-shoots, period. 

Sat, 07/06/2013 - 10:29 | Link to Comment kw2012
kw2012's picture

It's a little unclear to me.

 

But my interpretation is that this forces banks out of the commercial loan business and in to treasuries. THereby artificially lowering the cost of T-Bills so that the Government expense of financing its debt comes at the expense of the private sector. Why is this good policy at all? Only Obama could come up with something that Lame Brained but the Fed is supposed to be independent of the executive branch.

Sat, 07/06/2013 - 11:44 | Link to Comment falak pema
falak pema's picture

margin call on greek bonds; margin call on TBTF US banks; margin call on Abenomics; margin call on EZ banks; margin call on £ and then boom; margin call on USD/oil link. 

All this before 2015. Am I dreaming?

Sat, 07/06/2013 - 12:54 | Link to Comment moneybots
moneybots's picture

"Gimme a break! Not even under Glass-Steigal were the banksters properly supervised and regulated. In fact, that imbecile Greenspan even had the gall to say he thought the banks would self-regulate."

 

Greenspan wasn't an imbecile.  He knew exactly what he was doing.

In 2005 Greenspan praised bankers for programs that allowed people who otherwise would not be able to buy a house, to be able to do so.  In september 2004, the FBI had warned congress of massive mortgage fraud.  Greenspan was in fact praising bnakers for participating in massive mortgage fraud, which was the only thing that allowed people to buy homes they otherwise could not.

 

Sat, 07/06/2013 - 13:08 | Link to Comment eurusdog
eurusdog's picture

I don't understand...

"this is a major part of why Bernanke and Dudley at the FOMC are willing to ignore the lower inflation"

I thought we were hyperinflationary, and ZH wants us in gold to protect us from the inflation. Yet....

Sat, 07/06/2013 - 19:46 | Link to Comment dynomutt
dynomutt's picture

I wish Jim Willie would release something free every day.

Sun, 07/07/2013 - 00:16 | Link to Comment tony bonn
tony bonn's picture

this talk of margin calls is clap trap....the fed isn't going to hurt its own....it will use the rules to destroy bottom feeders to be absorbed into the behemoths.....which is the fallacy of the policy - it is simply to entrench the too big to fail/jail....they should be broken up into smaller pieces...

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