by Pam Martens and Russ Martens
Wall Street on Parade
Remember the phrase “putting lipstick on a pig.” It became popular after the dot.com bust when it was learned that the big Wall Street banks had glowingly recommended “hot” new issues of stocks to their customers while secretly calling them “crap” and “dogs” in internal emails.
Putting lipstick on a pig is what the Federal Reserve is attempting to do in the Financial Stability Report it released yesterday afternoon. Both the lipstick and the pig are captured in this paragraph on page 8 of the Fed’s report:
“Banks remain well capitalized, and leverage at broker-dealers is low. Measures of hedge fund leverage are somewhat above their historical averages, but the data available may not capture important risks from hedge funds or other leveraged funds.”
To unpack the scope of the Fed’s deception in this paragraph, one needs to first understand that as a result of the repeal of the Glass-Steagall Act in 1999, the largest federally-insured banks on Wall Street now own the largest broker-dealers (trading casinos).