With the collapse of Silicon Valley Bank, there was a lot of attention
paid to whether the FDIC should cover all depositors,
including those who had more than $250,000 in the bank.
Now, in the end, of course, the FDIC decided that it would cover everyone who
had deposited every company, every individual who had deposits in that bank,
including those who deposited more than 250,000.
But I think at least equal attention should be paid to some of
the actions by the Federal Reserve, and
how their policies have created this house of cards in our economy.
I really do think that it's gonna lead to more pain in the near future and
I wanna explain why and how.
So, the policy that I'm referring to by the Federal Reserve is known as
quantitative easing.
I've talked about it a few times on this show before.
I wanna do a more thorough explainer of it.
It was first implemented following the 2008 economic crash
under the Obama administration.
The Federal Reserve was implemented or was implementing this easy money approach to
the economy, and the whole idea was we need to stimulate the economy, we need to
provide liquidity for the banks, so they can loan money to small businesses,
which in their minds would stimulate the economy.
So, there's the fiscal policy they engaged in,
like providing free money to banks with near-zero interest rates.
And then, in addition to that, there's the Fed's monetary policy
where the central bank did the quantitative easing.
Now, quantitative easing is another way to provide liquidity to banks
with the idea that the banks will lend money, right?
Now, in the next clip that you're about to watch, it explains exactly how it works
and I'll clear it up a little more when we come back.
Let's watch.
>> The Fed began creating hundreds of billions of dollars to buy things like
mortgage-backed securities and government bonds from banks and
financial institutions.
>> This was a $5 trillion dollar market.
This was the largest private bond market in the world.
And the Fed had never once before bought a mortgage bond in its history.
And basically, in the fall of 2008, it announced that it would
buy basically 25% of the entire market within 15 months.
>> The financial sector had begun to stabilize.
But there were early signs that not everything would go according to plan.
>> The banking industry, fat cats still aren't lending money.
>> The big banks aren't lending.
>> Despite the money the Fed was pouring into the banks,
they still weren't back to lending.
>> The government's not doing anything to help small business and
the banks are sitting on their butts and they're still not lending money.
>> Instead, they were taking a lot of the money and investing it themselves.
>> They were taking the money that was created, printed by the Federal Reserve.
And rather than doing what the Fed I guess thought it would do,
which was incredibly naïve.
Instead of lending the money to small businesses and stimulating the economy.
The banks just took the money and they invested it themselves,
to maximize their profits, because it's a bank.
That's what banks do.
It's amazing to me that the Federal Reserve didn't see it coming.
Now, just to clear things up, the way the Fed did this again was,
it created money and then it bought corporate bonds, meaning corporate debt.
In this case, mortgage-backed securities.
Remember this is after the 2008 economic collapse.
The mortgage-backed securities were the same mortgage-backed
securities that were filled with bad mortgages.
Basically, fraudulent mortgages that people were
defaulting on because they really had no business getting a mortgage.
They were qualified for mortgages, they had no business qualifying for but
that was done on purpose.
The banks took those mortgages, packaged them up in what's known as
mortgage-backed securities, which then get traded on the stock market, okay?
Then they betted against those mortgage-backed securities because they
knew full well, that those mortgage-backed securities were filled with bad loans,
mortgages that people would not be able to pay back, okay.
So, the Federal Reserve is like, yo we need to step in,
we're lowering interest rates.
That's part one.
But then on top of that, we're gonna buy that debt,
we're gonna buy the corporate bonds from the banks and
they'll have liquidity or suddenly they'll have cash and
they're gonna take that cash and they're gonna lend it, right?
Except no, as I mentioned earlier, they didn't lend it, they did the opposite.
Let's watch more.
>> You were injecting money into the banks more than a trillion dollars worth at
that point.
And what were the banks doing with that money?
>> The Feds idea was that banks would be taking that money and
lending it effectively at lower interest rates.
What the banks were doing instead was that they were just investing in the same
bonds that the Fed was buying.
They were taking that money and they were turning around and
buying the same mortgage-backed securities and other bonds, why?
Because the Fed had made it very clear that its goal was to drive up the price of
financial assets.
And so, Wall Street turned around and thought, why would I go through
the effort of making a mortgage when I can just press the button and
then buy a million, if not billions dollars of bonds and ride that trade as
the price of those assets are very consciously being inflated by the Fed.
>> By the end of 2009, the banks were back to making money by paying
themselves record bonuses while the real economy lagged.
>> Washington loaned the money at cut-rate, so our banks is they gonna stuff
it in their pockets even as many Americans are suffering from unemployment and
reduced wages.
>> I mean, [LAUGH] so you guys can understand how someone like
Donald Trump could end up being president of the United States.
Because the inequality that was driven by the Federal Reserve's
monetary policy had a huge impact on inequality.
And this all happened during the Obama administration, so
can you understand the rage ordinary Americans who had their homes foreclosed
on, who were totally screwed over by these banks.
The rage they felt towards Obama as they saw the Federal Reserve
under Obama's leadership pursue policies that favored the banks,
that took care of the banks that bailed out the banks, but
left ordinary Americans to suffer.
I can understand that anger, I can understand that rage.
Now, why is this relevant today?
Because the Federal Reserve is stepping in to ensure that the banking system
doesn't collapse yet again, following the collapse of Silicon Valley Bank.
This isn't getting any attention.
Listen, we talked about the depositors, all of them getting covered by the FDIC.
Everyone seems to be debating whether or not the depositors should be made whole.
No guys, we should talk about why it is that we have an unelected group
of individuals known as the Central Bank,
the Federal Reserve manipulating our economy this way.
And they're gonna do it again,
quantitative easing in response to Silicon Valley Bank.
They were doing quantitative tightening in recent months.
Looks like they're going to reverse that.
Why do I say it?
Well, let me give you the details.
The Federal Reserve may need to end its quantitative-tightening
program early to preserve the amount of bank reserves in the financial
system while also maintaining its hawkish signaling on interest rates,
according to Citigroup Inc.
It alerted that.
Looks like the Federal Reserve, if they don't want the banking system to collapse,
they gotta go back to quantitative easing,
they gotta stop that quantitative tightening.
And the Wall Street Journal did report this earlier this week.
The central bank said that it would make additional funding available to banks
through a new Bank Term Funding Program, that's quantitative easing.
They rebranded it, but don't make a mistake, that is quantitative easing.
Which will offer loans of up to one year to banks that pledge
US Treasury Securities, mortgage-backed securities, and
other collateral up to 25 billion from the Treasury's exchange
stabilization fund will backstop the Fed lending program.
This part's super is relevant.
Many of those securities have fallen in value as the Fed has raised interest
rates.
The terms would allow banks to borrow at 100 cents on the dollar for
securities trading potentially well below that value,
definitely putting the government at risk of losses incurred by banks.
Critics said the move would essentially offer a backdoor subsidy to
bank investors and management for failing to properly manage interest rate risks.
It's quantitative easing, they're gonna do more of it.
Finally, as Citigroup sees it,
the Fed's new Bank Term Funding Program introduced over the weekend again,
it's quantitative easing, after the collapse of Silicon Valley Bank will
create additional reserves in the financial system to avert funding stress.
Additional reserves just means liquidity
that again is provided by the Federal Reserve,
printing money and buying bonds from these banks.
It's unbelievable.
So, the Federal Reserve creates this house of cards by printing the money.
It leads to this explosion in inequality because the banks take the money and
they invest it and just get richer and they're gonna do more of it.
So, this obviously again leads to an explosion of inequality.
But what's also really interesting is our entire economy now relies,
well, I shouldn't say entire economy, the stock market in particular,
assets in particular are now addicted to the printed money.
I'll give you an example.
Back in 2013, there was some talk of, all right,
maybe we should engage in quantitative tightening.
Our balance sheet is insane because we keep buying things like mortgage-backed
securities and bonds and we need to ease off of this starting to become a little
bit of a problem, but the markets didn't react well.
Let's watch.
>> The Fed's quantitative easing set off what would become the longest bull run in
the stock market's history.
>> Investors took the good news and well, they basically ran with it.
>> By design, QE effectively lowered long-term interest rates,
making safer investments like bonds less attractive and
riskier investments like stocks more attractive.
>> A lot more investors got bullish in the stock market.
So, the stock prices of those companies go up.
But what's really happening?
Nothing's changed, nothing new has been invented.
It's a sugar high.
It's like drinking a coke instead of having a meat and potatoes meal.
>> I was on the trade floor.
I remember Chairman Bernanke saying that he would taper.
First, we had to figure out what does taper mean.
And the minute people realized what paper meant,
which is that the Fed would step back from buying all these securities.
And even though the Fed said is gonna be gradual, it's gonna be measured.
The markets had a massive tantrum.
>> The markets selling off after Federal Reserve Chairman Ben Bernanke said that
the central bank could start tapering.
>> It shows you how addicted the markets are.
>> The markets went into a fit became dysfunctional was known as
the taper tantrum.
>> Well, we all know it when Ben Bernanke talks, when the Federal Reserve speaks,
the markets listen.
>> Markets are like little kids, they want candy.
And the minute you try to take the candy away, they have a tantrum.
>> They have a tantrum much like Donald Trump who also had a tantrum.
When the Federal Reserve started engaging in tightening,
we'll get to that in just a moment.
But before we do, remember, the other thing that these banks are doing,
the other thing that companies are doing is they're buying shares of
their own stock thus artificially inflating the value of those shares.
And so, when you think about the stock market and how volatile it is,
especially over the last year, a lot of that has to do with the fact
that the value of those shares is based on nothing other than market
manipulation through easy money policies that were implemented
by the Federal Reserve and have been in place since the crash of 2008.
So, when Janet Yellen was the head of the Federal Reserve, she's like,
let's wrap this up, we gotta do quantitative tightening, we have to.
And then Trump came into office and things changed.
Well, things went from just temporarily getting better when it came
to Fed policy to going right back to taking care of the fat cats.
Let's watch.
>> The Fed had already begun raising rates and reversing QE.
They'd call it quantitative tightening or QT.
Powell took office eager to accelerate the effort.
>> The really extraordinarily accommodative low-interest rates that we
needed when the economy was quite weak, we don't need those anymore.
They're not appropriate anymore.
>> Once again, the market threw a tantrum.
>> The Dow closing down the more than 500 points today.
>> A brutal week in the market.
The Dow and the S and P now on track for
their worst December since the Great Depression.
>> The global financial system short circuits.
>> The decline will accelerate if Apple doesn't walk things back,
doesn't want things back.
>> The president threw a tantrum too.
>> I think the Feds has gone crazy.
It's a correction that I think is caused by the Federal Reserve.
If the Feds knew what they were doing they would lower rates and
they would stop quantitative tightening.
>> I know that there are some right wingers who watch the show.
I don't know if they watch because they like hate watching, it doesn't matter.
But I just, I want to reason with you just momentarily and
hopefully, you hear me out.
I don't care what your political ideology is.
It doesn't matter if we're talking about Democrats or Republicans, okay?
We have a system in place right now that consists of members in both parties,
aiding and abetting the kinds of policies that have screwed us.
You just heard Donald Trump himself, pressure at that time,
Jerome Powell to do his bidding and to continue quantitative easing.
Which again just means printing money and providing liquidity to companies,
to banks knowing full well that they're not gonna take that money and lend
to ordinary people or to small businesses that they're gonna take that money and
artificially inflate the value of their shares, they're gonna take that money.
Private equity firms, for instance, they took that money.
They bought up entire neighborhoods of single family homes,
pricing you out of the housing market.
We need to get out of this left versus right paradigm for
a second especially when it comes to economic issues and
understand that both parties screw us.
I don't, and by the way, Democrats too like anyone who's like,
don't pretend like Democrats and Republicans are the same.
Corporate Democrats, corporate Republicans are the same quantitative easing started
under the Obama administration.
It continued through the Trump administration with Trump pressuring
Jerome Powell, head of the Federal Reserve to keep it going.
And guess what?
The response to the Coronavirus pandemic was to take quantitative easing and
put it on overdrive.
Trillions of dollars pumped into our financial system by the Federal Reserve.
This is all to say that what we see in our economy right now,
the inequality is not only caused by the Federal Reserve but the pain that is yet
to come due to the inflation in assets is also caused by the Federal Reserve.
Again, an unelected body of people, okay?
They have created a situation that is pretty terrifying because
anything you see in the stock market is not based on productivity,
it's not based on innovation,
it's not based on companies doing great things and accomplishing great things.
And as a result, attracting investors which
would increase the value of their shares, none of that took place.
The only thing that has happened is they have taken the Federal Reserve's cash,
their easy money and
they've invested it in themselves to the detriment of the American people.
And pretty soon for the destruction of the stock market, you're gonna see it.
I guarantee it.
We're starting to see banks collapse,
we're starting to see the tip of the iceberg.