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Fed Insider Legal Dealings For The Chosen Ones - Denniger

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Again: You Allow This WHY?

One of the principles of a fair capital market is that everyone gets the same information at the same time. Thus, you have honest price discovery - the bids and offers reflect honest disagreement about price, and one person is right (who profits) and the other is wrong (who loses.)

But is that true, or is it an illusion? And does The Fed, which has tremendous power, especially now when it's doing its "special programs", hand that information to certain favored people first?

This has been charged by many (including me) for a long time. But now we're seeing proof:

On August 19, just nine days after the U.S. central bank surprised financial markets by deciding to buy more bonds to support a flagging economy, former Fed governor Larry Meyer sent a note to clients of his consulting firm with a breakdown of the policy-setting meeting.

The minutes from that same gathering of the powerful Federal Open Market Committee, or FOMC, are made available to the public -- but only after a three-week lag. So Meyer's clients were provided with a glimpse into what the Fed was thinking well ahead of other investors.


The inside scoop, which explained how rising mortgage prepayments had prompted renewed central bank action, was simply too detailed to have come from anywhere but the Fed.


A respected economist, Meyer charges clients around $75,000 for his product, which includes a popular forecasting service. He frequently shares his research with reporters, though he kept this note out of the public eye. Reuters obtained a copy from a market source. Meyer declined to comment for this story, as did the Federal Reserve.

This isn't illegal, by the way. Unlike the stock market and public companies, where trading on material inside information is strictly prohibited (at least in theory), there is no such stricture for members of Government - or Congress, for that matter, which often does trade on inside information on their legislative deliberations.

But that's not the correct question, is it?

The question ought to be whether it should be legal to give certain "privileged few" knowledge ahead of time what The Fed - or any other Federal or regulatory body - information that they can act on to profit before the general marketplace learns it.

The revolving door, of course, helps. Fed people often both come and go to and from commercial and investment banks, and when it comes to the NY Fed, their board is largely comprised of same. Is it any surprise that some people have "superior information"?

Well, no.

But having it and using it to profit as one of the behemoth institutions is unjust.

Before the repeal of Glass-Steagall, you couldn't profit from it, since commercial banks couldn't trade. This provided some important separation between what The Fed might be doing, and what the (at least alleged) Free Market might be doing.

This "Chinese Wall", such as it was (and it was imperfect of course) no longer exists. Now the commercial banks not only trade in the bond market where The Fed is most influential, they trade in the derivative market where one can leverage those moves at 10:1 or more with ease.

With superior information it is rare to lose, and this, perhaps, explains the "superior" trading results of banks like Goldman over the last few years.

The policy decision is whether we as Americans are going to permit this obvious imbalance - and the effective theft it enables - to continue.

The bit in red wasn't in Dennigers original post but it highlights why questions need to be asked.

One rule for the peasants and another for the elite.

We are just here to be butt fooked.

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It's not only the advantage of knowledge in advance for insiders but those who are not insiders have to deal with the misleading and inaccurate media information. How much media investment information turns out to be true and how many media "tips" really come good.

It's a double whammy of insider information and then false information for outsiders.

Edited by billybong
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