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ECON: Government Market Manipulation

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posted on Aug, 17 2009 @ 09:30 PM
There is an Executive Order from the 1980s which allows market manipulation and some interesting consequences, if, it is being used in this day and age. Market manipulation is happening. It is truth. Someone behind the scenes is pulling strings to make a ton of money. But who is really behind this manipulation? The answer isn’t simple to say the least.

by Virginia Nicholson

Here is an explanation of one possible market manipulator:

Executive Order 12631 March 18th, 1988

This order, signed by Ronald Reagan, created the Working Group on Financial Markets or WGFM. Its purpose is, "Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence."

What does that statement really mean ?

In layman's terms: The WGFM is going to mess with the markets, to make them look nice.

Why? So investors will not panic and cause a market crash in a time of crisis.

The people in the WGFM are predictable... They consist of the leaders in government finance:

(1) Secretary of the Treasury

(2) The Chairman of the Board of Governors of the Federal Reserve System

(3) The Chairman of the Securities and Exchange Commission

(4) The Chairman of the Commodity Futures Trading Commission

Our current members are as follows:

(1) Timothy Geithner

(2) Ben S. Bernanke

(3) William H. Donaldson

(4) Acting Chairman Michael Dunn

Most will recognize the top two members, as they have been in the media for various issues in the last 10 months. These men are extremely active in our current economy.

Karl Denninger of The Market Ticker goes into further detail on the powers of the WGFM in the stock market.

"There is a significant difference between existing and what a lot of people think (The WGFM) does. Which is this whole concept of they come into the market and buy index futures whenever they want to goose the stock market. There is a problem with doing that... the futures market and the index market is a zero sum game... for every winner in the futures market there is a loser. For every loser there is a winner.

So If I come into the futures market with an order to buy 20 million dollars worth of index futures or 20 billion dollars worth of index futures for that matter, then at some point those index futures have to be either sold or they expire and when they are sold obviously there is a closing transaction that is the exact opposite effect of whatever the original transaction is."

Denninger went on to say that it is almost impossible to inflate the market without a trader knowing. Once a trader noticed someone willing to throw away as much money into the market to keep it as high as possible, the jig would be up.

Recently the Federal Reserve announced it would be buying our own Treasuries to boost the economy, basically buying our own debt.

Federal Reserve to buy Treasuries to boost economy

This action taken by the Federal Reserve is called Quantitative Easing.

It is: "A monetary policy tool, in which a central bank—like the Federal Reserve, floods the market with cash, in an attempt to stimulate an economy in recession and to stave off deflation."

Quantitative Easing is market manipulation at its most public.

When a country buys its own debt from itself, it is not a good sign. It is considered by many to be the last policy to avoid a repeat of 1929.

The simplest way to describe quantitative easing is this:

The United States is using its credit cards, to pay off its credit cards, without bringing any of the money earned from its job into the mix.

Michael Rozeff, a retired Professor of Finance, describes the technical explanation as such:

“It is a central bank’s "purchase" of government securities (bills, notes, bonds) directly from the government.

The term 'purchase' does not capture the essence of the actual transaction.

The government issues say, a Treasury bill. This is a liability of the government.

The central bank takes this bill and holds it as its asset. It provides the government with its own official and legal State money or notes (or a checking account for such).

The central bank accounts for this note issue as its liability. It is an IOU transferred to the government (or State).

In the usual setup, these notes cannot be redeemed for anything. That is, if the government brought these notes to the central bank, it would get nothing in return for them. Hence, the money issue is not really a liability of the central bank. The government accounts for the receipt of these central bank notes as an asset.

The net result of the transaction is that the government succeeds in transforming a liability (its issue of Treasury bills) into a new asset (its holding of central bank notes).

If a person issues a debt and receives an asset from someone else in return, there is no new asset involved. If a baker issues an IOU and gets an oven in return, the oven is not an increment to the stock of ovens in the world, but, when the government issues its IOU (the Treasury bill), it gets an entirely new asset, the central bank money.

In the U.S., the government pays interest to the FED that holds the bill, but the FED returns this interest to the Treasury. Hence, the Treasury bill held by the FED is really no liability to the government. The net result of the transaction is that the government has a new asset that it can spend, namely, the FED’s Federal Reserve notes."
Learn more about Quantitative Easing here:

Bruce Krasting, an economist who's appeared on the Fox News channel and worked for Drexel Burnham Lambert, Citicorp, Credit Suisse and Irving Trust Corp, gives more insight into quantitative easing and it's dangers.

"Quantitative easing was an important step in stopping the slide in the economy last fall. It was an emergency measure. The emergency is over. Quantitative easing is now a problem; it is no longer a solution.

It is extremely unlikely that the Fed will recognize this reality in the near term. It is more likely that they will vote to expand their purchases of government securities as was indicated in the Fed’s recent minutes. Mr. Bernanke actually believes that he can control the market. This observer believes that he is in for a rude awakening.

When forecasting interest rates, there are normally three possibilities. Either rates can remain stable or they can go up or down.

Today there are only two possibilities. Rates can remain stable or they can go up. There is no risk that they will go down.

In the short run it is possible that the rapid run up in rates in the last two months will result in a few months of relative stability. However rates are going to have to move significantly higher by the end of this year. My guess is that the next leg up will happen in September. If I am wrong it will happen by the end of the month. Either way those green shoots will turn brown by autumn."

There is evidence that quantitative easing has actually made the situation worse.

Take this chart for example:

Notice the extreme jump from 4.84% to 6.52% on 30 year fixed mortgage rates.

This means, "Bluntly: Bernanke's screwing around just cost you 15% of the value of your house in one day." said Deninnger, "(his) tampering has done nothing but made the problem worse!"


Reduced spaces between paragraphs (as requested)

[edit on 22/8/09 by masqua]

posted on Aug, 18 2009 @ 01:47 PM
I just want to say that interviewing Karl Denninger was an awesome experience. You can find his website here. The Market Ticker
It's updated almost daily with his comments.

posted on Aug, 24 2009 @ 03:44 PM
reply to post by Tentickles

S and F - Good information and thank you for bringing it to us!!

At what point will the game be up? that is the question!

posted on Aug, 26 2009 @ 02:40 PM
I'd like to add this from Karl Denninger's The Market Ticker:

The Lie Of "High Frequency Trading" Liquidity

There is an oft-repeated lie that "High Frequency Trading" adds lots of liquidity to the market, and thus is a "good thing."

But repeating a lie a thousand times does not make it true. It just makes you a damn liar instead of an ordinary liar.

Let's postulate two HFT computers passing 1,000 share orders for the mythical Frobozz (FBOZ) back and forth between each other. There's a scadload of volume generated by these transactions, and an outside observer, who is unaware that the 1 million shares are in fact 1,000 transactions of the same 1,000 shares being passed back and forth between the same two guys, might assume that there's a lot of liquidity that has been added.

But this is in fact misleading, as the following example will demonstrate.

Let's say you see these 1 million shares transact over the space of an hour, and as such you come to the assumption that this issue is very "liquid." This is good, because you, as an institutional (read: Mutual Fund) manager want to buy 20,000 shares of Frobozz for your fund. 20,000 is a small percentage of the 1 million shares that traded in the last hour, so you believe this is a very liquid issue and you should have no problem getting a decent price.

But there is really only one 1,000 share lot that has generated all these trades and volume that these guys are passing back and forth between themselves!

So when you put in your "buy" order the HFT guys jump with glee, because they just screwed you - their pumped price gets "sold to you", but worse, the offer suddenly disappears, because there was in fact only 1,000 shares out there - all the other "offers" and "bids" were REFLECTIONS that the computer can cancel faster than you can hit them, and they DO! As the offer collapses the price skyrockets, and the rest of your order executes at a very nasty price indeed.

Now the smart institutional guy would not stick an order like this out as a market order, but the point remains: in a truly liquid market, where HFT had added true liquidity, a market order would be perfectly safe as that 1 million share print over the last hour would represent ACTUAL LIQUIDITY in the market.

It does not.

HFT is nothing more than sophisticated (and in some cases legal) front-running. It does not add material amounts of liquidity in reality to the market as it is all "hot money" looking to do one thing: steal a few pennies from each transaction. It is not a "pool" of liquidity, it is a set of computer programs that are in fact passing the same shares back and forth between each other in the direction of the short-term trend (perhaps as short as a few seconds!) looking for a bagholder to offload their "momentum-driven shift" to.

Never confuse volume and liquidity - they're not the same thing.

1 million shares consisting of two guys handing the same thousand-share lot back and forth present almost no liquidity to the marketplace, as there is no depth to their book nor the intended holding period, and most of the "orders" presented by these guys are never intended to be executed - they're "feelers" looking for someone - anyone - who will take the overly-ripe bag from them.

No depth and no holding period (or almost none!) is the definition and intent of high-frequency trading.

That is the rule, not the exception.

These systems do not add liquidity - they add volume in an incestuous relationship with the exchanges which, of course, are not paid on liquidity - they are paid by the share, that is, by volume, as is your local retail broker.

Don't fall for the BS; HFT is just another scheme dreamed up by the Wall Street "boyz" to screw the retail and institutional customer alike.

CNN also wrote about it here:

In fact, these four wounded horsemen of the financial sector comprised 40% of the overall trading volume on the NYSE on Tuesday. These stocks haven't just been active, they've been surging.

This is kind of scary. It suggests that the late-summer portion of the almost six-month long market rally is being fueled more by speculation and momentum, not real optimism about a potential recovery in the financial sector and the overall economy.

"Anecdotally, I don't know anyone that really loves the market but it continues to go up," said John Norris, managing director of wealth management with Oakworth Capital Bank in Birmingham, Ala. "Whenever you have a concentration in a small group of stocks, it's worrisome. Perhaps it could be a sign that this rally is set to peter out."

[edit on 8/26/2009 by Tentickles]

posted on Aug, 26 2009 @ 02:45 PM
The Joker explains it pretty well:

Our whole economy is just one big shell game used to keep the fat cats at the top fat and happy while the lower classes work to keep them fat and happy. Geithner said that auditing the fed was "a line we don't want to cross" in the interview he said it almost like a threat see this thread:

Currently our economy is being hijacked by groups like the Apollo Alliance under the guise of making a "green economy" this group basically wrote the Stimulus package and the cap and trade bill. See this thread:

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