- Wall Street's mantra is that markets move randomly and
reflect the collective wisdom of investors. The truth is quite opposite.
The government's visible hand and insiders control markets and manipulate
them up or down for profit - all of them, including stocks, bonds, commodities
- It's financial fraud or what former high-level Wall Street
insider and former Assistant HUD Secretary Catherine Austin Fitts calls
"pump and dump," defined as "artificially inflating the
price of a stock or other security through promotion, in order to sell
at the inflated price," then profit more on the downside by short-selling.
"This practice is illegal under securities law, yet it is particularly
common," and in today's volatile markets likely ongoing daily.
- Why? Because the profits are enormous, in good and bad
times, and when carried to extremes like now, Fitts calls it "pump(ing)
and dump(ing) of the entire American economy," duping the public,
fleecing trillions from them, and it's more than just "a process designed
to wipe out the middle class. This is genocide (by other means) - a much
more subtle and lethal version than ever before perpetrated by the scoundrels
of our history texts."
- Fitts explains that much more than market manipulation
goes on. She describes a "financial coup d'etat, including fraudulent
housing (and other bubbles), pump and dump schemes, naked short selling,
precious metals price suppression, and active intervention in the markets
by the government and central bank" along with insiders. It's a government-business
partnership for enormous profits through "legislation, contracts,
regulation (or lack of it), financing, (and) subsidies." More still
overall by rigging the game for the powerful, while at the same time harming
the public so cleverly that few understand what's happening.
- Market Rigging Mechanisms - The Plunge Protection Team
- On March 18, 1989, Ronald Reagan's Executive Order 12631
created the Working Group on Financial Markets (WGFM) commonly known as
the Plunge Protection Team (PPT). It consisted of the following officials
or their designees:
- -- the President;
- -- the Treasury Secretary as chairman;
- -- the Fed chairman;
- -- the SEC chairman; and
- -- the Commodity Futures Trading Commission chairman.
- Under Sec. 2, its "Purposes and Functions"
were stated as follows:
- (2) "Recognizing the goals of enhancing the integrity,
efficiency, orderliness, and competitiveness of our Nation's financial
markets and maintaining investor confidence, the Working Group shall identify
- (1) the major issues raised by the numerous studies on
the events (pertaining to the) October 19, 1987 (market crash and consider)
recommendations that have the potential to achieve the goals noted above;
- (2)....governmental (and other) actions under existing
laws and regulations....that are appropriate to carry out these recommendations."
- In August 2005, Canada-based Sprott Asset Management
(SAM) principals John Embry and Andrew Hepburn headlined their report on
the US government's "surreptitious" market interventions: "Move
Over, Adam Smith - The Visible Hand of Uncle Sam" to prevent "destabilizing
stock market declines. Comprising key government agencies, stock exchanges
and large Wall Street firms," this group "is significant because
the government has never admitted to private-sector membership in the Working
Group," nor is it hinting that manipulation works both ways - to stop
or create panic.
- "Current mythology holds that (equity) prices rise
and fall on the basis of market forces alone. Such sentiments appear to
be seriously mistaken....And as official rhetoric continues to toe the
free market line, manipulation has become increasingly apparent....with
the active participation of selected investment banks and brokerage houses"
- the Wall Street giants.
- In 2004, Texas Hedge Report principals Steven McIntyre
and Todd Stein said "Almost every floor trader on the NYSE, NYMEX,
CBOT and CME will admit to having seen the PPT in action in one form or
another over the years" - violating the traditional notion that markets
move randomly and reflect popular sentiment.
- Worse still, according to SAM principals Embry and Hepburn,
"the government's unwillingness to disclose its activities has rendered
it very difficult to have a debate on the merits of such a policy,"
if there are any.
- Further, "virtually no one ever mentions government
intervention publicly....Our primary concern is that what apparently started
as a stopgap measure may have morphed into a serious moral hazard situation."
- Worst of all, if government and Wall Street collude to
pump and dump markets, individuals and small investment firms can get trampled,
and that's exactly what happened in late 2008 and early 2009, with much
more to come as the greatest economic crisis since the Great Depression
plays out over many more months.
- That said, the PPT might more aptly be called the PPDT
- The Plunge Protection/Destruction Team, depending on which way it moves
markets at any time. Investors beware.
- Manipulating markets is commonplace and as old as investing.
Only the tools are more sophisticated and amounts involved greater. In
her book, "Morgan: American Financier," Jean Strouse explained
his role in the Panic of 1907, the result of stock market and real estate
speculation that caused a market crash, bank runs, and hysteria. To restore
confidence, JP Morgan and the Treasury Secretary organized a group of financiers
to transfer funds to troubled banks and buy stocks. At the time, rumors
were rampant that they orchestrated the panic for speculative profits and
their main goals:
- -- the 1908 National Monetary Commission to stabilize
financial markets as a precursor to the Federal Reserve; and
- -- the 1910 Jekyll Island meeting where powerful financial
figures met in secret for nine days and created the private banking cartel
Federal Reserve System, later congressionally established on December 23,
1913 and signed into law by Woodrow Wilson.
- Morgan died early that year but profited hugely from
the 1907 Panic. It let him expand his steel empire by buying the Tennessee
Coal and Iron Company for about $45 million, an asset thought to be worth
around $700 million. Today, similar schemes are more than ever common in
the wake of the global economic crisis creating opportunities to buy assets
cheap by bankers flush with bailout cash. Aided by PPT market rigging,
it's simpler than ever.
- Wharton Professor Itay Goldstein and Said Business School
and Lincoln College, Oxford University Professor Alexander Guembel discussed
price manipulation in their paper titled "Manipulation and the Allocational
Role of Prices." They showed how traders effect prices on the downside
through "bear raids," and concluded:
- "We basically describe a theory of how bear raid
manipulation works....What we show here is that by selling (a stock or
more effectively short-selling it), you have a real effect on the firm.
The connection with real value is the new thing....This is the crucial
element," but they claim the process only works on the downside, not
driving shares up.
- In fact, high-volume program trading, analyst recommendations,
positive or negative media reports, and other devices do it both ways.
- Also key is that a company's stock price and true worth
can be highly divergent. In other words, healthy or sick firms may be way-over
or under-valued depending on market and economic conditions and how manipulative
traders wish to price them, short or longer term.
- The idea that equity prices reflect true value or that
markets move randomly (up or down) is rubbish. They never have and more
than ever don't now.
- The Exchange Stabilization Fund (ESF)
- The 1934 Gold Reserve Act created the US Treasury's ESF.
Section 7 of the 1944 Bretton Woods Agreements made its operations permanent.
As originally established, the Treasury ran the Fund outside of congressional
oversight "to keep sharp swings in the dollar's exchange rate from
(disrupting) financial markets" through manipulation. Its operations
now include stabilizing foreign currencies, extending credit lines to foreign
governments, and last September to guaranteeing money market funds against
losses for up to $50 billion.
- In 1995, the Clinton administration used the fund to
provide Mexico a $20 billion credit line to stabilize the peso at a time
of economic crisis, and earlier administrations extended loans or credit
lines to China, Brazil, Ecuador, Iceland and Liberia. The Treasury's web
site also states that:
- "By law, the Secretary has considerable discretion
in the use of ESF resources. The legal basis of the ESF is the Gold Reserve
Act of 1934. As amended in the late 1970s....the Secretary (per) approval
of the President, may deal in gold, foreign exchange, and other instruments
of credit and securities."
- In other words, ESF is a slush fund for whatever purposes
the Treasury wishes, including ones it may not wish to disclose, such as
manipulating markets, directing funds to the IMF and providing them with
strings to borrowers as the Treasury's site explains:
- "....Treasury has often linked the availability
of ESF financing to a borrower's use of the credit facilities of the IMF,
both to support the IMF's role and to strengthen assurances that there
will be timely repayment of ESF financing."
- The Counterparty Risk Management Policy Group (CRMPG)
- Established in 1999 in the wake of the Long Term Capital
Management (LTCM) crisis, it manipulates markets to benefit giant Wall
Street firms and high-level insiders. According to one account, it was
to curb future crises by:
- -- letting giant financial institutions collude through
large-scale program trading to move markets up or down as they wish;
- -- bailing out its members in financial trouble; and
- -- manipulating markets short or longer-term with government
approval at the expense of small investors none the wiser and often getting
- In August 2008, CRMPG III issued a report titled "Containing
Systemic Risk: The Road to Reform." It was deceptive on its face in
stating that CRMPG "was designed to focus its primary attention on
the steps that must be taken by the private sector to reduce the frequency
and/or severity of future financial shocks while recognizing that such
future shocks are inevitable, in part because it is literally impossible
to anticipate the specific timing and triggers of such events."
- In fact, the "private sector" creates "financial
shocks" to open markets, remove competition, and consolidate for greater
power by buying damaged assets cheap. Financial history has numerous examples
of preying on the weak, crushing competition, socializing risks, privatizing
profits, redistributing wealth upward to a financial oligarchy, creating
"tollbooth economies" in debt bondage according to Michael Hudson,
and overall getting a "free lunch" at the public's expense.
- CRMPG explains financial excesses and crises this way:
- "At the end of the day, (their) root cause....on
both the upside and the downside of the cycle is collective human behavior:
unbridled optimism on the upside and fear on the downside, all in a setting
in which it is literally impossible to anticipate when optimism gives rise
to fear or fear gives rise to optimism...."
- "What is needed, therefore, is a form of private
initiative that will complement official oversight in encouraging industry-wide
practices that will help mitigate systemic risk. The recommendations of
the Report have been framed with that objective in mind."
- In other words, let foxes guard the henhouse to keep
inventing new ways to extract gains (a "free lunch") in increasingly
larger amounts - "in the interest of helping to contain systemic risk
factors and promote greater stability."
- Or as Orwell might have said: instability is stability,
creating systemic risk is containing it, sloping playing fields are level
ones, extracting the greatest profit is sharing it, and what benefits the
few helps everyone.
- Michel Chossudovsky explains that: "triggering market
collapse(s) can be a very profitable undertaking. (Evidence suggests) that
the Security and Exchange Commission (SEC) regulators have created an environment
which supports speculative transactions (through) futures, options, index
funds, derivative securities (and short-selling), etc. (that) make money
when the stock market crumbles....foreknowledge and inside information
(create golden profit opportunities for) powerful speculators" able
to move markets up or down with the public none the wiser.
- As a result, concentrated wealth and "financial
power resulting from market manipulation is unprecedented" with small
investors' savings, IRAs, pensions, 401ks, and futures being decimated
- Deconstructing So-Called "Green Shoots"
- Daily the corporate media trumpet them to lull the unwary
into believing the global economic crisis is ebbing and recovery is on
the way. Not according to longtime market analyst Bob Chapman who calls
green shoots "Poison Ivy" and economist Nouriel Roubini saying
they're "yellow weeds" at a time there's lots more pain ahead.
- For many months and in a recent commentary he refers
to "the worst financial crisis, economic crisis and recession since
the Great Depression....the consensus is now becoming optimistic again
and says that we are going to go from minus 6 percent growth to positive
growth in the second half of the year....my views are much more bearish....The
problems of the financial system are severe. Many banks are still insolvent."
- We're "piling public debt on top of private debt
to socialize the losses; and at some point the back of (the) government('s)
balance sheet is going to break, and if that happens, it's going to be
a disaster." Short of that, he, Chapman, and others see the risks
going forward as daunting. As for the recent stock market rise, they both
call it a "sucker's rally" that will reverse as the US economy
keeps contracting and the financial system suffers unexpected or manipulated
- Highly respected market analyst Louise Yamada agrees.
As Randall Forsyth reported in the May 25 issue of Barron's Up and Down
Wall Street column:
- "It is almost uncanny the degree to which 2002-08
has tracked 1932-38, 'Yamada writes in her latest note to clients.' "
Her "Alternate Hypothesis" compares this structural bear market
- -- "the dot-com collapse parallels the Great Crash
and its aftermath," followed by the 2003-07 recovery, similar to 1933-37;
- -- then the late 2008 - early March 2009 collapse tracks
a similar 1937-38 trajectory, after which a strong rally followed much
- -- then in November 1938, the market dropped 22% followed
by a 26% rise and a series of further ups and downs - down 28%, up 23%,
down 16%, up 13%, and a final 29% decline ending in 1942;
- -- from the 1938 high ("analogous to where we are
now," she says), stock prices fell 41% to a final bottom.
- Are we at one today as market touts claim? No according
to Yamada - top-ranked among her peers in 2001, 2002, 2003 and 2004 when
she worked at Citigroup's Smith Barney division. Since 2005, she's headed
her own independent research company.
- She says structural bear markets typically last 13 -
16 years so this one has a long way to go before "complet(ing) the
repair process." She calls the current rebound "a bungee jump,"
very typical of bear markets. Numerous ones occurred during the Great Depression,
8 alone from 1929 - 1932, some deceptively strong.
- Expect market manipulators today to produce similar price
action going forward - to enrich themselves while trampling on the unwary,
well-advised to protect their dollars from becoming quarters or dimes.
- Stephen Lendman is a Research Associate of the Centre
for Research on Globalization. He lives in Chicago and can be reached at
- Also visit his blog site at sjlendman.blogspot.com and
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