A really interesting story is developing out of Houston, Texas, where it seems like the Federal Reserve in Dallas may be involved in some untoward activities.
The story began back in January when the folks at Zero Hedge tweeted out an interesting note that they had heard that the Houston office of the Dallas Fed had recently met with banks to push them on their dealings with the energy industry.
Rumor Houston office of Dallas Fed met with banks, told them not to force energy bankruptcies; demand asset sales instead
— zerohedge (@zerohedge) January 11, 2016
In a corresponding story, Zero Hedge explained that it seemed that the Dallas Fed had met with banks and advised them to “cover up major energy-related losses.” Zero Hedge continued by explaining that “the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed’s involvement that is pressuring banks to not disclose the true state of their energy “books.”’
While the Dallas Fed refused to comment on the story, they did respond a couple of days later when the story began to take hold on the Internet.
— Dallas Fed (@DallasFed) January 18, 2016
The problem with the Fed’s request that everyone ‘pay no attention to the man behind the curtain’ is that now, some four months later, this story is being proven true by the folks at Bloomberg and the Wall Street Journal!
Bloomberg describes exactly the kind of meeting that Zero Hedge first reported on:
… In September, regulators from the OCC, the Federal Reserve and the Federal Deposit Insurance Corp. met with dozens of energy bankers at Wells Fargo’s office in Houston.
The disagreement centered on how to rate the risk of reserves-based loans. Banks insisted that, in a worst-case scenario, they’d be made whole by liquidating the properties. Regulators pushed lenders to focus instead on a borrower’s ability to make enough money to repay the loan, according to the person familiar with the discussions. The agency reinforced its position with new guidelines published last month that instructed banks to consider a company’s total debt and its ability to pay it back when gauging a loan’s risk. Bill Grassano, an OCC spokesman, declined to comment.
And the Wall Street Journal points out just how unusual this meeting was:
Several industry officials said the meeting, held at Wells Fargo’s offices in downtown Houston, was the first of its kind.
So, now the wonderful folks at Zero Hedge are wondering where their apology is. And the rest of us out here in Middle America are wondering why the energy industry is getting such BIG favors from the Fed. Wouldn’t it be great if our representatives could, oh, I don’t know, audit the Federal Reserve to make sure that everything was above board and to ensure that the energy industry wasn’t exerting undue influence over the Fed (who were then exerting their influence over the banks)? This is exactly why so many conservatives are demanding that the Federal Reserve be destroyed, or at the very least audited regularly.
The organization is far too powerful and far too deeply connected to our economy and our government to be allowed to operate outside of our purview.
Audit the Fed NOW… or better yet END the FED.
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