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Pam and Russ Martens: Equity derivative contracts held by federally-insured banks have exploded

Section: Daily Dispatches

By Pam and Russ Martens
Wall Street on Parade
Friday, April 30, 2021

During Federal Reserve Chairman Jerome Powell's press conference this past Wednesday, he took a question from Brian Cheung of Yahoo Finance. The question was: "It seems like to people on the outside who might not follow finance daily, they're paying attention to things like GameStop, now Dogecoin. And it seems like there's interesting reach for yield in this market to some extent -- also Archegos. So does the Fed see a relationship between low rates and easy policy to those things, and is there a financial stability concern from the Fed's perspective at this time?"

... Dispatch continues below ...


Honey Badger Silver's Chad Williams
talks with Chris Marcus of Arcadia Economics

Honey Badger Silver's executive chairman, Chad Williams, tells Chris Marcus of Arcadia Economics that "inflation is here" already and that rising interest rates didn't impede gold and silver in the 1970s and won't necessarily impede them today. 

Honey Badger Silver is a Canadian silver company based in Toronto that is building a portfolio of silver and other assets. The company has a big position in Ontario's prolific Thunder Bay Silver District. The company's shares trade on the TSX Venture Exchange under the symbol TUF and over the counter in the U.S. as HBEIF. The company's internet site is here:

Williams' interview with Marcus is 25 minutes long and can be viewed at YouTube here:

As part of Powell's long, meandering answer, he said this: "Leverage in the financial system is not a problem." Within a second or so, Powell repeated himself: "Leverage in the financial system is not an issue."

Either Powell has not read any of the quarterly reports coming out of the Office of the Comptroller of the Currency (OCC), a federal regulator of national banks, or he's willfully misleading the American people.

According to the OCC's most recent “Quarterly Report on Bank Trading and Derivatives Activities,” for the quarter ending December 31, 2020, equity (stock) derivative contracts at federally-insured banks and savings associations have exploded from $737 billion (notional or face amount) since the Wall Street banks last blew themselves up in 2008 to $4.197 trillion notional as of December 31, 2020. 

That's a staggering increase of 469 percent in just 12 years.

Equally troubling, the OCC specifically notes that these equity derivative contracts are being held in the federally-insured banks -- not at their investment banking units. That means the U.S. taxpayer will be on the hook if these derivatives blow up, as the banks' previous reckless subprime derivative gambles did in 2008. ...

... For the remainder of the report:

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