Mitsubishi Bank joined the ranks of losers today, reporting a modest $300 million loss in the blowout of Archegos Capital Management. The event is like the JPMorgan Chase “London Whale” case of 2012: bank operations supposed to be thoroughly regulated and separated by the Volcker Rule — and then one trading office blows out and there is a $7 billion big bank loss.
Again, from Fed chair Jerome Powell’s utterly self-satisfied testimony to the Senate Banking Committee March 17: “We actually monitor financial conditions very, very broadly and carefully. And we didn’t do that before the global financial crisis 12 years ago. Now we do.”
The big banks’ risk management, with which Treasury Secretary Yellen declared such satisfaction at the same hearing, is obviously not much in evidence. Eighteen months ago the interbank lending market ran short of liquidity, those banks were not lending leverage to hedge funds, and the Federal Reserve jumped in and conducted vast repurchase operations, then launched QE4 on Oct. 4, 2019, made it QE Infinite on March 7, 2020, and is continuing it indefinitely at $120 billion/month. The big London and Wall Street banks, called primary dealers and hedge funds’ prime brokers, by now have such large reserves and so much liquidity, such a volume of deposits, that they are looking for every conceivable speculation to throw it into, just like the “London Whale” of JPMorgan Chase. They have meanwhile withdrawn credit from the real and even the service economy.
