News & Analysis
Fed to Investors: Let's Be Fair!
NY Fed to Release Its Surveys of Primary Dealers ... The Federal Reserve Bank of New York said Friday it will release to the general public surveys of primary dealer banks done in advance of each monetary policy meeting. The move is apparently a response to an article in the Wall Street Journal that said interactions central bankers were having with market participants were giving clues about the future of monetary policy, and potentially creating an unfair playing field as a result. Primary dealer banks are an elite roster of financial institutions that deal directly with the central bank. They participate in the buying, selling and borrowing of bonds that comprises the conduct of monetary policy, and they also underwrite Treasury debt auctions. – Wall Street Journal
Dominant Social Theme: If things aren't fair, we need to make them that way.
Free-Market Analysis: We can tell the powers-that-be are still skittish about how the US Federal Reserve is being regarded, increasingly, by the American public because there is suddenly a lot of talk about "fairness."
Why this should be is somewhat puzzling, of course. It is just like insider trading. Markets have run for thousands of years without legal consequences for the ones who knew more than others. In fact, if you told someone from years' past (at various intervals anyway) that at some future date some investors would have been penalized for knowing more than others, he or she might look at you as if were crazy.
Of course, these things go in cycles. China has had numerous "civilizations" that more and more we regard as INTERVALS between "real" civilization when government doesn't exist or exists minimally. At its height, "civilization" as we define it today is immensely invasive, warlike and generally ruinous. Real civilization (peaceful, benevolent and prosperous) seems to exist in the interstices between the great dictators and emperors.
But come civilization, the politicians seek to entrench themselves by creating fear and providing solutions. But it works both ways. The more laws that are passed, the more lawmakers fear the repercussions from the people they have put out of work or put in jail.
And thus they pass even more Draconian legislation, hoping that at some point this law or that one will help provide the element that will keep them truly safe and beyond the wrath of normal people. Ironically, their efforts in this regard only make them LESS safe and more disdained and disliked.
Anyway, the point of the above rumination is to point out that central banks – and the Fed, in particular – are not "fair." They are excrescences of the worst kind of regulatory fiat. In fact, Wall Street itself is not fair. Starting sometime after the Civil War, mercantilism became the order of the day in the United States.
Powerful forces took over the government and made it work for their own advantage. Almost as soon as the Civil War was done massive scandals began to erupt. States could not longer secede and the northern political class (in service of its bankers) was free to do as it liked.
What has been built in the past 150 years is entirely without a single element of "fairness." Every part of Wall Street and its foundational central banking element is corrupt. It cannot be otherwise. The United States has long since ceased to be a republic, or even a democracy.
It is purely and simply an empire, with its rulers feebly protesting – via evermore naked maneuvers – that it is not. Below are some of the points we made previously about Wall Street's overall illegality.
In fact, as we have pointed out, there is NOTHING "legal" about Wall Street, nor could there be. It is a massive corporatist facility, greased by government and backed by handful of elite families worth trillions. You can see the original article here: Everything Wall Street Does Is Illegal?
• Prudent Man: The "prudent man" law says fiduciaries need to be "prudent" in their handling of funds and their dealings with clients. But Wall Street NEVER offers up language to its clients regarding the evident and obvious BUSINESS CYCLE that can decimate one's brokerage account for a decade or longer. Seems kinda "fraudulent" to us.
• Central Banking: And speaking of central banking, there are numerous anti-monopoly laws in place. But the Fed is basically a mercantilist entity, a private corporation operating under color of law. The securities industry and commercial banks as well never explain ANYTHING about the ruinous effects of this money monopoly to investors and savers. Again, seems "fraudulent" to us.
• Inflation: In fact, the securities industry (and regulators as well) continually misrepresents what "inflation" is – using the word inflation when they should be using the term "price inflation." By using the wrong term, these investment professionals are preventing their clients from finding out the truth about how the money system REALLY works. Also seems "fraudulent" to us.
• Syndicates: Wall Street firms routinely set up syndicates to promote new offerings and yet when one looks at these syndicates, they are basically always the same parties over and over again. How is it that these repetitive syndicates do not fall afoul of anti-monopoly laws? Seems "criminal" to us.
• IPOs (pump and dump): When Wall Street brokerages have an IPO to flog, they use their massive sales forces (thousands of brokers) to offer it to clients. As customers buy the IPO, the price is often forced up (especially in a hot market), thus enriching the firm that owns additional quantities of shares that can be sold at higher prices. Finally, the selling is done and the price of the shares deflates. Some customers will sell shares back to the brokerage. And perhaps the brokerage will buy back shares as well. But then when additional "news" is discovered, the shares will be labeled a "buy" by the firm and the process shall begin all over again. Ever hear of a "pump and dump"? Up go share prices. And then down they go. The big broker sells on the "up" and buys on the "down." Sell high and buy low. Seems like a "pump and dump" to us.
• Insider trading: Occasionally, people go to jail over insider trading, which is knowing something before others and acting on that knowledge. Of course, efficient markets are constructed on insider information, but the SEC, via insider trading regs, is apparently hell-bent on making markets LESS efficient under the misguided idea that more people will invest in markets if they are perceived as "fair." But we've brought up in the past the idea that firms that employ advanced technology are creating a kind of "insider" effect for themselves as well. Of course, we are not surprised that life in this case "imitates art." The SEC is now considering ways to limit the advantages that technology gives some firms over us. But what about smart people? Is it fair that some firms have the budgets to hire smarter people than others? Seems like "insider trading" to us.
• Regulatory Capture: We've just written about regulatory capture in another article in today's issue, "The Real Reason Bloomberg Sued to Open Up Fed Records?" We explained it as follows: "The large, strong businesses capture the regulatory departments by offering their top people lucrative contracts. Then the top regulators, when they are older, join the businesses they used to 'regulate.' These 'grayhairs' then counsel their juniors at the regulatory facilities in Washington as to what 'must be done.' The junior people in Washington, DC are willing to listen because they, too, want to get the big payoff by joining a big firm. They don't want to be too tough because it will affect their job prospects if they get all 'doctrinaire' about anything." Sounds like significant "conflict or interest" to us – maybe outright "bribery."
Again, everything that Wall Street does, in one way or another, is in the service of some sort of government-enfranchised monopoly, one certified by regulators and entrenched by law. That doesn't make it "right," of course. It only makes it "legal."
Within this context, then, the Fed's upcoming actions are perfectly predictable. Kings, too, forced to give up royal prerogative always try to pretend that the surrender is their own idea. The Fed's rulers, beginning so long ago with the perspective that NOTHING must be said about their machinations for fear of "upsetting" the market, are now discovering that fairness trumps privacy.
In our view – and it is one we have held for several years now (long before it was fashionable or even seen as feasible) – the Fed is finished as an entity that can either be justified or expanded. We have compared it to a cartoon in the past, the one where the coyote has run off the cliff. His legs are still moving and he is suspended in mid-air. But he is about to fall a long ways.
Those who run the Fed (and central banks in general) are probably genuinely worried at this point. The era of the Internet is actually educating people about the "fairness" of the way the "real world" works. That means the Fed can reach in its collective pocket for US$16 trillion while the little guy loses his house, his job and maybe his family.
There is no fairness in this world, nor should one expect, necessarily, that there should be. But the idea that central banks themselves – or the state – are going to make life (or investing) "fair" is ludicrous. These institutions are created for the sole purpose of enshrining unfairness (mercantilist advantages) and creating more of it.
Conclusion: That those who run the Fed are now suddenly speaking of "fairness" is enlightening, indeed. As we wrote in a previous article, "Smell the fear."
Posted by Maniates on 12/06/11 10:23 AM
DB you can disagree all you like. My statement did not say that people were less free before the civil war. I stated a documented fact, verifiable by copious documentation that the US, country and territory, has been mercantilist from the very beginning. Read the history of working conditions and work strikes for just a taste of my premise. Also learn about the land grabs that stole hundreds of millions of acres from the public trust.
I do not debate that since the civil war things have gotten worse by every measure. To say the country was rosy before the federal destruction of these United States is naive at best and at worst supportive of the PE that own the world. Read Read Read Do the research like I do. There are many accurate books written in the last and previous century that document the atrocities.
The "free" market, if it ever existed since government was invented, was limited to small businesses and personal transactions. Nowadays, even that portion is gone.
Of course. maybe we are discussing apples and oranges. I think anybody that uses government to advance their personal agenda for any reason at the expense of anybody else is a criminal and should get their just desserts. A true reading of the history of capitalism reveals my statement above to be a fit description.
Are you really as anarchic as you propose?
ps This will be my last comment. I admit I have very definite opinions, based on 20+ years of research, but I don't think my viewpoints fit in very well with you. I have enjoyed reading your posts, but I think its time to move on to more constructive pastimes.
Reply from The Daily Bell
it is true, Maniates that you have provided 12 posts over the course of the year, including one that commented on Jefferson's "poetical" agrarian vision. In fact, all of your posts explain the same thing: that the US was intensely mercantilist BEFORE the civil war.
It's simply a ludicrous statement. There was NO central bank of consequence before the Civil War and NO income tax. There were NO regulatory bodies to speak of, NO standing army, no weaponized police forces, etc. etc.
The constitution itself may have carried the seeds of its own mercantilist destruction, but to argue they had been REALIZED in a pre-Civil war period is an insupportable argument.
One assumes you are making it in support of OWS and its intention to use the full panoply of the current US authoritarian system to create "fairness" and "rough justice."
We are not "anarchic," by the way. Your use of the term indicates to us that your painfully acquired erudition may yet need a bit more brushing up ...
Posted by Maniates on 12/06/11 08:21 AM
DB please reread your history. The land occupying the center of North America has been mercantilist since the English took possession. The early history of the US is rife with "capitalist"/government collusion. The history of New York alone could (and has) fill several books. Things got serious when John Jacob Astor arrived on the scene and became the first of many to build huge fortunes by defrauding the government, the people and abusing the land.
Freedom existed for those few fortunates who chose to live outside of civilization; in the mountains and plains before the mad rush for land started.
I agree with your statement that real civilization can only exist without the ruinous effect of government, but as far as I can tell only a few times, places and people have enjoyed real human liberty.
Reply from The Daily Bell
Well ... we disagree with you. To compare life in the US in the 1800s century to what we have today would yield many comparisons that simply do not support your argument. Pre Civil War America was freer than post Civil War America. Fact.
Posted by Hoss on 12/06/11 05:30 AM
Great article, thank you for writing it. This is the crux of the biscuit.
Reply from The Daily Bell
Posted by Abu Aardvark on 12/05/11 04:39 PM
Reply from The Daily Bell
Very good, thanks.