Between October 1998 and November 1999,
the Nasdaq composite rose 150%. Everyone who was invested believed in Alan
Greenspan and the Federal Reserve. At a Grant's Interest Rate Observer
conference in November 1999, Michael Steinhardt, one of the best traders over
the previous three decades, did not buy it.
He did not think the Fed's leadership
would be worth much when it was needed most. He spoke about Wall Street's
abandonment of controls, leadership and responsibility: "The liquidity
safeguards, historically, were the specialists' books, the retail system, and
the institutional liquidity providers in the major brokerage firms. They were
the mechanisms that the stock exchange itself had provided, and they were all
structured for a system where trading was a very, very small fraction of what
we're seeing today. Now there are no specialists' books; there is no serious
liquidity provided by brokerage firms; and the trading mechanisms of the
exchange are hardly relevant to the sorts of volumes that exist today. So yes,
the Federal Reserve, if you define that broad context of liquidity in a
financial sense, does still exist, but in a securities market sense, none of
the former ones do."
That was 14 years ago. In this age of
uplift and improvement, does the current Federal Reserve Board understand the
consequences (as seen in April 2000 and in 2007 and 2008) of the lost
"liquidity safeguards...."?
This can only be answered in the future,
500 years from now - it will take that long for the human mind to believe this
Arsenal of Annihilation was given responsibility above latrine duty. From all
sources though, the top of the Fed has grown more withdrawn, abstract, and
divorced from reality since the millennium. The king pins are not interested in
the functioning of markets. Markets exist to fulfill economic policy of our
policy-makers. It is unfathomable to the anointed that government control of
markets would even be questioned.
AT THE COUNCIL ON FOREIGN RELATIONS, June 28, 2013:
James Grant, addressing Governor Jeremy C. Stein, Federal Reserve
Board: "Good morning, Governor. James Grant of Grant's Interest Rate
Observer. Could you help us understand the economic difference - not the
legal one, but the economic distinction - between the private manipulation of
Libor, on the one hand, and the public manipulation of markets, on the other,
doing business as ZIRP, QE, Twist, the "portfolio balance channel"?
What ever did happen to the price mechanism?"
Governor Jeremy C. Stein, Federal Reserve Board: "You know,
that's a hard question for me to answer, because [laughter] I don't see the
connection between these two whatsoever. I mean, obviously, the Libor set - it
is a set of criminal and near-criminal activity, which is a very substantial
policy concern. A lot of effort is going into trying to, you know, both reform
Libor itself, look at other benchmarks, see if they're more resilient. That's a
whole set of issues. To be frank, I just don't see the connection to that and
the monetary policy issue."
This is the type of thinking that gives investors confidence (apparently) that
the Fed will not permit the stock market to fall 20%. Yet, the man has no
interest in how people participate (or don't) in markets.
Over these same 14 years, technology has turned public-market investing into a
much more dangerous arena. Some will say the withdrawal of private money from
markets shows the public understands this, since there is very little trading
left, except by institutions and their algorithms.
The curious investigator, 500 years from now, will study our worship of
technology despite daily evidence of its failure. Here, we discuss the
malfunctioning of public markets. The Nasdaq took a mid-week siesta on August
22, 2013, and there are no answers. (An hour before the Nasdaq died, NYSE
Euronext announced a breakdown of its Arca exchange, for symbols from TACT
through Z. Two days before, Goldman Sachs pushed a wrong button and
stock-options with ticker symbols between H through L fell to $1.00. After the
Nasdaq ran through the usual excuses - "software bug"
"connectivity issue" "latent flaw" "system
overload" - the exchange magnanimously announced it crashed "to
protect the integrity of the market.") With technology, any excuse for obvious
failure is taken as gospel.
None of this nonsense would exist if "liquidity safeguards,
historically...the specialists' books, the retail system, and the institutional
liquidity providers in the major brokerage firms" - that is, people, were
still on the chopping block.
Turning exchanges back into public utilities is sine qua non.
OF ALL THE COMMENTARY REGARDING THE NEXT FED CHAIRMAN, NONE WAS MORE FETCHING
than that offered by star Financial Times columnist Gillian Tett. Under
the headline "Central bank's chief needs to master the art of
storytelling," she wrote: "The next Fed chair also needs to be a
masterful storyteller and cultural analyst, who can read social sentiment,
shape norms, (re)create trust and persuade us all to think in a manner that
suits the Fed's economic goals, without us even noticing. Somebody, in other
words, who can cast spells with both their spreadsheets and words. In short,
what is needed is nothing less than a monetary shaman."
A test of such talent will be the day stock markets shut - and never reopen -
claiming they are protecting the integrity of the market. Very few will
protest.
In fact,
the new Fed head may have more leeway to "shape norms, (re)create trust
and persuade us all to think in a manner that suits the Fed's economic
goals." So we learned under the headline: "U.S. Repeals Propaganda
Ban, Spreads Government Made News to Americans." ForeignPolicy.com,
July 14, 2013 [Note: Bastille Day].
Reporter John Hudson:
"For decades, a so-called anti-propaganda law prevented the U.S.
government's mammoth broadcasting arm from delivering programming to American
audiences. But on July 2, that came silently to an end with the implementation
of a new reform passed in January. The result: an unleashing of thousands of
hours per week of government-funded radio and TV programs for domestic U.S.
consumption in a reform initially criticized as a green light for U.S. domestic
propaganda efforts. So what just happened?"
That's as far as I got. The propaganda machine seems to be working at full tilt
already.
This was announced on the
heels (July 12, 2013) of a Washington Post article by Josh Hicks after
the Department of Homeland Security had "warned its employees that the
government may penalize them for opening a Washington Post
article containing a classified slide that shows how the National Security
Agency eavesdrops on international communications.... An internal memo from DHS
headquarters told workers on Friday that viewing the document from an
'unclassified government workstation' could lead to administrative or legal
action. 'You may be violating your non-disclosure agreement in which you sign
that you will protect classified national security information,' the
communication said. The memo said workers who view the article through an
unclassified workstation should report the incident as a 'classified data
spillage.'" Hicks provided a link to the double-secret Washington Post
article.
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