PRESS RELEASE
Blackout of Hoenig Shows Media Supporting Wall Street Leveraging
Aug. 8, 2017 (EIRNS)—The polar opposite of reinstating the Glass-Steagall Act is the current loud demands of Wall Street, the Republican Congressional leadership, and Treasury Secretary Steven Mnuchin, to eliminate or reduce regulations on big banks’ capital so that they can gain more debt leverage—and supposedly, lend more. These demands are loud, because they are constantly repeated and headlined in the financial press when Wall Street or Mnuchin makes them.
But Pam Martens’ Aug. 7 column in her Wall Street on Parade blog, "Federal Regulator Drops a Bombshell as Corporate Media Snoozes," reports that Federal Deposit Insurance Corp. vice-chair Thomas Hoenig’s letter to the Senate Banking Committee’s leadership on this subject, has been blacked out by the same financial press—Bloomberg, Wall Street Journal, New York Times, Washington Post.
The reason is what Hoenig told the Senate. To quote Martens’ report,
"What the fearless Hoenig told the Senate Banking Committee was effectively this: The biggest Wall Street banks have been lying to the American people that overly stringent capital rules by their regulators are constraining their ability to lend to consumers and businesses. What’s really behind their inability to make more loans is the documented fact that the 10 largest banks in the country ’will distribute, in aggregate, 99% of their net income on an annualized basis,’ by paying out dividends to shareholders and buying back excessive amounts of their own stock."
Hoenig included a chart, which Martens reproduced, showing that Citibank, JPMorgan Chase, Morgan Stanley and Bank of New York Mellon all pay out well over 100% of their earnings in dividends and stock buybacks.
Clearly, if allowed to have more debt leverage, they would use it to buy still more of their stock, and pay still more dividends.
Another factor, not mentioned by Hoenig, is that the big Wall Street banks in the recent period have shifted their derivatives betting away from the dominant interest-rate and commodity derivatives—trading in which has not been doing well for them—and toward "equity derivatives." Of course, that means complex bets on stock market indices. And if the same banks’ massive stock buybacks are a significant factor driving the stock market up, profits from "equity derivatives" won’t be hard to come by.
Hoenig’s case is solid: The big banks won’t lend more if allowed less capital and more leverage; they’ll speculate more. And they’ll securitize more, which is their way of dumping more and more of the toxic load of corporate and consumer debt, onto other investors, in preparation for another crash.
