Will the Fed Let the Stock Market Crash Before an Election?

Anyone in their position with the tools at hand would not have any other real option other than to buy stocks in whatever quantity is needed to reverse the selling and blow the shorts out of the water.
Since I’m writing this on Sunday evening, if the Dow Jones Industrial Average opens down 1,000 on Monday morning, I’m going to look very foolish. Such is the risk of being contrarian. So what’s contrarian now–expecting a crash or expecting a bounce and rally? Exactly what the sentiment consensus is right now is open to debate. Analysts expecting a stock market crash see those expecting a rebound as the consensus view.
But if we look at various measures of sentiment such as the Put-Call Ratio and greedometer.com, we find elevated levels of fear over the past few weeks. The consensus can hardly be said to complacent when the VIX index is over 20.
Let’s set aside sentiment measures and technical analysis and ask a larger question: will the Fed let the stock market crash before an election? Once again we find two camps among participants. One camp believes markets still obey the basic rules of technical analysis. The Fed and other central banks may intervene at the margins, but their interventions only work on low-volume days. When selling increases, it overwhelms the relatively modest size of central bank intervention and the market then crash.

This post was published at Charles Hugh Smith on SUNDAY, OCTOBER 12, 2014.

Shanghai Exchange Chairman Admits China Gold Demand Topped 2000 Tonnes In 2013

Submitted by Koos Jansen via BullionStar.com,
This is the final blow for the ones who still couldn’t comprehend, after all evidence presented, the amount of Chinese non-government gold demand in 2013. At the LBMA forum in Singapore June 25, 2014, one of the keynote speakers was chairman of the Shanghai Gold Exchange (SGE) Xu Luode. In his speech he made a few very candid statements about Chinese consumer gold demand, that according to Xu reached 2,000 tonnes in 2013. In contrast to the Word Gold Council (WGC) that states Chinese gold demand was 1,066 tonnes in 2013. Xu’s speech has now finally been translated and published in the LBMA magazine The Alchemist #75.
Xu’s statements once again confirm what I have been writing for months. SGE withdrawals equal Chinese wholesale demand:
import mine scrap = total supply = SGE withdrawals = wholesale demand Let’s go through a couple of quotes from Xu:
Data on China’s gold imports has not previously been made available to the public. However, gold has historically been imported through Hong Kong, and Hong Kong is highly transparent, disclosing details such as the number of tonnes of gold imported on a monthly basis. Last year, China imported 1,540 tonnes of gold. Such imports, together with the 430 tonnes of gold we produced ourselves, means that we have, in effect, supplied approximately 2,000 tonnes of gold last year. The 2,000 tonnes of gold were consumed by consumers in China. Of course, we all know that the Chinese ‘dama’ [middle-aged women] accounts for a significant proportion in purchasing gold. So last year, our gold exchange’s inventory reduced by nearly 2,200 tonnes, of which 200 tonnes was recycled gold.


This post was published at Zero Hedge on 10/12/2014.

“Prepare For Runs”, IMF Warns Policymakers Of “Elevated Financial Stability & Liquidity Risks”

The extended period of monetary accommodation and the accompanying search for yield are leading to credit mispricing and asset price pressures, increasing the chance that financial stability risks could derail the recovery.

Concerns have shifted to the shadow banking system, especially the growing share of illiquid credit in mutual fund portfolios.
Should asset markets come under stress, an adverse feedback loop between outflows and asset performance could develop, moving markets from a low- to a high-volatility state, with negative implications for emerging market economies.

This post was published at Zero Hedge on on 10/12/2014.

Inflation, Deflation, and Our Very Confident Bet in T-Bonds

I’ve been touting the ongoing bull market in T-Bonds as one of the best investment opportunities of our lifetime – a no-brainer, as far, as I can recommend. About the only way this bet can lose is if inflation returns with a vengeance. This has never been much of a worry for me, since, on the inspiration of C. V. Myers’ prescient 1976 book, I’ve been writing about the threat of deflation for more than 20 years. As Myers noted, every penny of very debt must eventually be paid – if not by the borrower, then by the lender. So far, lenders have hung tough on their terms, and although a recklessly expansive monetary policy has cut mortgage debtors in particular some slack, there is no reason to think private lenders will let homeowners skip free when the second stage of the housing collapse that began in 2007 begins anew. Deflation-wise, this is where the rubber will meet the road, drawing irresistible power from the inevitable implosion of the quadrillion dollar Ponzi scheme popularly known as ‘derivatives.’

This post was published at Rick Ackerman on ON OCTOBER 13, 2014.

Richard Gould: Learning From Ancient Human Cultures

Richard Gould is a Professor Emeritus of Anthropology at Brown University (where I was his student) and one of the foremost experts on hunter-gatherer societies. In the 1960s, he and his wife spent years living with the aborigines in Australia’s Western Desert, observing first-hand their way of life. Through study of these people and many others around the world, his work focused on understanding how human culture and behavior adapts to environmental stress, risk and uncertainty.
We’ve invited him to this week’s podcast to discuss what insights ancient cultures may be able to offer in terms of “natural human behavior” that may fit well within our specie’s blueprint. Humans lived sustainably, with their food systems and each other, for many millennia. And yet, in today’s modern age, we have infinitely “more” than these primitive societies, but have much less general happiness (and are fast-exhausting our resource base, to boot). Are there best practices for being human that we can perhaps re-learn from our cultural predecessors?
One of the principal findings of Gould’s work is that hunter-gatherer societies, while often rarely exceeding subsistence-level living standards, were quite successful at meeting their needs. Each day when they awoke, they knew what was expected of them, and why it was important. So their work had clear and obvious meaning — to them and those in their tribe. This stands in stark contrast to modern society, where our base needs may be easily met, but we have an endless string of unfulfilled wants and manufactured “needs” that advertising and the media constantly bombard us with — creating a chronic sense of lacking and insecurity in our society.


This post was published at PeakProsperity on Sunday, October 12, 2014,.

Ripple Effects Begin: Dubai Crashes Over 6.5%, Most In 14 Months

It appears the weakness in US equity markets (the last of the hot money flow darlings to be hit) is now rippling back down the bubble-complex of world equity markets. Dubai, infamous for its huge surge in the last 2 years and 36x over-subscribed IPO of a company with no actual operations – which marked the top before a 30% collapse – was open for business today and crashed 6.5%. This the Dubai Financial Markets General Index biggest daily drop in 14 months… the ripple effect is beginning.
It appears the hot money trades are slowly being unwound… commodities, EM FX, HY credit, and now US equities…

This post was published at Zero Hedge on on 10/12/2014.

Plenty Of Reasons To Explain Recent Selling

This is an excerpt from this weekend’s premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%.
The equity markets are finally seeing action that has even the most hardened bulls running scared. In the past, I’ve been quick to dismiss selling periods – Cycle Lows – as natural regression-to-the-mean events. In a bull market, an oscillating Cycle pattern of two steps forward and one step back is what drives an asset higher. But this time is different…two steps back is completely out of character. So much so, that I now believe that the 3.5 years bull market is now in serious trouble.
If we were to look for reasons to explain the recent selling, there are plenty to be had. The most likely is not a specific piece of news or single data point, but that the collective herd of market participants is fickle and can be easily spooked. The current bull market has broken plenty of records, including the length of time – more than 3 years – since a 10% correction. This has resulted in double-digit market gains for consecutive years, and a near vertical rise over a sustained period of time. Against the backdrop of a soft world economy, this performance is nothing short of remarkable.

This post was published at ZenTrader on October 12, 2014.

Hussman Warns Beware ZIRP “Hot Potatoes”: Examine All Risk Exposures

xcerpted from John Hussman’s Weekly Market Comment,
Present conditions create an urgency to examine all risk exposures. Once overvalued, overbought, overbullish extremes are joined by deterioration in market internals and trend-uniformity, one finds a narrow set comprising less than 5% of history that contains little but abrupt air-pockets, free-falls, and crashes.
* * *
“Abrupt market weakness is generally the result of low risk premiums being pressed higher. There need not be any collapse in earnings for a deep market decline to occur. The stock market dropped by half in 1973-74 even while S&P 500 earnings grew by over 50%. The 1987 crash was associated with no loss in earnings. Fundamentals don’t have to change overnight. There is in fact zero correlation between year-over-year changes in earnings and year-over-year changes in the S&P 500. Rather, low and expanding risk premiums are at the root of nearly every abrupt market loss. ‘One of the best indications of the speculative willingness of investors is the ‘uniformity’ of positive market action across a broad range of internals… I’ve noted over the years thatsubstantial market declines are often preceded by a combination of internal dispersion, where the market simultaneously registers a relatively large number of new highs and new lows among individual stocks, and a leadership reversal, where the statistics shift from a majority of new highs to a majority of new lows within a small number of trading sessions.
‘This is much like what happens when a substance goes through a ‘phase transition,’ for example, from a gas to a liquid or vice versa. Portions of the material begin to act distinctly, as if the particles are choosing between the two phases, and as the transition approaches its ‘critical point,’ you start to observe larger clusters as one phase takes precedence and the particles that have ‘made a choice’ affect their neighbors. You also observe fast oscillations between order and disorder in the remaining particles. So a phase transition features internal dispersion followed by leadership reversal. My impression is that this analogy also extends to the market’s tendency to experience increasing volatility at 5-10 minute intervals prior to major declines.’
Market Internals Go Negative, Hussman Weekly Market Comment, July 30, 2007

This post was published at Zero Hedge on 10/12/2014.

Warning: Market Correction This Week… Did You See the Opportunity?

Frank Holmes, CEO and Chief Investment Officer, U. S. Global Investors, writes:
While stocks fell around the world this week amid growing concerns over global economic growth, Europe’s slowdown can’t stop emerging market population growth that drives long-term commodity demand. If the short-term market volatility concerns you, a solution is short-term tax-free municipal bonds. Check out the 5 Reasons Why.
Putting Capital to Work in Commodities for the Long Term
This week we saw a continued selloff in energy stocks and a slump in commodity prices, specifically oil. In light of this, I’ve highlighted some key points I made during last week’s webcast that might offer our investors some clarity and insight into our management strategy when such market nervousness occurs.
One of the main drivers of commodity demand, as I often point out, is PMI, or purchasing managers’ index:
PMI: Commodities’ Crystal Ball
You look at the stock market as a precursor to economic activity six months out. If you’re looking at commodities, you must be looking at PMIs.

This post was published at GotGoldReport on Sunday, October 12, 2014.

China Central Bank Crushes Hopes For A “Large-Scale Fiscal Or Monetary Stimulus”

Late into Friday’s major market selloff, a completely unfounded rumor emerged out of nowhere, seeking to rekindle the BTFD spirits, that with central bank intervention from both the BOJ and ECB already priced in, and with the Fed still in taper mode (if not for much longer should the S&P dump accelerate), that the last central-planner wildcard, China, would join the fray and a major monetary gusher would come out of Beijing over the weekend to halt the slide. Alas, we have bad news for said BTFDers: just hours before futures are set to open on Sunday afternoon, the chief economist at China’s central bank said Saturday that he doesn’t see any reason for large-scale fiscal or monetary stimulus ‘in the foreseeable future’ despite slowing growth in the world’s second-largest economy and disagreements about the depth and timing of economic overhauls.
According to the WSJ, the PBOC’s Ma Jun, speaking in Washington at a meeting of the Institute of International Finance – the same place where Jamie Dimon said that he is concerned about shadow banking – said the Chinese job market ‘looks pretty stable’ despite wobbly economic growth. That’s up to debate, but it was what he said about leverage in certain sectors – including real estate, certain state-owned enterprises and local-government financing vehicles – that was already too high, and that further lending to these areas should be avoided.

Ma Jun, chief economist at the People’s Bank of China, shown in September.
We have covered the critical state of China’s debt-stock consistently since 2009, a country whose corporate debt is higher than any developed or developing country, so while we wholeheartedly agree with Jun, one question emerges: why tell the truth? After all, the only reason the status quo managed to survive so long is because it piled lies upon lies upon propaganda. If indeed the times has come for the truth, then all bets are off…

This post was published at Zero Hedge on 10/12/2014.

HIGH ALERT Continues!! The Stock Market Is In A Dangerous Place Right Now

On September 20th, we posted a warning article to our subscribers.
‘HIGH ALERT!!! The stock market sits at a very precarious place this weekend. There are important and rare technical indicators that are contemporaneously telling us that a major stock market top is close at hand and a powerful and damaging stock market decline is not far from starting.’
Since we published that warning, the Industrials have plunged from their all time top on Friday, September 19th, so far falling 806 points. Since that warning, the S&P 500 has fallen 113 points, and the NASADQ Composite has fallen 334 points. Since then, the Semiconductor Index has crashed. This all came the day after we got a confirmed Hindenburg Omen.
The stock market just had its worst week since May 2012. The Industrials are now at a loss for the year 2014. We have been showing a multi-decade Jaws of Death stock market pattern for several years now, warning that when it finishes, a massive Bear market and economic collapse will begin and last for many years. I even wrote a book about this pattern’s clear warning, The Coming Economic Ice Age, available at amazon.com . It is very possible that the time has come when this pattern is finished and the next Bear market and economic collapse has begun. We are now on high alert.
Bids are hard to come by right now, and our analytic work suggests that the secret Plunge Protection Team activity is providing at least half the bids in the stock market right now. Prices keep falling, but the descent is slowed by PPT buying, providing a safety net under the stock market. However, this market continues to look heavy, and there are limits to what the PPT can buy. At several points over the next seven years, we expect the stock market to experience crashes. Some will be minor, some huge. At this phase of the new Bear market, many advisors are labeling this decline from September 19th as a buying opportunity. That sentiment will change down the road.

This post was published at Gold-Eagle on October 12, 2014.

A New Age Of IMF Bailouts – Great Britain In The 1970s

A New Age Of IMF Bailouts – Great Britain In The 1970s
Hearing of IMF interventions generally conjures up images of developing nations (and the occasional Eurozone peripheral economy of late) facing some kind of financial difficulty. But it was actually Great Britain, the cradle of the industrialized world, which in 1976 became one of the first countries ever to be “bailed out” by the IMF in the modern sense of the term.
Now, previously the IMF had already provided financial assistance plenty of times, including to several advanced countries. Out of the 22 countries which were part of the OECD in the 1960s, no less than 8 negotiated new IMF programs during that decade, including France (1969), Japan (1962, 1964), Great Britain (1961-64, 1967, 1969) and even the US (1963-64). But these had been mostly to address short-term balance of payment issues.
Britain’s bailout in 1976, on the other hand, had strict conditionality elements with deep repercussions on the prevailing political ideology, sparking an intense private and public debate at the time as to whether the country should actually accept it. This episode inaugurated a much more interventionist approach by the IMF, anticipating many features of modern assistance programs.
The bailout arguably marked the culmination of a secular decline which had begun decades earlier. With the emergence of America and the Soviet Union as the global ideological and de facto superpowers at the end of World War II, the sun was setting fast upon the British Empire, which would fade away not long after. Still, in the postwar decades Great Britain offered plenty of prosperity, along with a free and vibrant society (who can ever forget the swinging sixties?), world-class music bands, abundant energy supplies and a respectable manufacturing sector.
Then came the 1970s. And things got bad pretty quickly.
Some Historical Context
The Labor Party was elected with a landslide majority in 1945 against the iconic wartime leader Sir Winston Churchill of the Conservative Party. Sweeping economic reforms were promptly introduced: the creation of a welfare state with national health, pensions and social security; industries were nationalized, seeking to broaden the state-planned manufacturing vitality during the war years; and taxes were raised to pay for the whole thing.
As Britain emerged from the wartime devastation, the economy got better and better, and accelerated in earnest after Churchill’s return to power in 1951. However, things were beginning to heat up abroad, with war raging in Korea, waves of Arab nationalism following the creation of the State of Israel and an increasingly belligerent Soviet Union. The Suez crisis of 1956 weakened Britain’s global standing and the government’s reputation, leading to the resignation of Anthony Eden, the Conservative Prime Minister who had succeeded Churchill.
But the economy managed to remain fairly robust with low unemployment into the 1960s, aided by tax cuts and other stimulative policies. Nevertheless, this was a time of change. Harold Wilson, the Labor party leader, ended 13 years of Conservative rule with a narrow victory in 1964 before increasing his majority in 1966. But despite the traditionally “euroskeptic” Conservatives losing their grip on power, Britain’s second attempt to join the European Economic Community (‘EEC’) was once again vetoed by France’s President, Charles de Gaulle, in 1967.
At the same time, Britain’s increasing lack of competitiveness internationally was starting to become very apparent. The government eventually devalued the pound in 1967 to stem the continuous outflow of gold and dollar reserves. By the end of the decade, the swinging sixties were no longer swinging all that much. And Wilson was surprisingly voted out of power in 1970.
In came a new Conservative government led by Edward Heath. And that’s when things started to get interesting.

This post was published at Zero Hedge on 10/12/2014.

Draghi The Dictator: “Working With The Germans Is Impossible”

The war of words between Europe’s unelected monetary-policy dictator Mario Draghi and Germany’s “but it’s us that pays for all this” Bundesbank has been gaining momentum since Jens Weidmann penned his Op-Ed slamming Draghi’s OMT ‘whatever it takes’ as “too close to state financing” in 2012. A week ago, Weidmann stepped up the rhetoric by claiming ECB policy is “hostage to politics” and has lost its indepdendence – warning Draghi’s dictatorial policies were leading Europe down a “dangerous path.” But now, as pressure grows from the Spanish (record unemployment, record bad debt, record low yields), Italian (record unemployment, record debt-to-GDP, record low yields) and French (record unemployment, treaty-busting-deficits, record low yields) for Draghi to monetize more assets, he has struck back in Focus magazine, blasting Weidmann is “impossible” to work with because the Germans “say no to everything.” Dis-union…

This post was published at Zero Hedge on 10/12/2014.

October Market Breadth

There has been quite a lot of market action in stocks as of late, so it is time for another Market Breadth Summary. Most market participants would look at the chart of S&P 500 and conclude that some kind of trouble only started several days ago as selling intensified and the volatility index jumped. However, the internal market breadth for the US equities has been deteriorating since at least June of this year. Let us look at a few charts.

Before I start, there is an important point I would like to make. According to the price behaviour and various indicators I track, market conditions are changing as bulls lose control to the bears. In other words, probability is quite high that the central bank sponsored rally, which has lasted for the better part of two years, has probably come to an end and the prevailing trend right now is bearish.
Why is this important? Because a lot of market participants fail to trade with the trend. Since I’m not that smart nor experienced, I will quote Jesse Livermore on this subject:
I was utterly free from speculative prejudices. The bear side doesnt appeal any more than the bull side, or vice versa. My one steadfast prejudice is against being wrong. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions, or my prepossessions either to do any thinking for me. That is why I repeat that I never argue with the tape. Obviously the thing to do was to be bullish in a bull market and bearish in a bear market.

This post was published at GoldSeek on 12 October 2014.

What the Heck just Happened in Global Stock Markets?

It was a crummy week for the world’s major stock markets:
One, volatility came roaring back. Forget complacency. People are still rubbing their necks from whiplash.
Two, the Fed hype-effect fizzled. The publication of the FOMC minutes – designed to pump up markets with their ambiguities – was able to generate a rally that lasted less than a day, followed by a terrific swoon. The ECB too tried to goose markets, which failed miserably. And the Bank of Japan, well, I call it Bank of Japandemonium for a reason.
Three, the relentlessly successful strategy, nay religion, that worked without fail for the last couple of years and allowed traders to earn instant bucks in a seemingly risk-free manner – ‘Just buy the frigging dip’ – turned into a vicious back-biting monster.
The Nasdaq, after dropping 4.5% for the week, the worst since May 2012, closed on Friday below its 200-day moving average. So did the Dow. For chart decipherers and trend prophesiers, those are not exactly propitious signs.
The thing is, if everyone believes that everyone believes in this sort of line crossing and reacts to it, then a simple line either bouncing off or crossing over another line can become a magic signal for a lot of people. And they react to it in unison, and it becomes a self-fulfilling prophesy. It worked wonderfully on the way up. And because it worked so wonderfully and made people rich, more and more traders and investors became chartists, and even economists switched to becoming chartists because economic and corporate fundamentals had become irrelevant to stocks, which soared no matter what, and they had to find something else that their clients actually wanted to hear.
But it’s not just in the US. The European Stoxx 600 dropped 4.1% for the week, also its worst week since May 2012. Most of the national indices were splattered with red. Germany’s Dax dropped 4.4% to the lowest level since October last year. It’s down 12.6% from its all-time peak in January. It’s in a full-blown correction.

This post was published at Wolf Street on October 12, 2014.

Claudio Grass: The Upcoming Swiss Gold Referendum

Jeff Deist and Claudio Grass discuss the uniquely Swiss mindset behind the upcoming Swiss gold referendum, and how decentralization of political power is part of Swiss DNA; the tremendous geopolitical aftershocks that would occur if the referendum passes – including the physical repatriation of gold to Switzerland; and how the Swiss people may be waking up to the sellout of their country by the Swiss National Bank and the IMF.
Claudio Grass is the managing director of Global Gold, a bullion company specializing in storage of precious metals outside the banking system.


This post was published at Ludwig von Mises Institute on October 11, 2014.

IMF Admits They Are Clueless to Solve World Economic Crisis

At the meeting of the IMF and the World Bank, we began to see for the first time some blow-back against Obama’s hand-picket lawyer masquerading as the world leading of international finance. There were significant rifts between supporters and opponents of new state investment programs that LaGarde and Obama are trying to pull off taking pensions and squandering them on infrastructure that only produces temporary jobs anyway.
The LaGarde at the IMF warned at of the risks in the financial systems that amount to the shadow banks with a market of $71 trillion dollars. She asserted that this is a tremendous danger on the basis it is not regulated by her. Effectively, she wants to seize control of such money to bailout governments without reform.
Lawyers who prefer politics to rule the world are different from private lawyers. They are the same type of people Shakespeare wrote – the first thing we do is kill all the lawyers. They were the king’s lawyers (prosecutors) since private people were not allowed to hire lawyers. These type of people are high on their power and only see things as writing laws to force people to do what they demand. The cannot understand just how do you stimulate an economy by raising taxes. They want to tax you 80% and then want to charge you negative interest rates if you do not spend what you have left. They are totally insane. They cannot comprehend where is economic growth supposed to come from?

This post was published at Armstrong Economics on October 12, 2014.

King Dollar – Be Careful What You Wish For

It’s so good to be the cleanest dirty shirt, right? Wrong…

As the dollar has strengthened in recent weeks, so the performance of stocks in the S&P 500 most dependent on overseas revenue has collapsed… and furthermore, a strong dollar implies (all else being equal) a weaker oil price and as is already evident from Energy stocks, likely means significant capital-spending cutbacks among E&P firms…
Not exactly the escape velocity, rates will rise, Fed is only leaving coz things are so awesome, King Dollar meme now is it…

This post was published at Zero Hedge on 10/12/2014.

Weekend Update October 10

ABSTRACT: After precious metals tracked with stocks into red territory last week, the metals reversed direction on persistent fears that Europe and Russia will drag down the global economy. The stock markets recovered much of their losses from early in the week following the release of September’s FOMC meeting minutes; the minutes and statements by the Fed essentially reaffirmed the central bank’s inclination toward accommodative monetary policy for at least the next several months.
GOVERNMENT & POLICY Goldman Sachs, NY Fed Draw Regulatory Scrutiny
It seems there is never a dull moment when it comes to the Federal Reserve these days. With the release of the Federal Reserve Open Market Committee (FOMC) minutes from the group’s September meeting, the news of an unchanged outlook from the Fed was expected to carry the day. Indeed, investors responded with fervent optimism on Wednesday when it became clear the Fed intends to continue delaying normalizing monetary policy until more lag has been removed from the economy. This was after President Obama met with a group of financial regulators, including Fed Chair Janet Yellen, on Monday.
Yet, the FOMC’s signals that it will ‘stay the course’ held the attention of the markets only briefly, while the more scintillating story revolved around the emerging relationship between Goldman Sachs and the New York Fed. A whistle-blower from the bank accused the NY Fed of being ‘soft’ on Goldman Sachs, overlooking its less savory activities and even deferring to Goldman on certain regulatory issues. The informant, Ms. Carmen Segarra, complained about the apparent favoritism to her employer and was summarily fired. She did, however, make secret recordings that reveal the bank ignored red flags of Goldman’s questionable practices, deeming them ‘legal, but shady.’ The Securities and Exchange Commission (SEC) has raised concerns that Goldman Sachs exploits conflicts of interest, alleging that Goldman has dubiously sold financial products to their customers while simultaneously placing speculative bets against the performance of those products.
This developing story again raises the issue of the Fed being overly sympathetic to the financial institutions it is tasked with overseeing. Massachusetts Senator Elizabeth Warren has called for a Senate Banking Committee hearing on the topic, pointing out that the Fed ‘can identify problems, but can’t bring itself to make the banks fix those problems.’ The New York Fed, always the most powerful branch of the Federal Reserve System, has a long history of close dealings with Wall Street. Consider for a moment that the NY Fed President, William Dudley, served as chief economist for Goldman Sachs from 1986 to 2007. Although this inextricable connectedness is the nature of the financial industry, it should never rise to the level of outright cronyism. As the scandal continues to unfold, we wait to see how much teeth a response from the regulatory community will have.

This post was published at Deviant Investor on October 12, 2014.