Rigged Markets

A few getting richer, many getting poorer, isn’t capitalism at work — it’s manipulators, frontrunners and the Fed. To fix that.

Below, you’ll find the Reasoning & Rationale to what we call a Bill-Request. Once certain milestones are met, as defined HERE, lawyers will be called upon to draft what will then become a Bill-Demand to Congress and the President.

Published in 2015, updated in 2017

Remember when they told you post-bailout that the better Wall Street gets, the better off everyone else would be? And how, after that, they began program after program to goose every market the bailed-out bankers were in, leading the General Manager of the Federal Reserve’s own Large Scale Asset Purchase or LSAP programs, former Fed official Andrew Huszar, to publicly call his bosses out, that so-called Quantitative Easing, or QE, was none other than quote “the greatest backdoor Wall Street bailout of all time [that] the central bank continues to spin as a tool to help Main Street.” 

By 2015, after more geese (like the Central Bank Incentive Program to goose the stock market) got time to kick in, the number of centimillionaires on Wall set an all-time record. There was even a CEO or two of banks, interred in Sep 2008 by crisis, and exhumed in Oct 2008 by TARP, who found themselves billionaires suddenly.  Meantime, as those new highs got set in high-finance-land, elsewhere in America both the middle class and poor found themselves sinking to all sorts of new lows. And sometimes ‘elsewhere’ was just a few blocks away, because by 2015 even New York City found its streets home to the most homeless children since the Great Depression.

As for the children who could never fathom homelessness ever happening to any of their playmates, the Financial Times would run a story about a Matt Bardin, an English tutor to the offspring of Manhattan’s ultra-rich, charging $600 an hour for his services, with “a typical spend” being $15,000, and some clients paying over $100,000 for their kids to be tutored aboard yachts.

Congressional tax law is largely (if not near-exclusively) written by Big Business lawyers & lobbyists. In Dec 2017, a tax bill from Congress made its way to the President’s desk. It too was constructed by the usual suspects on Wall Street & K Street, led by Goldman Sachs alumni, Gary Cohn and Steve Mnuchin, which might explain the rising columns on this chart, seen HERE, showing the biggest winners of after-tax income increases to be the top quintile and decile of taxpayers, i.e. the uppermost echelon of those with incomes. 

By Sep 2017, the Federal Reserve had released statistics showing the top 1% in America controlling a record 38.6% of the nation’s private wealth. The share of private wealth owned by the bottom 90% of wage earners had been tumbling for 25 years — touching down at less than 22% in 2018, down from over 33% in 1989.

A graphic of central bank policy, coinciding with the rising tide of inequality, can be viewed HERE.

Inequality of this kind — the rising kind, and especially one that eventually breaches a ‘critical mass’ benchmark — never ends well. Take for example this historic perspective:

In 1928, before the start of the Great Depression, the richest 0.1% richest in America controlled about 25% of the nation’s privately held wealth.

Between 1929 to 1948, the concentration of wealth in the hands of the 0.1% sank to about 10%, and stayed at or under that measure until around 1988, reaching a low of about 7% along the way.

In 2018, the ‘critical mass’ benchmark — 25% — is about to breached again.

The year 2019 could thus be our 1929, all over again.

Between 2008 — again, the year of the crisis, crash, and Fed/Treasury rescue of the megabanks — and 2014, the number of billionaires in the world, measured in U.S. dollars, had doubled to 1,645. By March 2016, there were 1,810 billionaires in the world, with a cumulative net worth of $6.5 Trillion. By March 2017, billionaires worldwide numbered 2,043. Their cumulative net worth: $7.67 Trillion.

UBS Global Macro Strategist, Matthew Mish, on Wall Street, was kind enough to put only a half-spin on why the rich were getting richer, and why everyone else was either lucky enough to be flatlining or unlucky enough to be sinking: 

[T]he mosaic we see is one where central bank reflation efforts, namely QE and low interest rate policies, have been more successful at fueling higher asset prices and wealth creation for a subset of the consumer and less effective in stimulating real income growth (particularly at the median and below).

By “median and below” he means the average Joe Blow and Jane Doe.

As for “less effective” Main Street Gov would say the strategist is sugarcoating what’s actually happening, so as to not get fired by his megabank bosses, the day after, and never get hired anywhere else on Wall Street, thereafter. For the reality (by March 2017) was that there were over 100 million Americans who could not come up with even $500 to cover an unexpected expense, and that there were almost 200 million Americans who were earning, in real inflation adjusted income, what more fortunate Americans were earning 50 years ago.

50 years ago, $1 bought you two tickets to the movie theater.

50 years later, $1 wouldn’t buy you half a hotdog, going into the movie theater.

Per the Economic Party dossier:

The Gini coefficient tells us that the nation’s seats of political pull & political power, namely New York City and Washington DC, are the worst centers of inequality in America. Besides New York City itself, the last we checked New York State registers the worst Gini coefficient (highest inequality) of all the 50 states. (Only the District of Columbia, the seat of our government, fares worse.) Some of that inequality is earned, the result of good old fashioned American capitalism doing its thing. Other parts, however, are distinctly unearned, the byproduct of backstops, bailouts, and handouts.

You see, the kind of disparity we’re seeing, between where Main Street hangs out alone, and where Wall Street and K street and Government hang out together, is indicative of something malign. This sort of disparity does not happen under free markets, true free markets, wherein rules and regulations apply equally and equitably to all. It happens, instead, under corrupt regimes.

How corrupt have things got? Consider just this paragraph off this headline:

UC Berkeley professor Annette Vissing-Jorgensen and her research team have discovered evidence that the Federal Reserve regularly leaks information to certain investors and media outlets, leading to a spike in stock returns. Source: UC Berkeley professor, research team, find evidence of information leaks by Fed

That’s how corrupt things have got!

{By the way, while on the subject, there was also this, asked by a reporter for Dow Jones Newswires of Fed Chairwoman, Janet Yellen, in March of 2015: “Why should the American people believe the central bank is working in its best interests, if Fed policymakers chat privately with movers and shakers on Wall Street?” The question in its entirety, Yellen’s angry answer, consequences embedded in the exchange, and the April 4 2017 conclusion to the allegation ingrained in the exchange, can all be found HERE.}

We’d bet those investors and media outlets, quoted by the professor, and those movers and shakers on Wall Street, quoted by the reporter, serve the systemic bank cartel in the end. As for why the Federal Reserve would be engaged in insider trading activity, our guess is: the bankers at the systemic banks’ need all the help they can get, be it even illegal, to make as much money as they can before all hell breaks loose at the next banking crisis in late 2017/early 2018, a timeframe we put in perspective here and here.

In that regard, the Federal Reserve raised rates on Dec 16 2015.

Why? Because the U.S. economy is in full-blown recovery? No.

Because public pension funds are struggling to keep up with obligations in a ZIRP or Zero Interest Rate Policy environment? Yes, partly, but not entirely.

But, then, why? Perhaps because the Fed was forced to do something that’s double-edged, that cuts both ways. Perhaps, the Fed’s hand had been forced to catch a falling knife.  It’ll be systemic banks in the European Union that’ll set off the next banking crisis on Wall Street, and maybe the Fed needs rates up significantly by then, so that it can begin to lower rates to at least leave the impression that it still has tools left in its near-empty toolbox.

On Sep 5 2014 the Bureau of Labor Statistics reported jobs data for the month of August 2014. By 4pm that day, the headlines in the news were in one way or another akin to this:

“Stocks Close at Record Highs on Worst Jobs Data in the Year”

And the funny thing is, it wasn’t the first time one would find that headline in the news — Wall Street would celebrate Main Street misery many times before, figuring that the Fed would use the bait-and-switch pitch of “labor-market under-utilization” to goose the markets even more, to heighten its trademarked “wealth effect” also known as ‘If The Rich Get Richer, The Poor Would Be Happier’ theorem, that had to be put out by some Ministerium of Propaganda housed somewhere inside the Fed, to in effect catapult the rich into the stratosphere in wealth, and leave everyone else to erode under intensifying financial stress, if not duress.

After the stock market swooned a wee bit in Oct 2014, the Fed’s James Bullard hinted at the possibility of another round of QE and got the Dow Jones and its siblings to reverse themselves and lift off into record territory, raising economic inequality to new heights.

Yes, we understand the stock markets staying up, and going up, are good for both traders and brokers at the banks, and thus good for the bonuses of the bankers who supervise them, but let’s stay focused on inequality here, because the stunning irony is: that same month, both Bullard and his boss, Fed Chair Janet Yellen, delivered comments about how they were not just worried, but utterly confounded by heightening economic inequality!

Then, in Dec 2014, the market swooned a wee bit again — a few percentage points on the Dow Jones and the S&P 500 — and there was Yellen doing what Bullard did before, issuing statements to get the stock markets to halt their downturn and propel themselves into all-time record territory.

Not long after, USA Today would carry “Fed To The Rescue” in its weekend headline. The front page may as well have read Fed To The Rescue Of The Rich — Again! in conjunction with perhaps If You’re Too Poor To Own Stocks, Don’t Be Poor.

“The extent of and continuing increase in inequality in the United States greatly concerns me,” lamented Yellen in October 2014. It should concern her — it did, after all, concern the ultra-wealthy attending Davos 2015 enough to go in search of “escapes” from the masses who may someday snap and hunger for payback. In that regard, The Guardian even quoted a Robert Johnson, one of those super-rich at Davos, saying: “I know hedge fund managers all over the world who are buying airstrips and farms in places like New Zealand because they think they need a getaway.”

We understand stock price levitation and propulsion, in combination with bond yield suppression, is designed to keep afloat those insolvent systemic financial institutions that are drowning, so that the Chuck Prince’s of the Citigroup’s of the world can keep dancing, but still: this Bill-Request asks that the Fed end the charade, and terminate its masquerade.

The fact of the matter is, if growing inequality is of as much concern to Ms. Yellen as she claims, we suggest she wipe away her crocodile tears and empty every punchbowl — both publicized and unpublicized — that the Fed’s put out there for its festivities, right away.

After all, isn’t there something inherently and morally wrong to an American central bank running-up securities markets in a nation that should ideally be the last bastion of pure and unadulterated capitalism on this earth (for, God knows, there are no others). Makes one damned surprised that the millions of short-sellers — some of whom have been burned to a crisp by the Fed’s actions — haven’t gone class-action yet, to collect punitive damages from that Fed.

To now recap with a thought the Economic Party once shared with us, back in 2012 or 2013, in reference to the following utterance by the CEO of JP Morgan Chase in a 2012 interview with the New York Magazine entitled: 122 Minutes with Jamie Dimon“This is not the Soviet Union. This is the United States of America… Guess what… It’s a Free. Fucking. Country!” shouted Mr. Dimon.

Economic Party: We found what Dimon had to say interesting, because the banker theory of Armageddon — that if Wall Street went down, so would Main Street — of Mutually Assured Destruction, parroted by the likes of New York’s U.S. Senators, Chuck Schumer and Kirsten Gillibrand, was in fact so Soviet Union.

Matter of fact, what Republicans and Democrats in D.C. did for Dimon, and others in his cabal on Wall in 2008, is pretty much what Boris Yeltsin did for a number of oligarchs pursuant to the collapse of the USSR in 1991: He gave them their old jobs back after the failed state.

Yeltsin, the first President of the new “democratic” Russia, even called the transformation of the Kremlin’s centrally-planned socialist command economy into an oligarchy: free market privatization. Sound familiar?

Where profits are privatized but losses are socialized, oligarchs thrive. Where both profits and losses are privatized, capitalists thrive. Economic inequality, its extent and trend, is the broadest measure that defines which is which. If the rich are getting richer while everyone else is getting poorer — which is all that’s been happening since the feds turned America into an oligarchy in Sep 2008 — we are, ladies and gentlemen, no longer what we were. We are, instead, on a slippery slope to a growing divide that will not end well.

So, in the interest of country, here’s to putting an end to rising economic inequality and seeking a path to rising economic equality by, for starters, denying the asset pumpers their pumps, so that we may make our way to markets that are free from manipulation by government actors, and toward a marketplace where there can be private-actor price-discovery.

Absent the pumpers and pumps, yes, the truth shall be revealed — the truth being that the tires, the banks have been pretending to be riding-n-rolling on, have been flat-broke since 2007.

But so be it.

Because America is not what it’s becoming — a land where clinging on to remaining in the middle class, versus sinking into the poor, has become the American Dream.

We’re better than this.

Because the American Dream wasn’t about hanging on no matter how hard we work, but climbing up on the merits of our individual endeavor.

You’ve just read the short description to the Reasoning & Rationale for this Bill-Request. If that’s enough for you to vote in support of it, please do. If there’s more you’d like to have to make up your mind, then you’ll find the long description HERE.

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