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The Not-So-Invisible Hand – How The Plunge Safety Crew Killed The Free Market

The Not-So-Invisible Hand – How The Plunge Safety Crew Killed The Free Market

The Not-So-Invisible Hand – How The Plunge Safety Crew Killed The Free Market

“We’re now no totally different from any of these Western European semi-socialist welfare states that we like to deride. Italy? Positive, it is had 4 governments since final Thursday, however none of them would have allowed this to go on; the Italians know learn how to rig an financial system.”

– Invoice Saporito, “How We Turned america of France,” Time (September 21, 2008)

October 24 marks the 79th anniversary of the October 1929 inventory market crash. Heavy promoting began on Thursday, October 24, 1929, and accelerated the next week on Black Monday and Black Tuesday, October 28 and 29. Many feared a repeat of this catastrophe on Friday, October 24, 2008, after Japan’s Nikkei inventory common fell practically 10% through the night time, Hong Kong’s Grasp Seng fell 8%, and Germany’s and Britain’s fell 5%.

“In a shocking flip of occasions,” reported Yahoo! Finance, “the futures for the most important indices have been ‘lock restrict’ down earlier than the beginning of buying and selling Friday, that means that they had hit a 5% threshold that prevented them from buying and selling any decrease till the inventory market opened Friday.” Merchants ready for the worst, however remarkably, catastrophe was averted. The U.S. market fell solely 3.5%, simply one other “extraordinary” bearish day.

Why the extra modest drop within the U.S., the place the monetary debacle originated and will have hit hardest? Suspicious observers noticed the covert hand of the Plunge Safety Crew (PPT), the group arrange below President Reagan to keep up market “stability” by manipulating markets behind the scenes. Invoice Murphy commented in LeMetropoleCafe.com:

“In the present day the Muppets on CNBC have been remarking how effectively our market acted, not falling aside as anticipated. All day lengthy they spoke of how our market was performing otherwise as we speak than each different inventory market on the earth. Properly good day, the opposite nations haven’t got a PPT, which is WHY our market is so totally different.

“There are those that may assume what the PPT is doing is true. What they do not notice is their making ‘All the things is okay’ for therefore lengthy, and never permitting the market to commerce freely . . . like permitting the inventory market to fall the best way it ought to, has saved the person out there . . . after they may need been SCARED out a while in the past.”

In response to Invoice Saporito’s remark in Time, it may be countered that Henry Paulson’s Plunge Safety Crew is sort of adept at rigging an financial system. The distinction between an acknowledged socialist state and the stealth socialism we’ve got within the U.S. as we speak is that in a socialist state, everybody expects the market to be rigged and operates accordingly. In a rigged pseudo-capitalist financial system, traders are simply separated from their cash as a result of they count on the market to comply with “free market ideas” based mostly on “provide and demand.” They’re seduced into “pump and dump” schemes – synthetic manipulations that permit insiders to unload inventory at a excessive value or purchase it at a low value – as a result of they belief in Adam Smith’s “invisible hand,” which is meant to routinely set issues proper in a market left to its personal gadgets. The market as we speak is certainly managed by an invisible hand, however it isn’t essentially serving the pursuits of small traders.

PLUNGE PROTECTION FOR SOME, PLUNGE CREATION FOR OTHERS

Probably the most egregious examples of market manipulation have been in gold, silver and oil. The official “spot” (or money) costs of gold and silver have been taken down sharply within the week earlier than October 24, even supposing bodily demand has been inexorable. Gold is on the market within the “actual” market solely at big markups, and standard forms of silver are usually not out there in any respect.1 We have been taught at school that communism doesn’t work as a result of when trade is within the palms of a single proprietor (the federal government), competitors is eradicated and power shortages and black markets develop, for the reason that authorities doesn’t let costs reply to “provide and demand” however dictates them from the highest. In the present day that is taking place with gold and silver, with the true bodily value various radically from the reported paper value.

Gold is named the “contra-investment,” the “go to” funding which traditionally has gone up when different shares have been failing. Buyers see it as one thing tangible that can maintain its worth when all the things else is falling aside. For that purpose, rigging the market to “keep stability” means suppressing the worth of gold.

The present spherical of gold manipulations began on Thursday, October 16, at 10 am, when the worth of gold all of a sudden suffered a freefall plunge of $45 inside minutes. It continued to drop till it was down by practically $60 in a little bit over an hour. Nothing occurred on Thursday between 10 and 11 am to warrant this vertical drop. If something, gold ought to have been taking pictures up in the identical exponential style that it was falling. On Wednesday, the inventory market had dropped over 700 factors, and Dow futures (bets on which approach the market would go) have been down by 150 factors Wednesday night time. In the course of the night time, the Japanese inventory market fell greater than 10%, and all European markets have been down.2 Thursday morning, amongst different very unhealthy financial information, U.S. industrial output was reported to have posted its greatest fall in 34 years, and mid-Atlantic manufacturing unit exercise had crashed unexpectedly from September to October. But Dow futures have been all of a sudden 130 factors greater; and gold was slammed down proper at 10 am, though bodily gold was out there solely by paying big premiums, and gold costs all over the world have been taking pictures up. The day continued in the identical counterintuitive approach, only one extra egregious instance of an ongoing sample of manipulation that has grow to be so blatant that both the manipulators have grow to be supremely assured of their invulnerability or they’re so scared of impending doom that every one pretense of believable denial has been deserted.

“THE MOST MASSIVE INTERVENTION SINCE ROOSEVELT”

Market manipulation is just not usually mentioned by the commentators on CNBC, however sense can hardly be product of as we speak’s wildly unpredictable buying and selling patterns until the performs of highly effective males behind the scenes are factored in. One commentator who does speak about this manipulation is Don Coxe, strategist for the Financial institution of Montreal. In a weekly convention name on September 5, 2008, he described what has been occurring within the markets since July as “probably the most large intervention of presidency into the capital markets or the monetary system since Roosevelt closed the banks again in 1933.”3

Based on the British Globe and Mail, Coxe is “no paranoid conspiracy theorist. Because the chairman and chief strategist of Harris Funding Administration in Chicago, he is likely one of the most revered funding authorities in North America.”4 The unprecedented intervention he described went again to when the monetary institution was dealing with a really banker-unfriendly market in July. Gold was about to interrupt by the psychologically necessary $1,000 mark, oil was above $140 {dollars} a barrel, the greenback was breaking down, the financial institution inventory index had dropped in six months from 90 to 50, and the Federal Reserve had a stability sheet to match, after making big loans to banks on shaky collateral. Fannie Mae and Freddie Mac have been on the breaking point, and lots of of billions of their securities have been held overseas. As if by magic, these tendencies all all of a sudden reversed, starting with a dramatic reversal within the swooning greenback.

How was it finished? The cat was set free of the bag by the Nikkei English Information, which reported in late August that finance officers from the U.S., Japan and Europe had drawn up plans to strengthen the greenback following the collapse of funding financial institution Bear Stearns. The intervention referred to as for the central banks to buy {dollars} and promote euros and yen if the greenback’s worth dropped considerably, with Japan offering the yen for the forex swap.5

Because the greenback strengthened, gold, silver and oil plunged. The pundits learn the drop in gold and silver as a response to the rise within the greenback, since treasured metals rise traditionally when the greenback falls. However what they failed to clarify was why the greenback was rising. As Invoice Murphy noticed, “the greenback rallies sharply each time the US inventory market comes below strain. It’s nearly simultaneous.” He quoted one among his publication contributors:

“Because the [stock market] low on 22 SEP we’ve got misplaced 8.3 trillion bucks value of asset worth inside the equities markets and what occurs? The US greenback goes up, and up, and up, and up, and up. From what? 72 to 84 now (up 1.14 simply as we speak??!!??)? A continuous rally that’s NEVER adversely affected by information or market occasions. It is nearly been a 45-degree ascent. THAT is pure unmitigated intervention of an enormous diploma.”6

Tips on how to clarify the beautiful reversal within the greenback’s slide? In Coxe’s September 5 convention name, he candidly laid out how the Federal Reserve and the Treasury, along side the CFTC (Commodity Futures Buying and selling Fee) and the SEC (Securities and Trade Fee), colluded to govern this “essential” bounce within the greenback, together with a corresponding enhance to monetary shares and sudden collapse within the commodities markets. Coxe referred to as it “sensible,” however the play was at a price of hundreds of thousands of {dollars} to commodities traders and brief sellers who have been betting on what a “free” market “ought to” do. Oil plunged greater than 50%, from a excessive of $145 a barrel in July to a low of about $64 on October 24. The identical sample was seen in silver and gold, with gold falling from a excessive of over $1,000 an oz to a low of $700 on October 23. All of it added up to an enormous “pump and dump” scheme, with insiders pocketing the fortunes misplaced by unsuspecting traders. It is a messy enterprise, however anyone has to rake in these obscene earnings for the “higher good” of market stability.

“THE MOST SORDID SCHEME IN THE HISTORY OF FINANCE”

Theodore Butler, writing on SilverSeek.com on September 2, reported that there was extra than simply central financial institution collusion occurring behind the scenes. He tracked an unprecedented wall of brief promoting of gold and silver – large “borrowing” of inventory to promote it into the market, forcing down the worth, then “masking” by shopping for the inventory again on the cheaper price. Butler wrote:

“In gold, not more than 3 U.S. banks offered brief in a single month greater than 10% of world annual mine manufacturing. This was the most important brief place in gold and silver ever recorded by U.S. banks. After the huge and concentrated silver and gold brief place was established by these U.S. banks, the [gold and silver] markets skilled a historic decline in value. All of it passed off through the first widespread retail silver scarcity in historical past. It’s fully at odds [with] how the legislation of provide and demand works.”

Butler referred to as it probably the most sordid scheme within the historical past of finance. “It makes a mockery of monetary regulation and the rule of legislation,” he wrote. “It permits a big monetary entity, or entities, to tear off the investing public and gouge them for obscene earnings. It’s cronyism, back-room dealing, market fixing and inside info at its worst.”7

Whereas gold and silver have been being shorted to oblivion, the SEC imposed a ban on the brief promoting of 19 choose monetary shares, together with Fannie Mae and Freddie Mac. It was blatant favoritism for the privileged few, however Coxe stated it was essential to make monetary inventory look enticing to potential patrons (notably sovereign wealth funds), in an effort to permit the banks to promote their inventory and lift the capital essential to begin lending once more.

On the identical time, Treasury Secretary Paulson sought and was granted an infinite credit score line to Fannie Mae and Freddie Mac instantly from the U.S. Treasury, in addition to the authority to purchase the mortgage giants’ inventory. Fannie and Freddie have been put right into a type of chapter referred to as a conservatorship; however not like within the extraordinary chapter, through which collectors divide up the debtors’ out there property with out authorities assist, on this case the claims of the lenders have been assured by the Treasury. Overseas lenders have been bailed out whereas the shareholders have been worn out – together with banks, pension funds, and different establishments holding the financial savings of hundreds of thousands of People. In the long term, the “bailout” created extra issues than it solved; however based on Coxe, it was a essential sacrifice to maintain the mortgage market useful for the close to time period.

How close to? The Presidential election is now solely weeks away. Markets have an uncanny approach of trying good earlier than elections.

Rob Kirby, writing in LeMetropoleCafe on September 9, noticed that there are legal guidelines and stiff penalties towards market collusion. The U.S. antitrust legal guidelines impose fines of as much as $10 million and jail phrases of as much as 3 years for unfair practices that inhibit competitors or monopolize markets in restraint of commerce. “I like [Coxe’s] candor,” stated Kirby, “however my tackle that is that every one the perpetrators ought to face a firing squad, or worse, for treason.”8

That most likely will not occur, nonetheless, as a result of the “perpetrators” can declare governmental immunity. The Plunge Safety Crew, formally referred to as the President’s Working Group on Monetary Markets, was fashioned by President Reagan in response to a inventory market crash in 1987 for the categorical objective of “sustaining investor confidence” by manipulating markets with public funds. The PPT contains the President, the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the Securities and Trade Fee (SEC), and the Chairman of the Commodity Futures Buying and selling Fee (CFTC).9 Calling the photographs is little doubt Secretary Paulson, who now has a $700 billion fund to make use of for the aim, after Congress handed his large financial institution rescue plan on October 3.

“SOCIALISM FOR THE RICH”

Nouriel Roubini, Professor of Economics at New York College, wrote on his standard weblog International EconoMonitor:

“Socialism is certainly alive and effectively in America; however that is socialism for the wealthy, the effectively linked and Wall Road. A socialism the place earnings are privatized and losses are socialized with the US tax-payer being charged the invoice . . . .”10

Funding guru Jim Rogers instructed “Squawk Field Europe”:

“America is extra communist than China is true now. You possibly can see that that is welfare of the wealthy, it’s socialism for the wealthy. . . it is simply bailing out monetary establishments. . . .

“That is insanity, that is madness, they’ve greater than doubled the American nationwide debt in a single weekend for a bunch of crooks and incompetents. I am not fairly certain why I or anyone else must be paying for this.”11

If we’re going socialist, we should always come clean with it and have some transparency in what is going on on. We the individuals have to know learn how to plan and to speculate for an unsure future. If we’re nationalizing the banks, let’s nationalize all of them the best way, with the earnings going again to the individuals together with the losses and dangers. Higher but, let’s nationalize the Federal Reserve, so it will possibly concern “the complete religion and credit score of america” instantly, with out having to again this credit score with a multi-trillion greenback federal debt that can by no means receives a commission again however simply continues to develop. It could really be much less inflationary for the federal government to print {dollars} instantly than for it to print bonds which are swapped for {dollars} created on a printing press by a privately-owned central financial institution, as a result of within the latter case each the bonds and the {dollars} stay in circulation. U.S. bonds not solely function cash all over the world, however they rely because the “reserves” for banks to create many instances their face worth in loans. These bonds by no means receives a commission off however simply get rolled over from yr to yr, inflating the cash provide simply as if {dollars} have been printed instantly; however the bonds carry the added burden of perpetual debt and curiosity funds.

The expensive financial institution bailouts and blatant market manipulations occurring as we speak are justified as being essential to save lots of a non-public banking system that we expect we have to get the credit score that retains the financial system operating. However we do not really need personal banks to get credit score. Many authorities have attested that, opposite to standard perception, banks do not lend their very own cash or their depositors’ cash. Each greenback lent by a financial institution is cash created out of skinny air on a pc display screen. It is simply “credit score.” The financial institution “monetizes” the borrower’s personal promise to repay. The federal government might concern its personal credit score in the identical approach. There are a selection of profitable historic precedents for this, together with the publicly-owned central banks of Australia and New Zealand, which saved these nations from the devastating results of the Nice Despair within the Nineteen Thirties; and the publicly-owned financial institution of the colony of Pennsylvania, which funded the Pennsylvania provincial authorities with out taxes or debt within the first half of the eighteenth century.

In the present day’s bankrupt banks dug their very own black gap after they loaded up their books with profitable however extremely dangerous by-product bets that at the moment are backfiring on them. As a substitute of attempting to wash up the banks’ books by throwing taxpayer cash at this impossible-to-fill black gap, we’d be higher off merely letting the banks go bankrupt, as President Reagan did with the financial savings and mortgage trade within the Nineteen Eighties. The banks’ unhealthy money owed might then be discharged in chapter, and their property might be absorbed right into a public credit score system with a brand new, untarnished set of books, a system that might serve the pursuits of the individuals and return the earnings to the individuals.

SO WHAT IS AN INVESTOR TO DO?

That also leaves the query of learn how to negotiate as we speak’s very unpredictable markets. The Friday earlier than the white-knuckle October 24 trip, traders have been being inspired to get again into the market. Commentators cheerily introduced the very best market week in 5-1/2 years, after the Dow climbed from a low of seven,774 on October 10 to a excessive of 9,924 on October 14. However the week nonetheless ended under 9,000, and the market was coming off probably the most historic plunge for the reason that Nice Despair, down from a excessive of 10,845 on October 3 to under 8,000 per week later. By October 24, the Dow was once more hovering close to 8,000.

“Frankly, I am sick of this,” stated CNBC market watcher Erin Burnett as she tracked the Dow’s wild gyrations on October 23. “Up and down, up and down. It would not appear to imply something or be linked to something.”

Beleaguered traders may effectively determine it is time to pull their cash out of a inventory market that’s trying increasingly more like a rigged and dangerous Las Vegas on line casino and put it elsewhere. As one discuss present commentator quipped lately, “I am absolutely diversified. I’ve acquired some below the mattress, some below the ground boards, some within the yard.”

#NotSoInvisible #Hand #Plunge #Safety #Crew #Killed #Free #Market

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