By Pam Martens and Russ Martens: November 8, 2023 ~
Yesterday, the regulator of the Federal Dwelling Mortgage Financial institution system, the Federal Housing Finance Company (FHFA), launched a report on its beneficial modifications going ahead. The report was in response to the questionable conduct of the Federal Dwelling Mortgage Banks within the leadup to the banking disaster this previous spring.
The core mission of the 11 regional Federal Dwelling Mortgage Banks is to “present liquidity to their members to help housing finance and neighborhood improvement by way of all financial cycles.” In brief, the Federal Dwelling Mortgage Banks are purported to make it doable for banks to supply house mortgages to low-income of us. The banks that failed this spring had been engaged in crypto (Silvergate and Signature Financial institution), offering loans to the tremendous rich (First Republic Financial institution), and within the case of Silicon Valley Financial institution, it was extra of a Wall Road IPO pipeline. (See our report: Silicon Valley Financial institution Was a Wall Road IPO Pipeline in Drag as a Federally-Insured Financial institution; FHLB of San Francisco Was Quietly Bailing It Out.)
Because the chart above, from the report, signifies, one of many shockers is that industrial banks had been in such determined want for money this previous spring that they borrowed extra from the Federal Dwelling Mortgage Banks than they did in the course of the monetary crash of 2008 – which was the worst monetary disaster for the reason that Nice Despair. This implies that maybe the severity of this spring’s financial institution run has been downplayed by federal regulators.
One other troubling revelation within the report is that JPMorgan Chase, the most important financial institution by each property and deposits within the U.S., has not repaid the cash that First Republic Financial institution had borrowed from the Federal Dwelling Mortgage Financial institution of San Francisco. JPMorgan Chase (with a lot controversy as a result of it’s already the riskiest financial institution within the U.S.) was allowed by regulators to amass First Republic Financial institution when it failed on Could 1. The FHFA report notes the next:
“On Could 1, 2023, the California Division of Monetary Safety and Innovation closed First Republic Financial institution, which was acquired by JPMorgan Chase. Of the FHLBank advances to First Republic Financial institution on the time of its acquisition, $26.4 billion remained excellent as of September 29, 2023.”
JPMorgan Chase’s 10-Q report for the quarter ending September 30 that it filed with the Securities and Change Fee indicated that it had $37.88 billion in excellent advances from Federal Dwelling Mortgage Banks as of the top of the third quarter. It reported that $26.2 billion of that was associated to its acquisition of First Republic Financial institution. That may imply that the most important financial institution in the US – which has the flexibility to borrow from the Federal Reserve’s Low cost Window or the Fed’s $500 billion Standing Repo Facility – elected as a substitute to faucet virtually $12 billion from a authorities mortgage program for low earnings households and never repay one other $26 billion owed in relation to its acquisition of First Republic Financial institution.
JPMorgan Chase is an unreformed, serial recidivist financial institution that has admitted to 5 prison felony counts introduced by the U.S. Division of Justice since 2014. Simply this 12 months it has agreed to settle costs in two federal lawsuits for $365 million that credibly alleged the financial institution had actively participated within the late Jeffrey Epstein’s intercourse trafficking of minors. All through its crime spree, the chummy Board of Administrators on the financial institution has voted to maintain the identical man on the helm of the financial institution, Jamie Dimon, Chairman and CEO.
JPMorgan Chase’s questionable use of advances from the Federal Dwelling Mortgage Banks dates again to not less than 2013. On September 18, 2013 we reported that the most important borrower from Federal Dwelling Mortgage Banks was JPMorgan Chase, which had $61.840 billion in advances excellent as of June 30, 2013.
We additionally reported that as of June 30, 2013, JPMorgan Chase wasn’t simply borrowing from one Federal Dwelling Mortgage Financial institution, it was borrowing from three separate ones. We discovered that it had grabbed 65.8 % of all advances made on the time by the Federal Dwelling Mortgage Financial institution of Cincinnati, which providers Kentucky, Ohio and Tennessee.
Along with being the most important borrower from the Federal Dwelling Mortgage Banks as of the second quarter of 2013, JPMorgan was additionally being sued for fraud by the Federal Dwelling Mortgage Financial institution of Pittsburgh. In response to a 2013 monetary submitting, on September 23, 2009, the Federal Dwelling Mortgage Financial institution of Pittsburgh had filed two complaints in state court docket for the restoration of the Financial institution’s losses referring to 9 personal label mortgage-backed securities (MBS) bought from J.P. Morgan Securities, Inc. in an mixture principal quantity of roughly $1.68 billion. In response to the submitting, some claims had been dismissed however there remained claims towards JPMorgan “for fraud, negligent misrepresentation and state and federal securities regulation claims….”
JPMorgan Chase ended up paying the staggering sum of $13 billion to settle costs with the Justice Division and different regulators for promoting poisonous mortgage merchandise. As a substitute of selling a financially steady housing market, Jamie Dimon’s financial institution was a significant participant in inflicting the worst housing worth collapse for the reason that Nice Despair.
One other discovering from the FHFA report is that the Presidents and CEOs of the Federal Dwelling Mortgage Banks – that are Authorities Sponsored Enterprises (GSEs) with a public mission – are being grossly overpaid. The FHFA stated it plans “to advocate that Congress amend the Security and Soundness Act to remove the restrictions on the Company’s authority to prescribe ranges or ranges for the compensation of government officers of the FHLBanks.”
Three of the banks that failed this previous spring, Silvergate Financial institution, Silicon Valley Financial institution, and First Republic Financial institution had been members of the Federal Dwelling Mortgage Financial institution of San Francisco and had been taking tens of billions of {dollars} in advances from that Federal Dwelling Mortgage Financial institution on the time of their collapse. In response to a chart within the FHFA report, Silvergate Financial institution, the crypto-related home of playing cards, had borrowed greater than $40 billion from the Federal Dwelling Mortgage Financial institution of San Francisco on the time of its collapse; Silicon Valley Financial institution had borrowed greater than $60 billion; and First Republic Financial institution had borrowed greater than $30 billion.
Final 12 months, the President and CEO of the Federal Dwelling Mortgage Financial institution of San Francisco, Teresa Bazemore, was paid whole compensation of $2.4 million in response to its 10-Ok submitting with the SEC. That was $583,557 greater than she earned in 2021 – a compensation improve of 32 % in a single 12 months.
The President of the US makes a wage of $400,000.
