What is the Government Doing Playing the Stock Market?

Not only is the government taking major stakes in American corporations (General Motors, warrants for stock purchases in major banks and others) but they hide behind the curtain of secrecy in their dealings in the stock market. When you consider the size of the security investments they are in a position to make with zero transparency, it makes you wonder how anyone outside the circle of government insider trading can possibly make an educated guess as to what direction the price of any stock is going to take. Their actions affect millions of small investors, most of whom haven’t a clue that their holdings are being manipulated for political purposes.

Is the government exempt from insider trading laws?

Is the apparent partnership with Goldman Sachs legal? Why do so many Goldman Sachs alumnae seem to gravitate to government jobs in Washington, D.C.? Mike Whitney reports that Goldman Sachs has five times greater volume than the next largest investment firm. When progressive and liberal politicians point their fingers at the evils of Wall Street, they never acknowledge that it is the intervention of the government through the actions of the President’s Working Group, the Plunge Protection Team, that has caused all the disruption and losses in 401ks for millions of Americans. (The PPT is composed of the Secretary of the Treasury, the Chairman of the Board of Directors of the Federal Reserve, the Chairman of the Securities and Exchange Commission and the Chairperson of the Community Futures Trading Commission).

Clif Droke talks about the “too big to fail” companies which have caused our government to publicly nationalize large segments of banking, mortgage lending and auto manufacturing and how the government (through the PPT) funnels large amounts of tax payer money either openly or under the table.  Their primary vehicle of choice for investments is the Standard and Poor’s Index of Futures.

Observers point out how the market surges in the last few minutes before the close of trading almost every day when insiders set themselves up for the next day’s trading on knowledge that only they (unfairly) have. Follow the daily activity of Goldman Sachs (which has about a 40% share of the US markets) and note that they only had one losing day in the third quarter of all trading.

Theodore Butler of Silver Streak says that this is more than just central bank collusion, behind the scenes, short selling of gold and silver, and borrowing massive amounts of stock. They then sell this stock into the market, forcing down prices allowing the large financial entity, or entities, to rip off the investing public and gouge them for obscene profits. This cronyism, back room dealing and market fixing with insider information are the worst we have ever seen in modern times. The intervention of the PPT triggers all the automatic computer trading programs that are built into several investment portfolios, which causes prices to move without any legitimate cause.

Deborah Solomon, reporting for The Wall Street Journal, was on the exchange between Senator Ron Paul and Federal Reserve Chairman Ben Bernanke during a recent congressional hearing in Washington. She was impressed by how Bernanke evaded Senator Paul’s questioning on meetings of the PPT, the notes taken at their meetings and other issues that Bernanke, as a member of the team, should have had firsthand knowledge of – and freely disclosed.

The Pragmatic Capitalist on February 26th of this year posed the question:

Why did several large institutions

buy enormous blocks

of the Standard and Poor Index stocks

on NO news the day before?

The volume just shot out of nowhere. This only repeats a pattern they have been observing for some time. The PPT purchases securities in big blocks and jams prices higher. Jamming, gunning, carpet bombing or whatever you want to call it is quite simple.

Their manipulation sends prices in illogical climbs or nosedives.

Banks, flush with stimulus cash, are buying securities to diversify their portfolios to boost their earnings. These were funds that were supposed to flow into the credit pipeline for individuals and businesses to spark the economy but instead, the banks are just using the money for their own internal profit.

When they were investing in overpriced real estate mortgages, they got burned. Now, they are playing in the stock market which ultimately may prove just as costly. Gary Dorsch of Safe Haven Preservation of Capital says that the Dow Jones average has become a key instrument of national economic policy and the Federal government by “actively managing” its direction influences consumer confidence and spending plans. Since the appointment of Henry Paulson as the Secretary of the Treasury and his influencing the increased activity of the PPT, the United States stock market has always found a way to defy gravity.

The Dow Jones Index recently broke an 80 year record with only three days showing a decrease. At this same time, Ben Bernanke was expanding the money supply at an annualized rate of 13%. The PPT’s strategy has been to offset the weakness in the housing market by increasing the wealth in the stock market. They cannot afford to have both in decline at the same time.

And yet still we spend.

And we print still more money. Doesn’t the fact that the Federal Reserve no longer publishes the M3 index which measures the amount of money in circulation cause you any concern?

Many critics, including Senator Ron Paul, who introduced legislation to reverse this decision and to continue to publish the M3 Index, say this allows the Federal Reserve to covertly fund the United States’ budget deficit and negative balance of trade and to hide demands of international investors for the U.S. dollar.

Isn’t this of concern to you?

It should be. To all of us.

Credit Default Swaps Are a Financial Ticking Time Bomb

When one considers the lack of transparency and the misdirection practiced by our governmental leaders, we need to focus on what is really going on in our financial community, lest we end up like lemmings running to the edge of a financial cliff, uncertain how we got there.

I would wager that the average American doesn’t fully understand what a credit default swap (CDS) is, this being the financial instrument that the Oracle of Omaha, Warren Buffett, calls “a financial weapon of mass destruction”.

Essentially, a CDS is an insurance-like instrument that provides protection to an investor (usually a large hedge fund or bank that can take a position requiring extremely large amounts of cash that eliminates average Americans) from the default of a corporation or government on their obligation to repay a loan or bond.

These are usually third party transactions that do not even require ownership in the bond or other obligation.  There is no regulation on the purchase or sale of the CDS, so they can be traded without any member of any regulatory agency even being aware of the activity.  Certainly, the Securities and Exchange Commission should at least be aware of such activities but Senator Christopher Dodd oversees this exchange and the looming disaster from CDSs is speculated to be the reason he is leaving office after this term.

Credit Default Swaps came about because a group of bankers (working for JP Morgan Chase Bank) wanted to free up the reserves they were required to keep in the capital accounts by normal banking regulations.  In 1997, when the first CDS was sold – Exxon’s credit risk was sold to the European Bank of Reconstruction and Development – there was little news about the transaction.  But JP Morgan was able to collect a sizable premium annually on the transaction and shift the risk of Exxon’s potential default on their loans to a third party while making money on the loan itself.

From the seeds planted by this transaction, credit default swaps now represent a market of over 45 trillion dollars, defined by Richard Drew of Time: that is twice the size of the United States stock market value of 22 trillion dollars!

Further comparisons are only adding to the concern.  The CDS market is huge when compared to the mortgage market of 7.15 trillion dollars or the US Treasury market of 4.45 trillion dollars.  Warren Buffett’s Berkshire Hathaway, in its annual report to its stockholders in 2002, said that no one could truly establish the value of the derivatives and this allowed all parties to claim huge profits and/or losses in their earning statements without a single penny changing hands.

As pointed out by Harvey Miller, senior partner at Weil, Gotshal & Manges, an original CDS can go through 15-20 trades, so when a default occurs, no one knows who’s responsible for making up the default or if the resources are available to cure the default.

Of course, the chicken had to come home to roost and Lehman Brothers and AIG were the most obvious losers in this game of high finance with Lehman disappearing completely and AIG taking an eleven billion dollar write off (although the American consumer will probably ultimately feel the pain of this bailout).

Vincent Fernando cites the fact that Europe’s use of credit default swaps by an expansion rate of 32% and the United States is a close second at 28% expansion.  This means that the financial market has been losing confidence in both of these economies since the beginning of the year.  As a single country, Greece, leads the way in expanding the use of these instruments.

The market is dominated by 14 dealers such as Goldman Sachs whose former CEO, Henry Paulson, fought hard to keep regulators away from examining these transactions as pointed out by Daniel Fisher of Forbes.  These exposures for Morgan Stanley and JP Morgan-Chase were three times their total assets and thirty times their total capital.  Hedge funds are also neck deep in these derivatives and operators like George Soros are applying pressure to the European Union and Greece which only exacerbates problems on those financial markets.  This pressure yields billions in riches to the speculators but brings nothing but misery to millions of people who end up ultimately bearing the burden.

Where is the explanation to the American people of how these credit default swaps are affecting us today? Especially as they loom large in our financial future as perhaps yet another nail in our nation’s coffin?