Why is Zero Hedge claiming the Fed is intervening in equities markets?

By Edward Harrison of Credit Writedowns

I just came across a post on Zero Hedge called “An Overview Of The Fed’s Intervention In Equity Markets Via The Primary Dealer Credit Facility.” Now, that’s a mouthful. As far as I can discern, the post’s purpose is to expose alleged equities market manipulation by the Federal Reserve. However, I found the argument rather conspiratorial. And despite claims of an alleged smoking gun, there is no evidence in the post that that Federal Reserve is manipulating anything except interest rates. And the Fed made clear that that was what it intended to do.

Let me break down the argument made by Zero Hedge’s Tyler Durden and give a few remarks of my own on how I read the situation.

The junking of the Fed’s balance sheet

In March 2008, the Federal Reserve established the Primary Dealer Credit Facility (PDCF) to provide liquidity to the financial sector after Bear Stearns collapsed. Overnight funding had become a key source of liquidity for banks looking for cheap money (short-term rates are lower than long-term rates).

But when crisis hit, the liquidity in overnight interbank markets dried up leading to collapse at Northern Rock in October 2007 and then Bear Stearns in March 2008, institutions which were recklessly overexposed to overnight funding. This was a market failure. The Federal Reserve, therefore, stepped forward, effectively taking the entire wholesale banking market onto its balance sheet. That is what all of the Fed’s liquidity provisions are about.

The problem most of us have with this and similar facilities is the PDCF’s collateral terms. In the past the Fed accepted treasuries. Now it was accepting a lot more (including some so-called toxic assets):

The PDCF will provide overnight funding to primary dealers in exchange for a specified range of collateral, including all collateral eligible for tri-party repurchase agreements arranged by the Federal Reserve Bank of New York, as well as all investment-grade corporate securities, municipal securities, mortgage-backed securities and asset-backed securities for which a price is available.

By April 2008, when David Einhorn questioned Lehman’s earnings report, people were asking if they were going the way of Bear Stearns (see my June 2008 post “Is Lehman the next Bear Stearns?”). When Lehman did collapse, acceptable collateral expanded. In some instances it included equities as well. The Fed’s press release expanding collateral said:

The collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities. The collateral for the Term Securities Lending Facility (TSLF) also has been expanded; eligible collateral for Schedule 2 auctions will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.

You’ll notice nowhere in the press release does one see the term equities. This is obviously by design because the Fed was under fire for bloating its balance sheet with junk. This process – what I call qualitative easing – was meant to be opaque.

With the panic now over, things have settled down and these facilities are likely to end. The Fed is issuing its own research to give intellectual cover to these activities. But, outrage remains nonetheless. The Fed’s own Charles Plosser, the President of the Philadelphia Fed, has said he wants to see qualitative easing end sooner rather than later. And Bloomberg News is suing the Federal Reserve under the Freedom of Information Act to reveal who it is lending money to against this dubious collateral.

That sums things up in a nutshell.  The key to note here is that the PDCF is an overnight lending facility, the TSLF is a 28-day lending facility and another program, the TALF, is a third longer-term lending facility I haven’t discussed. (See more on the TALF here and why it is a bailout).

Tyler Durden’s beef: the Plunge Protection Team

Tyler’s history of events in his post is largely consistent with what I just presented. Where his history diverges from mine is when he goes into the section headed “Implications,” saying “the Federal Reserve has now managed to singlehandedly take over the entire capital market.” At some point, he goes as far as to say:

The bolded text is all you need to know to find the smoking gun for any and all allegations of "plunge protection" or however one wishes to frame the invisible market bid.

Those are pretty strong words and I believe these claims are unsubstantiated in the post.  Why not leave it at the lesser claim that the Federal Reserve is running a loose monetary policy that encourages excessive risk – something that, while subject to interpretation, is a valid criticism?

Posts like this are exactly why I expressed concern when Bloomberg fecklessly expunged a Tyler Durden interview in August amid media hoopla over his identity:

Zero Hedge is a site replete with copious information on finance and the economy and is often a necessary voice of scepticism in the blogosphere that keeps the mainstream media honest.  We need outlets like that.  And Tyler was on Bloomberg Radio in the first place because he has something to say that is different, interesting and adds value. However, the hyperbole, tone, anonymity and confusion as to which writer is using which pseudonym at Zero Hedge has long become a liability which reduces the credibility of the site.

The claim of equity market manipulation strikes me as hyperbole.  There is no smoking gun whatsoever. It is a theory that I don’t buy into and that is not substantiated by the evidence in the post. Otherwise, Tyler and I are on exactly the same page.

I do have a few other points of disagreement.

  • Why talk about the Primary Dealer Credit Facility when it is an overnight facility? The haircut is usually reset daily. How much manipulating can the Federal Reserve really do with an overnight facility? As I see it, the real problem with the Fed’s balance sheet is the loans under longer-term facilities like the TALF.
  • What about the haircut on other asset classes, namely investment-grade and non-investment grade asset-backed securities and collateralized debt obligations. Forget about the plunge protection team conspiracy. To my mind, this is the real story here. The Fed says it accepts only securities “for which a price is available” as collateral. Is that really true? I am sceptical, one reason I would like to see who is getting these loans and what kind of collateral they are using.

Somehow you get the feeling there is a reason these facilities are still around, namely that some institutions need them because their capital base is so impaired right now that they would fail without the Fed taking those toxic assets off their hands.

In the end, Charles Plosser, Tyler Durden and I all agree: the Fed needs to end these programs as soon as possible.

Expect more on this issue soon via Marshall Auerback. Don’t you lot get cute in the comments, claiming I am slagging Tyler off unfairly. I simply disagree – there is no evidence of a plunge protection team in that post.

Update: This phrase, “PDCF usage declined, reaching zero in mid-May 2009,” suggests the PDCF is not being used to goose equities. The quote comes from page seven of the following PDF document at the New York Fed from August: “The Federal Reserve’s Primary Dealer Credit Facility.”

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com


  1. Nemo

    Same old story. When you make money in the market, you’re a genius. When you lose money in the market, it’s a conspiracy.

  2. Macstibs

    It’s a valid criticism you raise. I too did a double-take when I got to the end of that post.

    However, just as you agree that the liquidity programs need to be wound down, I think it’s also clear (and you agree) that the Fed has encouraged the return of excessive risk-taking through a combination of cheap funding and moral hazard. Whether that expresses itself in the compression of HY returns or the expansion of equity prices (or both) doesn’t really matter.

    What I think is absolutely reprehensible is that the Fed has effectively FORCED yield-seekers (retirees) further out on the risk spectrum. If they really want America to save more, then why are they so intent on penalizing savers? Maybe they should try to reflate the economy by encouraging actual economic activity instead of blowing hot air…

    1. DownSouth

      Macstibs’ comment provides a much needed dose of common sense.

      The Fed is not unlike the human mind. It is a black box, and prosecuting attorneys frequently have difficulty prying it open to establish criminal intent.

      And criminals often do successfully argue that their crimes were unintentional.

      But once a pattern of repeat offenses is established, the jury is not so easily swayed. And this is the position in which the Fed now finds itself.

      Looking back over the past 30 years, what have the Fed’s repeat offenses been? Masctib sums it up well:

      1) “…the Fed has encouraged the return of excessive risk-taking through a combination of cheap funding and moral hazard.”

      2) “… the Fed has effectively FORCED yield-seekers (retirees) further out on the risk spectrum” and has “penalize[ed] savers.”

      To complete the picture, one only has to ask two questions: “Who benefits from the Fed’s crimes?” “Who pays for the Fed’s crimes?”

    2. jake chase

      The Fed and the Administration are simply hoping that the dollar carry trade will prop up the equity market. So far this has worked. On the day the Fed begins soaking up liquidty in the system the entire hedge fund industry will be one Long Term Capital Management. Who will buy when all simultaneously want to sell?

    3. mannfm11

      I have to agree about some of this, but I do believe I read back in September 2008 that the Fed basically did say they were going to provide all the money the market makers wanted to manage the stock market. That is why the market could go 2000 points up in 2 days as it did between late 10/10 and early 10/14. Goldman isn’t making $25 billion trading because their traders are that good and the rest of the world stinks at it.

      What was said here is the way I have read the Fed documents that I found on the FRB website, that everything is marked to market daily and that the idea that the Fed is holding some kind of junk for their loans is most likely not true. Macstibs makes a point I am starting to make, that the Fed is destroying the guy who has CD’s and money market funds and will eventually undermine the US economy as they did in Japan with the same policy. Stocks are an old wives tale made up by Ivy League nonsense so Ivy league grads could make money looting the rest of the country on Wall Street. There are times, like the bottom in the 30’s, the late 1940’s and early 1950’s and the early 1980’s where it is time to own stocks. Most of the other time it is time to hold the bag.

  3. Jim in MN

    I don’t think Tyler Durden has overstepped the bounds here, in terms of investigating the relationships between opaque public institutions and equally opaque private ones. The questions have been legitimate, and yes, it’s really hard to prove intent (see antitrust enforcement for examples). However, the flip side of that is that it’s also really hard to dismiss contentions such as Tyler’s. I think people are right to be suspicious and to demand more information. Do you know what all these Goldman alums and chums discuss when a crisis strikes Manhattan on a weekend? Who reports to whom and who is calling the shots? No one who ever ran for election, would be my bet.

    The main Zero Hedge ‘beef’ has been with hot money taking over the stock market lately. The main hot money sources continue to turn up snake eyes in terms of criminal investigations and/or the appearance of impropriety vis-a-vis insider and sweetheart relationships. Do you think all of this has fully run its course, that we know the details of corruption in financial markets in recent years and currently?

    Rhetoric aside, how do you think the major banks/traders respond to the acceptance of anything that could serve as repo collateral going in to the Fed as money good? Even for ‘a while there’? Isn’t that a ‘Fed put’?

    Think of it this way–market makers have been backstopped by the Fed in ways that enable them (and based on the math essentially require them) to act differently than a normal investor would. This puts the Fed indirectly into the equity market. If your disagreement is simply that there is no bureaucratic organ at the Fed that is cognizent of equity market impacts from ‘indirect operations’ perhaps that is just a parlor game. In all likelihood the ‘smartest guys in the room’ would be freely running the floor in either case. Is a formal Plunge Protection Team even relevant to the type of systematic issue now being discussed?

    And here is the salient point: In either case (PPT or no PPT) equity markets have come to be dominated by entities that have two main characteristics. First, they are not bound by the rules of rational investing due to corruption, Fed support or both. Second, they are not engaged in a Pareto efficient game. They make money by beating the people who invest our retirement funds.

    Many are seeing a shift, perhaps the end of equity markets for a time. Nothing kills a decentralized system faster than illegitimacy.

    Your take is greatly appreciated, as is your ongoing help to Yves with guest posts.

  4. Just wanna say

    The government already bailed out the banks. So why is it material weather or not the gov intervenes in the stock market or not? Capitalism is dead.

  5. albrt

    I understood the equity claim to be based on a 10/17 post about the equities the Fed had taken from Lehman shortly before the bankruptcy. I am inclined to agree with Tyler – if the Fed won’t say what it is holding, then I don’t see why we should assume it is holding anything better than what it was holding for Lehman when Lehman went under. That is the only sample we have.

    And overnight holdings stop being overnight holdings when your counterparty ceases operations. Query whether overnight holdings have already stopped being overnight holdings for counterparties who are not currently required to make their insolvencies public.

  6. Lawrence D. Loeb

    I find the quality and the veracity of the ZeroHedge posts fluctuates wildly between great insights and BS conspiracy theories.

    I don’t look at the site as often as I used to because there seems to be an overly anti-Wall Street bias – sort of like Fox with Obama (or the opposite of Fox with Bush – THEY are consistent).

    That said, it seems that there is more than one blogger using the nom de plume of “Tyler Durden.” This is supported by the variety of writing styles in the posts and the tone (and I’ve heard that people at ZeroHedge have said this is true).

    I have seen ZeroHedge breaking news (or giving greater visibility to other articles). The arrest of the former Goldman programmer is an example.

    It does have value, but I wish the quality control was better.

    Figured I’d give you my two cents.

  7. Anonymous Jones

    Well, this was my theory posted on this site May 7th:

    “I’m skeptical that the government has the ability to truly move the markets the way the PPT theorists suggest…

    1. Huge liquidity infusions by the Fed/Treasury are causing huge amounts of cash to slosh around.

    2. The banks don’t want to sell their toxic assets/loans/securitized crap to others because they are holding out for the gov’t to buy at 100 cents on the dollar. These are not even really for sale, and as such, the liquidity cannot be used for them.

    3. Very few banks want to use this liquidity make new loans because there are very few creditworthy borrowers.

    Thus, there isn’t much left for this liquidity to go to other than Treasuries and equities. Add to this that most trading strategies are driven by momentum theories.

    The gov’t could never pull this off surreptitiously. It doesn’t have enough hidden funds to move markets this large.

    But the gov’t *could* do this by creating a new $1 trillion plus in liquidity, dumping TARP funds on the banks and guaranteeing loan issuances by the banks.”

    In my experience, humans definitely look out for their own interest but are rarely smart enough or trusting enough to create complex communal conspiracies. My “Occam’s Razor” is always to assume the non-conspiracy theory first and then when there is no logical alternative, examine the possibility of a conspiracy.

    The rally has all the appearances of a large, ground-up, momentum rally spurred on by the availability of very cheap credit.

    Of course, I wasn’t “smart” enough to make money on this theory; so this and $5 will get me a cup of coffee.

  8. JJ

    You haven’t proven that it is not true.

    Given the opacity surrounding the Fed, the burden of proof has been shifted to them to prove that allegations are not true. If they were honest and forthcoming about their actions and positions, people would still trust them.

    Have they denied owning equities? The chief council could not affirm the Fed had not manipulated equities under questioning from Grayson. There are emails within Bank of America that the Fed had assured the deal would be favorable to their shares.

    So, my question is, why do you think they haven’t been doing it?

  9. Skippy

    If I was to build a quiver of econo blogs ZH would be in it.

    By hook or crook the fed and government must be made to act in good faith with the citizens of the republic, whether they like it or not.

    There is not doubt in my mind that the problems we face to day are just *bad management*, the ruling class is rife with corruption and misleading the citizens for the only purpose of lining their pockets.

    We have traded our freedoms for cheep baubles, our future generations for a quick fix, our Constitution for FICO scores which truly are a yoke around our necks.

    Do I think the FED, a Private entity entrusted with our commerce playing games with us YES, have they failed in their charter YES. Just look at their track record its dismal.

    Skippy…time to bite the bullet and end the Fed and only entrust our elected officials where we, can have a chance at controlling them.

  10. fresno dan

    Macstibs said:
    “What I think is absolutely reprehensible is that the Fed has effectively FORCED yield-seekers (retirees) further out on the risk spectrum. If they really want America to save more, then why are they so intent on penalizing savers?”
    Yeah, Yeah, Yeah!!! I couldn’t agree more!

  11. Ross

    Any trader who carefully tracks the market index
    ( unless asleep on the job ) gets a strong feel for
    patterns and trends .
    It is the watching that tells us how strange the
    moves are . So strange that I suspect few of us
    believe it to be normal market forces at work.
    I also track the market index in an other similar
    country where I am unable to identify such behavior.

    Should you care to do so you will find many
    more detailed and articulate descriptions
    of what we have all been watching buried among
    the posts and comments at Zero Hedge.

    Like most of you I have little time for conspiracy
    theories but after many months of observing this
    process I feel little choice but to believe
    manipulation is a reality in so far as it is possible
    within such a large market pool .


  12. Lilguy

    My reading of Tyler’s piece is that the Fed is in a position to and COULD BE investing in equity markets. The fact that Fed Chair Bernanke suggested in a paper just a few years ago that such an activity would be appropriate precisely under the circumstances we now face makes the claim legitimate.

    As you and others have pointed out, we won’t know until the Fed comes clean in opening its records.

    1. DownSouth


      I stumbled upon this video the other day:


      Two things that struck me were:

      1) Here we have two persons—Ron Paul and Dennis Kucinich—from opposite extremes of the political spectrum who have joined forces, calling for the Fed to be audited, and

      2) This comment from Paul: “…the authorities who will be under the gun if we ever get the Fed exposed are going to come down real hard, and they’re going to be talking to the leaders of both parties on all the bad things that could happen if they ever found out what was going on.”

      As Kevin Phillips pointed out in an interview with Bill Moyers a year or so ago, if the left and the right can patch up their differences, even for a short while, it will be the banksters’ worst nightmare.

      And while we are not privy to inside or unsubstantiated knowledge that Paul might have used to base his assertion upon, we always have to hold out the possibility that he is correct, and that many mighty heads will tumble if the Fed is audited. Perhaps we have here the reason why the audit is being opposed so vehemently by so many people in high places.

  13. Amit Chokshi

    ZH leans to the conspiracy side too often. I used to read the sight but it gets a little over the top. It appeals to the libertarians and market skeptics but it’s really a lot of dry humor + conspiracy along with constant bearish news from guys like Rosenberg. The stuff they did on REITs was good when guys like SPG were raising equity to pay down their debt but ZH missed why they would rally when credit spreads contracted (highly levered equities) and the risk of default pretty much gone and that being a larger factor than dilution. The site has its appeal because of the negative slant which people love and also because most people reading it are not hardcore bloomberg users so ZH puts up these posts with a cpl bloomberg graphs and says “proof of conspiracy” where 99% of the readers have no clue what the graph is but will say “right on man.” That’s why I stopped reading it.

    1. mannfm11

      Remember the mainstream never saw this coming. Who could be so stupid as to think you could stuff the banks full of risk and not have them blow up? Whoc could be so stupid as to believe you could build twice as many houses as is normal for boom times and not have a housing collapse? Who could be so stupid as to say you don’t know a bubble until it bursts while stocks go to 300% of all time valuations in 2000? Not a guy with a PHD like an Alan Greenspan, who proceeds to blow another bubble. I have been reading Doug Noland, who never speaks conspiracy, but could see this mess brewing in 2001. The American people have been defrauded by Wall Street and US corporate management out of Trillions of dollars. Enron was just the first domino. Several consecutive administrations providing cover, even the current one with its henchmen Summers and Geithner.

  14. Dan

    I find the concept of a Plunge Protection Team to be all too possible; just because you currently don’t have a smoking gun doesn’t mean the PPT doesn’t exist. Naturally, the Fed would lie to you and deny its existence; the number of examples where the government says one thing and does another is almost infinite.

    Bottom line: I find ZH to be a very useful insight into what’s happening.

    1. mannfm11

      The PPT probably does exist. I used to debate that it wasn’t in the market when so many swore it was doing something in 2005-2007. The PPT would work on a day like 10/10/08 or 9/17/01 or one of those days when the market was out of control after a few really wild days. The declines in November and January-March were more something one might borrow money out of the Fed to absorb at some point, but they were controlled declines. It is the news that is being manufactured, the data about recovery, not the PPT. If unemployment claims weren’t over 500K still and being revised upward every week, I could buy we had bottomed, but if you will check, 510K was more than at any time in 2008 prior to December. There is enough dirty pool being played with beating expectations (there is a website that posts the news in 1930 for the particular day in 2009 and the headlines are amazingly similar to what we are seeing today, like twisting earnings reports), pretending that rail freight being down 20% YOY is a green shoot because it isn’t down 25%, etc.

  15. Bruce Krasting

    At the time the decision to expand the repo terms to include equities was made we were in a lights out situation.

    So they did anything they could to keep liquidity from collapsing. If they had failed we would have lost a bunch of more banks ala Leman. We would probably be selling apples on the corner now if they had failed back then.

    So we can’t fault them for taking ‘extreme’ measures then. But there is no excuse for it to be continuing today. Is it? If it is I think we all need to know. The idea that we are speculating on this is crazy. It is too important an issue to be a ‘mystery’.

    During the worst period stock loans were still happening in the public market. One could get 50% advance against the MARKET VALUE of common stock. So if that was happening where did the money come from? It had to come directly or indirectly from the Fed.

    The question that I want to know is did the Fed violate the 50% advance rate on stocks in their lending. If they did then it would be a very big deal. Once again, unless the Fed speaks, we are not going to know. That is no way to run a free society or a public capital market.

  16. Dan Duncan

    Hey Edward. How do we know you’re not working for the FED as you this take-down piece on ZH?

    Sure, you come across with a reasoned rebuttal of Tyler Durden…but isn’t your “logic” just another ruse to trick us into believing all of the Fed’s lies?

    We’re on to you Ed


  17. Dan Duncan

    Sorry to interrupt your post Mr. Harrison. Please disregard the previous comment from Dan Duncan. Recently, he escaped from the Institute. He has eluded us for too long. Finally we have secured the patient. He is safe now and he is going home. Again, please disregard his previous comment and continue with your discussion Mr. Harrison. This person is not well. We’re shutting down his computer.

    1. Edward Harrison Post author

      That is laughing out loud funny, Dan. Really makes my day. Tyler actually e-mailed me when he saw the post and was remarkably good-natured. Hopefully, he has a rebuttal to my rebuttal!

      I should note that this facility has not been used since May. It may have contributed to reflation before. it is obviously not the source of bubbles in the run up in shares since then.

  18. Roberspiere

    As far as conspiracies go I think the FED/Treasury and the PDs have a tacit agreement where the PDs get unlimited amounts of money at no cost as long as it is used to prop up the market. In exchange the PDs get to keep all their (subsidized) obscene profits as bonuses. Do you ever wonder why the government does not say a word about bonuses on these firms but it has a lot to say about BAC, CITI etc?

    1. Yves Smith

      I am most assuredly NOT pro-Fed. If you would bother to check my posts, I have consistently harangued the Fed for:

      1. Not getting to the bottom of exposures at various banks (and IBs, coordinating with SEC) ASAP after Bear went down. This was inexcusable. They should have been doing this all along (a whole separate issue) but it was indefensible for them to sit on their hands and hope all would be well when everyone knew Lehman, Merrill, and UBS were on the ropes.

      2. Serving as massive, unconstitutional off balance sheet/extrabudgetary arm of the Treasury

      3. Not disclosing details of lending under various facilities. This too is heinous.

      4. During crisis, being behind the eight ball and then highly reactive.

      5. Related to but distinct from 2., working closely with Administration. You can’t do that and claim independence. That means they need to be heavily supervised and scrutinized.

      6. Wanting to institutionalize bogus stress test methodology

      7. Wanting to be systemic risk regulator when they missed the crisis totally

      8. Being a walking example of cognitive regulatory capture.

      That isn’t close to an exhaustive list.

      Having said that, I am a big believer that if you are going to criticize authorities, you need to be on solid footing. If you make ill founded or not fully proven argument, they not only dismiss that attack, they can then use it to denigrate the source (“oh they were wrong on X, so why would you believe them on Y?”).

      ZH has often been wide of the market on the Fed. They know equity market stuff very well, but they appear not to recognize the limits of their expertise on credit markets. If I can see problems with what they write on that beat, and I consider myself only to be somewhat down the curve, not an expert, that says they are open to attack.

  19. Siggy

    One has to be very careful in this. I do believe that the Fed is intervening in the stock market, albeit very indirectly. By making liquidity available at no cost it is underwriting any form of speculation imaginable. And in that sense I agree with ZH. In every other respect the post is noise.

    1. mannfm11

      I believe the Fed attempts to put it on the tee for the bulls, but in the long run I don’t believe the give a damn about the price of stock. They are more concerned with the orderly movement of price in markets. If they are concerned about the stock market it is only to the degree that it can support the credit system in the US and around the world. The price of stock really has absolutely nothing to do with the return one would make on investing long term in the stock market in a true financial sense. I mean if I bought a particular return, it would either show itself in higher dividends or higher stock price due to higher dividends. Thus it is the check I get in the mail quarterly that produces value in holding as stock. Thus, in this sense, it would have to be said that on a day to day basis, the Fed favors sellers of stock over buyers.

  20. David

    If you read the comment section over at ZH it’s like reading minutes minutes from a MAS (Mutual Admiration Society) meeting. What he has done is dredged up some now ancient Fed press releases, repackaged them and come up with “proof” of market manipulation. The problem is that it’s old news whether or not one buys into the conspiracy idea. IMO ZH is becoming a victim of its own success needing more and more dramatic themes even if it means intellectual dishonesty (too strong a term but you get my drift). Hopefully they will they won’t stray too far from what they were but I do see some “over confidence” creeping in e.g. posts where ZH itself is the topic of the post.

    It’s almost like they are a cross between Infowars and Calculated Risk the latter being rooted in fact and solid analysis and the former…

  21. Seal

    Serious manipulation in the ‘markets’ began with the large purchase of the MMI futures October 19, 1987 late in the day, effectively stopping the crash. Greenspan is a wanna be market player and suddenly he got his chance. The real nefarious stuff began during the Baby Bush era with manipulation, including hyping particular stocks for insider trading, using DoD – a unit apparently called the ‘Special Brokerage Services’. Auditing the Fed will never uncover what has really gone on. I can’t believe there is still controversy as whether the gold market is subject to manipulation by central banks including the US bank via swaps etc. My guess is the unaudited US gold supply does not exist anymore. Why do you think John Paulson went all in for GLD after hiring Sir Alan as a ‘consultant’.

    Not only have we not had free markets for some time, the US is now, and has been, under the control of a military-industrial/financial-Congressional dictatorship.

  22. Guest

    What is ironic is that (for the most part) Zero Hedge has been on the wrong side of this market rally since early March (a la David Rosenberg). Now that the market is fifty or sixty percent higher Tyler publishes a piece offering a theory for that rally weakly based on information that has been in plain view all along; as if some great secret has been uncovered.

    Zero Hedge is an entertaining and lively blog but his article on the Fed reveals the quality or lack there of, of some of its posts and to that end the over all reliability of Zero Hedge as a source for dependable analysis and information.

  23. i on the ball patriot

    Edward …

    When the scam ‘rule of law’ fails to provide equitable justice for all then it is quite natural for those who feel they have been harmed by that lack of justice to turn to the most powerful court on the planet — the court of public opinion.

    Tyler Durden seeks redress of grievances in the court of public opinion. Hyperbole is warranted. I feel Durdens’ hyperbole is not strong enough. I believe that this is an intentional global financial coup — a heinous gang rape looting of the treasury — that is meant to dismantle and enslave the global middle class through predatory fraud and corruption.

    DownSouth, in response to Macstibs comment in this thread (above) made a good point that bears repeating’

    “But once a pattern of repeat offenses is established, the jury is not so easily swayed. And this is the position in which the Fed now finds itself.”

    Let me give you an elaboration on that concept from the US Code TITLE 18 > PART I > CHAPTER 96 > § 1961
    Prev | Next
    § 1961. Definitions:


    “(5) “pattern of racketeering activity” requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity;”

    This is of course from the RICO act, that in a just world would have stopped all of this kind of bullshit in 1970 when RICO was enacted (It sure did a number on Michael Miliken for far lesser offenses);


    I am amazed that given the gross past and present deceptions (both foreign and domestic), perpetrated by the ruling elite and its puppet gangster government that own and control scamerica, that you Edward, would choose to spend your time pinning the “rather conspiratorial” label on Durden (a very telling low blow that by association maligns the ZH effort), and nit picking him on a marginal article and his use of hyperbole. Its like complaining about the pimple on the ass of a cop who has come to pull the rapist from your abused and tortured body.

    Most egregious, you give legitimacy to a grossly corrupt system. You come off appearing like PBS (Propaganda Broadcasting Service). Especially with this softball bullshit description of the gang rape;

    “Why not leave it at the lesser claim that the Federal Reserve is running a loose monetary policy that encourages excessive risk – something that, while subject to interpretation, is a valid criticism?”

    Why not talk about building gallows on the National Mall?

    Deception is the strongest political force on the planet.

    1. Edward Harrison Post author

      That is good! I do hope you jest on much of this, though.

      Look, Tyler knows I mean him no ill will. But, I do think his post was one of the more marginal ones as you say, and that it was disinformation rather than real information.

      What I would have liked to have seen is the same argument without the over-the-top conspiracy theory added on for effect. It may play well for his audience, but it reduces credibility.

      1. calltoaccount

        Do you doubt there is a corrupt criminal conspiracy, tacit and otherwise, between the SEC and its designated “first line of defense for market integrity”, the Wall Street owned and operated DTCC, which enables massive market manipulation, leverage and illicit profits via the counterfeiting of securities in contravention of the explicit mandates of the Securities Acts?

        1. mannfm11

          I have to agree there. What is the bill for destroying the USA? We read repeatedly what China is going to do. Well, this NYC nonsense along with the Fed built this China monster. Geithner worked for Kissenger, Kissenger kissed Rockefellers ass and got Nixon to go and open up China. Now China is using the subprime credit created by these vermin to buy up the resources of the world while we shovel them interest in return for crap to put under the Christmans tree and pay Citicorp 30% interest on the credit we ran up buying the stuff. In any clearcut court, this would be treason.

  24. Eagle

    Why do you believe QE needs to end? As Krugman says, we’re at the zero-bound of interest rates, we should ideally have something like -6% interest rate according to the Taylor rule.

    1. Edward Harrison Post author

      I don’t like QE either, but both Tyler and I are talking about “qualitative” easing i.e. the junking up of the Fed’s balance sheet. This must stop.

    2. mannfm11

      Zero bound or not, it is time to liquidate the bad debt, not to allow a few Wall street firms to finish looting the country. Fed funds should be at 2% minimum. Banks that can’t pay should be liquidated. Credit isn’t being priced at 2%, it is being priced at 30%. Speculation needs to be stopped (Oil at $80 is speculation, not free market). In any case, they won’t cease to tell you stocks make 10% forever, just buy and hold, so 3% should be cheap. You might note who has received the Nobel Prize in recent years, as most have been disasters.

  25. Washington Babylon

    “What I think is absolutely reprehensible is that the Fed has effectively FORCED yield-seekers (retirees) further out on the risk spectrum. If they really want America to save more, then why are they so intent on penalizing savers?”

    The answer is savers don’t spend, which is 75% of GDP. So the
    Fed is going to try and force these people to take their
    money out and spend it rather let banks have free use of it.

    1. DownSouth

      Let banks have “free use” of it?

      What makes you think the banksters are interested in milking the cow? No, I think they’ve made their preference quite clear, and that is to slaughter the poor creature.

      Macstibs got it right. What the banksters want to do is to force “yield-seekers (retirees) further out on the risk spectrum.” That way they can just take it all.

  26. Cassandra

    Thanks, Ed, for calling this one out. It seems to me that many of the same people who harbour beliefs that the US Federal Government is wholly inept and incapable of carrying out the most basic of administrative or financial functions in the public interest without making a wholesale cock-up of it, paradoxically appear to believe that there is this other secret and wholly-competent arm of the very-same US Federal Government run by the smartest of financial ninjas (who stealthily keep managing through direct intervention to successfully levitate the US equity markets without a trace, or so-much as a slime-trail, and without any disgruntled ninja, backoffice hack or otherwise running off to Bob Woodward with some evidence the the most competent and sleuth-like Federal puppeteers DO exist. The public seems to know whether (and how many!) hemorrhoids the Treasury secretary has at any given moment, so it still seems fantasy to imagine that such an operation as a PPT has been carried out in the purported size without evidence. The PPT surely ranks with the Yeti, Loch Ness Monster, Area 51, and Elvis Lives in terms of urban folklore. Ghosts are perhaps more plausible than the longstanding success of the PPT operating without firm discovery.

  27. Thisson

    Under the Federal Reserve Act, the Fed is not permitted to take on any “assets” unless they have the full faith and credit of the U.S. Government.

    Their loaning against equities is unlawful. That’s the story.

    End the Fed!

  28. C Kamb

    Yves said:

    PDCF is not the problem here meaning over-night financing
    with “bad collateral” are less problematic than longer term.

    To an extent I do agree BUT;

    1. Short financing(incl overnite) is “modern financing” and investing long.
    2. FED gives away overnite at 0,25%. Why not use the facility now when “business is usual” again?

    Of course the FED wanted the firms to translate their
    problematic overnite-borrowing into FED´s longer matures
    through TSLF anf TALF and at the same time change collateral with Toxics for Treasuries. But the banks are
    still investing long with taxpayers money and still
    financing it all overnite with toxic-collateral in the
    clothings of Treasuries.I see that as a problem. Even a
    big problem.

  29. ross

    Let’s cut to the chase. We know there is a PPT, more properly referred to as The Presidents Working Group on Financial Markets. At the same time, even though we are armed with that knowledge, the opaqueness of the institutions in question, and the timidity, if not cowardice, of those who might remove the veil of secrecy surrounding the workings of these institutions, make it well nigh impossible that manipulation of the kind under discussion will ever be traced to its source. Auditing the Fed will probably not uncover all that they have engaged in (good, bad and illegal) to date, but it is a legislative initiative whose passage I believe is imperative.

    As for conspiracy theories, one has two choices. One can subscribe to the sensible view, as many do, that some of the worst events in our recent (and not so recent) past are nothing more than the result of incompetent and bumbling officialdom, OR you can hew to the notion that powerful interests do not come by their power by chance-which is another way of saying they are competent- and are supremely interested in maintaining their advantage. And, perhaps, most importantly, not only do powerful interests not play by the rules, but generally they have contempt for them and act accordingly.

    From such realities are “conspiracies” made. And once one has truly understood and accepted the immortal words of Frederick Douglass, “Power concedes nothing without a demand. It never did and it never will” one realizes that conspiracies are more the norm than most would like to believe.

    1. mannfm11

      Once you know there is a good old boys system of conspiracy working on an internatinal basis, it really is a waste of breath talking about it. But is sure is entertaining to watch it in operation.

  30. Call me ahab

    i think it is quite plausible that pressure was put on the banks to reflate the stock market- making money to shore up reserves along the way- all with “free” money supplied by the Fed-

    in the end the big players in securities ARE the market

  31. i on the ball patriot

    For all of you conspiracy nay sayers who claim that large size deceptions are impossible to keep secret and implement, it might be wise to bone up on Ike’s “Operation Overlord”, especially the breaking of the German enigma code and how long that code deciphering was kept secret;


    And then look at some of the current ‘transparency’ of your scamerican government and the small number of players who are secretly steering the ship. Pay particular attention to the Catherine Austin Fitts story, she is a very credible individual and represents just one of many of those RICO “patterns and practice” ‘conspiracy’ events ;


    The victim of the African Rock Python, like this poor Vervet Monkey, never sees the deceptive camouflage of the snake until it is too late.


    Be alert Edward …

    Deception is the strongest political force on the planet.

  32. prescient11

    Perhaps Zero Hedge is stating that it is a possibility because the Fed, in many different instances which are quoted by ZH, HAS SAID THAT THEY MAY DO SO.

    Or, perhaps, you did not read that into the piece.

  33. anonymous

    Well spoken Ross.

    There is another factor to consider in this context of Zero Hedge and Tyler Durden, the implications of silencing this voice. Many many people do not consent to what the Fed and Wall Street are causing (directly and indirectly). If the “moral hazard” alone is not illegal, then we need to ask why not and support others who take on the question also.

    1. Yves Smith

      Asking for accuracy and well founded criticism is not “silencing.” If you read economic and political blogs, writers regularly, and sometimes with considerable venom, criticize the arguments of other writers. And these are often among people on broadly the same page, liberals pointing out weaknesses in the evidence and logic of those of the same persuasion, ditto on the right.

      Yet when ZH is subjected to the same treatment that prevails in public discours, in the media and particularly on the blogosphere, those who make those observations are accused of trying to “silence” him. This is wildly off the mark, and is close to thought police tactics.

      1. Bob Goodwin

        “thought police???”

        Someone trying to silence someone who was trying to silence someone wants the mainstream exposed? Is that any less hyperbole than Plunge-protection-team?

        The reason ZH has its blistering adherants is precisely because the literate writers have not been able to properly blow the top off of the blatant corruption. Matt Taibi and ZH have filled this niche. They do not offer any better evidence, and nor do they try. They just tell us what we already know, and thus make us feel our thoughts are still valid.

        We will keep reading the sober writers too. Perhaps there will be carefully exposed Watergate to unravel the power base. But until then we will not let the truth tellers be marginalized over foot fouls. Even if those foot fouls involve innaccuracy

    2. Edward Harrison Post author

      By the way, you might not be aware of this, but I wrote the post, not Yves. It is also posted at Credit Writedowns.

      My point here is that Tyler’s main point was valid. By adding spurious arguments about the PPT, he made the piece much less credible and something easier to dismiss.

      1. anonymous

        Mr. Harrison,

        I actually got that from your posts. I also thought your challenging Zero Hedge to rise to the occasion was nicely done. My point is rather broad – that we not dismiss such questions but that we all examine the issues deeper. I doubt that you, I or anyone else yet has the full picture, but raising the question is too important to ignore.

  34. Waldo

    “Not only have we not had free markets for some time, the US is now, and has been, under the control of a military-industrial/financial-Congressional dictatorship.”

    “Speculation needs to be stopped (Oil at $80 is speculation, not free market)”

    It is amazing to me how it is thought that speculation is the cause of our inflated oil prices; occuring for a decade now. It is manipulation. Monopolistic power. The oil elite utilizing the Federal government (intelligence and military) to propagate their continued corrupt oil profit plan.

    What is interesting is that we have had an Administration change and it continues. Makes you wonder who is in charge with these corrupt government agencies (intelligence and military); it does not appear to be the Executive or Congressional powers.

    Been a while since blogging. Been busy growing the biz.

    As always very bright bloggers here. The best I have experienced. Thanks.

  35. mark

    The fed is without a doubt tinkering with the futures market. I’ve traded futures for twenty years and I know.

    For one, they opened the market much higher on July 15 when the futures had no business opening where they did. They knew denying the much ballyhooed inverse head and shoulders pattern at the time would give the market at least a temporary lift. And from there they haven’t stopped… until the past couple of weeks when I’ve seen things settle down a bit. It’s beyond a rigged game.

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