The Celeri Journal #110: The Fed – Wall Street Paradox

Written by Michael

On July 6, 2020

Global Markets Recap

Read a story about how the S&P had its best 2-month rally ever at a time when big Wall Street banks are tightening credit standards like never before. Seems paradoxical. Banks have 2 central mandates: make money for shareholders & follow rules to the letter of the law – lest they get fined. Ever since Lehman, Tier One banks have lived in utter fear of regulators: jaywalking – $100 million; no turn signal – $200 million. Anti-money laundering & know-your-client is the sole remaining fiber of banking. That’s why if you didn’t bank at BofA, or JPM, or Wells during PPP, you had no home. This is a net negative: the Fed does their part; pump money into the national economy, but funds can’t be widely dispersed because of the aforementioned reasons. The current Fed-Wall St. bank construct is broken in that the Fed mandate – maximum employment & modest inflation – has nothing to do with the prerogatives of the institutions doing much-needed work on the ground. For private lenders with capital, this could be a boom time as internal underwriting criteria are less stringent than at a public utility – which they’re not anymore – or what is known as “banks”. The Fed’s Main Street loan program is said to be a dud because banks are nonplussed and most borrowers won’t qualify. It’s a problem.

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