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Rigged Markets

Junious Ricardo Stanton

 

Several weeks ago I posted a piece saying the Trump Tax Cuts were a scam. Several readers chided me and showed their lack of knowledge how the global markets game is played by pointing to the record volume of trading on the New York Stock Exchange and the continuous increases traders were experiencing. It was clear to me they did not know the ins and outs of this rigged system so I didn’t continue the discussion.

For decades the gloom and doomers have predicted what they call a “correction” meaning the  high prices, high volume and high returns of the stock, commodities and futures markets would come crashing down on us but we didn’t see it until 2007-08. The corporate owned media spun the Wall Street caused financial implosion in 2007-08 as a few bad apples or that it was caused by poor people buying houses and assets they could not afford rather than out and out fraud on the part of traders, brokers, rating agencies, the media and the government.  

Astute readers know that the financial collapse was caused by greed and recklessness exacerbated by the fact the Glass–Steagall Act, the legislative fire wall put in place by the Roosevelt administration in 1933 that separated commercial banks and investment banks was abolished during the Clinton administration. This along with other forms of deregulation that permitted massive consolidation and ultimately tax payer underwriting of failed investment and commercial banks, home mortgage exchange entities Fannie Mae and Freddie Mac paved the way for the so called “Too Big Too Fail” banks to be bailed out at taxpayer expense.

Meanwhile not one CEO, not one rating agency executive, not one hedge fund manager, not one day trader, stock, commodities or futures broker was indicted or went to jail. How is that possible? How can these CEO who earn several hundred time the salaries of their workers not be held accountable under the law?  Well, the 1% never go to jail, they just manipulate the situation and use their influence and their media to spin it anyway they want.

The wild fluctuation of this past week were stopped preventing a wipe out of pension funds, derivatives, savings, futures and other wealth. What happened to stop the collapse? Was it the work of the Plunge Protection Team? What is the Plunge Protection Team you ask? Here’s some background on it. “Toward the end of his time in office in 1989, Ronald Reagan created something called The President’s Working Group on Financial Markets. There had been a stock market crash in 1987 and a near-crash in 1989, so everyone was worried.

The Working Group was ostensibly an advisory body that was meant to help politicians in general and the person in the White House specifically understand the markets. The members would write papers, talk and come up with solutions. A lot of us thought it was something much more, and the Working Group unofficially became known as the Plunge Protection Team. Heller suggested that the Fed — through, I suspected, its favored brokerage houses — purchase stock index futures as a way to stop a market collapse in its tracks. Heller said that since the Fed already rigs the bond market through securities purchases, the stock market would be easy to control.

Nobody has ever proven that the Fed and its friends actually protect Wall Street against plunges. It is, you might say, the Loch Ness monster of the financial world — people get glimpses of something but never see a clear picture. That’s what happened during the financial crisis of 2007 and 2008. Telephone records I obtained showed numerous calls between then-Treasury Secretary Hank Paulson and contacts on Wall Street on days when the stock market was tanking and the decline needed to be stopped. The action in stocks on those days looked a lot like what happened on Monday, when the Dow was down nearly 1,600 points and was suddenly jerked back to a smaller loss.” DC Plunge team may have halted Monday’s unprecedented Dow Jones spiral John Crudele https://nypost.com/2018/02/05/dc-plunge-team-may-have-halted-unprec...

            Many people suspect the PPT was the reason the massive free fall “miraculously” abated this week. “So, ask yourself, would you purchase equity futures while experiencing cumulative stock market drops? One can understand shorting a dropping market, but not buying futures. Unless this is what happened, seeing the beginning of a correction, the Plunge Protection Team placed a futures bid just below the existing price. Traders saw the bid, recognized that the government was intervening to support the market, and the bid was front-run with the hedge fund algorithms automatically picking up the action. Who but the Federal Reserve with its unlimited ability to create money would take the risk of buying futures in the face of a falling market. Moreover, such an infusion of money into the market does not show up in the money supply figures.

The futures purchases prevented margin calls and stop/loss orders in a heavily leveraged equity market that would have collapsed the market.

What are the pros and cons of this kind of intervention (which might have occurred also in May 2010 and August 2015)? By stopping a correction, the intervention prevented a pension fund collapse, both private and state. However, by propping up over-valued equities that the Federal Reserve’s quantitative easing created, the intervention rewarded over-leveraged speculative risk-taking and prevented price discovery. We still have an equity market whose values rest on record margin debt, stock buy-backs, and prices pumped up by money-printing. The problems waiting to come home continue to build.” Is The Stock Market Rigged? Paul Craig Roberts, Dave Kranzler and Michael Hudson. http://www.informationclearinghouse.info/48762.htm

I suspect the PPT went into action to halt the slide which would have wiped trillions of dollars in equity, pension, derivative and commodities reserves. Keep in mind the Federal Reserve is a key player as are the hedge fund managers who can manipulate the markets using high frequency logarithms. Keep your eye on this situation in the coming days, it may be a harbinger or omen of things to come.

 

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