New York Fed Will Not Confirm or Deny that 5-Count Felon JPMorgan Chase Is Custodian of $2.4 Trillion of Its Securities

[Gunnar Larson]

https://wallstreetonparade.com/2024/04/new-york-fed-will-not-confirm-or-deny-that-5-count-felon-jpmorgan-chase-is-custodian-of-2-4-trillion-of-its-securities/


By Pam Martens and Russ Martens: April 10, 2024 ~

John Williams, President of the New York Fed
John Williams, President of the New York Fed

As the financial crisis of 2008 was ravaging century-old financial
institutions on Wall Street and collapsing the U.S. economy, the central
bank of the United States, the Federal Reserve, launched an effort to
restore market liquidity by becoming the buyer of the toxic sludge flooding
Wall Street in the form of Mortgage-Backed Securities (MBS).

On November 25, 2008, in delicately-parsed language, the Fed announced it
planned to buy $500 billion of MBS that was backed by government-sponsored
enterprises (GSEs) Fannie Mae, Freddie Mac, and Ginnie Mae. That was the
first of what would become Quantitative Easing (QE) to infinity at the Fed.
The Fed’s MBS holdings have grown from the planned $500 billion to $2.4
trillion as of last Wednesday.

Just as it did with the bulk of its $29 trillion bailout programs to Wall
Street during and after the 2008 financial crisis, the Fed farmed out its
MBS buying program to the New York Fed, which, in turn, farmed out one
critical leg of the program to the very Wall Street mega bank that had
corrupted a significant part of the MBS market: JPMorgan Chase.

A little more than a month after the Fed’s MBS announcement, on December
31, 2008, the New York Fed signed a contract with JPMorgan Chase to be the
sole custodian of the securities it bought under the MBS program. That
contract with JPMorgan Chase was amended on April 1, 2010; April 26, 2011;
April 17, 2014 and again on January 30, 2017. (As of this morning, the
original contract and its amendments are available at the New York Fed’s
website. Should those documents disappear, we have archived the same
documents on our website here.)

Wall Street On Parade wrote about JPMorgan Chase being the sole custodian
of the Fed’s MBS program in 2014 and again in 2020. In both years, the New
York Fed confirmed that JPMorgan Chase remained the sole custodian of its
MBS securities. But something strange happened this week when we sought our
routine confirmation from the New York Fed.

On Monday, we emailed the communications department at the New York Fed and
asked if JPMorgan Chase was still holding the MBS portfolio for the New
York Fed.

The New York Fed has a vendor department, which, ostensibly, vets its
vendors and keeps track of its vendor contracts. It should have taken less
than five minutes to phone that department and verify if the MBS custodian
contract with JPMorgan Chase was still in effect.

Instead, we received an email on Monday saying a response to our question
would be forthcoming on Tuesday. When 5:00 p.m. Tuesday rolled around with
no response, we emailed the New York Fed again for an answer, asking the
following:

“Per below, can you confirm that JPMorgan Chase remains the sole custodian
of the Agency Mortgage-Backed Securities held by the Fed?

“The FRBNY still has the Vendor Agreement indicated as current on its
website so this shouldn’t be a problem to confirm. I’m just checking with
you folks out of an abundance of caution to verify my facts.”

This time, the response from the New York Fed was Kafkaesque. We were told
we could not put quotes around the information from the New York Fed or
name the person giving us the information. And, the information that was
provided to us was off topic. We were told that beginning in 2010 the New
York Fed began to use internal staff to make its own purchases of MBS.

We shot back with yet another email:

“I’m asking strictly about the Custodian. Does that remain JPMorgan Chase?”

We were told via email that the New York Fed had nothing else to say on the
matter.

We then took the screenshot below at the New York Fed’s website showing
expired vendor contracts versus those not marked as “expired.” It would
appear from this that the contract making JPMorgan Chase the sole custodian
of the Fed’s $2.4 trillion in MBS debt securities is still in effect.

FRBNY Vendor Agreement

Why would the New York Fed confirm the same question in 2014 and 2020 but
be so bizarrely cagey about confirming this information in 2024?

Could it be that the crime factory at JPMorgan Chase has simply gotten too
embarrassing for the New York Fed to acknowledge its association with it?

The New York Fed failed to find a new custodian for the $1.49 trillion of
MBS that JPMorgan Chase was holding for the Fed on January 7, 2014 when the
Justice Department charged the bank with two criminal felony counts for its
role in the Bernard Madoff Ponzi scheme. The bank admitted to the charges;
paid $1.7 billion into a Madoff victims fund; and was given a 3-year
Deferred Prosecution Agreement and put on probation for the same period.

The New York Fed also failed to replace JPMorgan as custodian when it was
holding $1.7 trillion of the Fed’s MBS on May 20, 2015 and was charged with
its third criminal felony count in less than a year and a half. On that
occasion, JPMorgan Chase admitted to one criminal count brought by the
Justice Department for its role with other banks in rigging the foreign
exchange market. The bank paid a fine of $550 million and was put on
probation again.

JPMorgan Chase admitted to its fourth and fifth felony counts on September
29, 2020 and, once again, the New York Fed saw no reason to remove its $2
trillion in mortgage securities out of the reach of the criminally-inclined
bank. The 2020 felony counts, once again brought by the Justice Department,
involved “tens of thousands of episodes of unlawful trading in the markets
for precious metals futures contracts” and “thousands of episodes of
unlawful trading in the markets for U.S. Treasury futures contracts and in
the secondary (cash) market for U.S. Treasury notes and bonds,” according
to the Justice Department. The bank agreed to pay $920 million in fines and
restitution to various regulators. It was given another Deferred
Prosecution Agreement and put on probation for the third time.

Apparently, rigging the sovereign debt market of the United States is not a
disqualifying event to serve as a vendor at the New York Fed – raising the
question as to what on earth would be a disqualifier.

Not only did the Federal Reserve and the New York Fed look the other way at
five criminal felony counts in deciding to retain JPMorgan Chase as a
custodian of its securities, but it looked the other way as JPMorgan Chase
was repeatedly charged with fraud involving the very same securities it was
holding for the Fed.

On November 15, 2013, JPMorgan Chase announced that it had agreed to pay
$4.5 billion to settle claims by private investors that it had defrauded
them in mortgage-backed securities.

On November 19, 2013, JPMorgan agreed to pay $13 billion to settle claims
by the Department of Justice, the FDIC, the Federal Housing Finance Agency,
and various State Attorneys General over its fraudulent practices involving
mortgage-backed securities. Associate Attorney General Tony West said this
at the time:

“Through this $13 billion resolution, we are demanding accountability and
requiring remediation from those who helped create a financial storm that
devastated millions of Americans. The conduct JPMorgan has acknowledged —
packaging risky home loans into securities, then selling them without
disclosing their low quality to investors — contributed to the wreckage of
the financial crisis. By requiring JPMorgan both to pay the largest FIRREA
penalty in history and provide needed consumer relief to areas hardest hit
by the financial crisis, we rectify some of that harm today.”

Then, on February 4, 2014, JPMorgan admitted to a civil fraud action
brought by the U.S. government for “submitting false certifications” to
various government agencies to get its toxic mortgages insured by those
agencies and “failing to self-report to HUD-FHA hundreds of loans that it
had identified as fraudulent or otherwise deficient, and to submitting loan
data to HUD-FHA that lacked integrity.” The bank was fined another $614
million in that matter.

To summarize: JPMorgan Chase played an integral role in bringing on the
financial crisis of 2008 which forced the Fed to launch a bond-buying
program to resuscitate the U.S. economy. JPMorgan Chase then benefitted by
getting paid fees in the tens of millions of dollars to hold those bonds
for the Fed. The bank then continued to engage in serial criminal activity;
being put on probation; getting off probation and engaging in more criminal
activity: All while the New York Fed entrusted it with trillions of dollars
of Fed securities sitting inside its house of crime.

Making this situation even more absurd (if that’s possible), the 2017
amendment that the New York Fed signed with JPMorgan Chase effectively
gutted crucial conflicts of interest protections. One section reads as
follows:

“Bank [JPMorgan Chase] or any of its divisions, branches or Affiliates may
be in possession of information tending to show that the Instructions
received may not be in the best interest of Customer [Federal Reserve Bank
of New York]. Bank [JPMorgan Chase] is under no duty to disclose any such
information.”

In the fourth quarter of 2019, when JPMorgan Chase was custodian of $1.4
trillion of MBS for the Fed, it was also getting a massive bailout from the
New York Fed via repo loans. As the chart below shows, JPMorgan Chase was
the second largest recipient of these repo loans, receiving $2.59 trillion
on a cumulative, term-adjusted basis, for a financial crisis that has yet
to be credibly explained.

Fed's Repo Loans to Largest Borrowers, Q4 2019, Adjusted for Term of Loan

Congress has threatened in the past to investigate the cozy ties between
Wall Street and the New York Fed. The American people must demand that this
happens sooner rather than later.
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