>US Stock Crash 6 May 2010, Part 2 – US Fed Reserve’s Involvement?

>Before we talk about last night’s stock market crash, let’s take a look at the Fed Reserve.

You know, it is amazing how many people, Americans themselves included, do not know that the US Fed Reserve is actually a private enterprise and NOT a government body of the United States of America.

Yes. That’s true. I do not want to give you any links or sources. Just find it out yourself through internet search engines. Do it yourself. If I gave you links, critics may say I would be giving bias news. So you do it and you convince yourself on that one.

One of the problems of the Fed being a private enterprise is that like any other private establishment, it is out to make profits. The Fed is not interested in the people. It is interested in the people’s money.

The bigger problem is that although the Fed is a private enterprise, it acts like a government body. But an even bigger problem than that is that it has the influence to sway the government of the US, to avoid any form of audit that may expose its skeletons.

Here is a post I made last year about the Fed Reserve’s non-transparency (I compared it with Singapore’s non-transparency), and how it objects to any move by Congress to have it audited – Singapore, America’s Clone (or Clown?) – The Financial System

The pressure to have the Fed audited has been tremendous the last few weeks. There are rumours flying around that last night’s stock crash was a warning to Obama (and Congress) that the Fed means business when it says it should not be audited.

Here is a report that shows that the Fed has won this round. Note that this happened on 6 May 2010, the day the US stock market crashed by 1000 points.

Proposal to Audit Fed Modified to Limit Impact on Monetary Policy

MAY 6, 2010, 7:54 P.M. ET

Last-minute maneuvering in the Senate allowed the Federal Reserve to sidestep legislation that would have exposed its interest-rate decision-making to congressional auditors.

Pressure from the Obama administration led Senate lawmakers to alter a provision pushed by Sen. Bernie Sanders (I., Vt.) that was gaining momentum despite opposition from the Treasury and the Fed. It would have largely repealed a 32-year-old law that shields Fed monetary policy from congressional auditors.

The compromise, endorsed by Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and the Treasury, would require the Fed to disclose more details about its lending during the financial crisis. It would also require a one-time audit of those loans and a one-time review of Fed governance. A formal vote was scheduled for late Thursday.

Thursday’s Senate showdown came after senators on the left and right joined forces to support Mr. Sanders’ provision.

“At a time when our entire financial system almost collapsed, we cannot let the Fed operate in secrecy any longer,” Mr. Sanders said. “The American people have a right to know.”

Now why would the Fed (which is a private enterprise) be shielded under secrecy from public’s eyes? Say…isn’t this just like Singapore, where we do not know what the heck the government does with our money?

But Fed Chairman Ben Bernanke, while insisting on a commitment to “openness” at the Fed, said in a letter to Congress the Sanders measure would “seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation.” …….

Now this sounds so PAPpish. An audit would seriously threaten all those? So now we know where PAPpy gets its arguments from, whenever PAPpy doesn’t want the govt to reveal its books to the public.

Here’s the part I would like to highlight.

….Before the last-minute compromise, the Fed’s foes appeared to be winning, and got a major boost when Senate Majority Leader Harry Reid (D., Nev.) said he would side with Mr. Sanders……

So last night (at Singapore time) was to be the moment of truth for the Fed Reserve. It was to face for the very first time, to have its books audited. But that somehow was changed the last minute through very heavy lobbying.

Hmmmm….so what caused those members in the Senate to change their minds the last moment? Anything to do with the unprecedented 1000-point Dow crash last night?

Here’s the part to show that even before Bernanke’s tenure, Alan Greenspan, his predecessor, lobbied heavily to ensure that such a suggestion to have the Fed audited would never even have been toyed with.

Mr. Bernanke, meanwhile, returned to Washington Thursday afternoon after a morning speech in Chicago to continue pressing for changes to the Sanders measure. In the past few days, Mr. Bernanke has spoken to at least a half-dozen senators to argue the Fed’s case that the bill would deeply damage the Fed’s credibility and ability to make tough decisions about interest rates. Treasury Secretary Timothy Geithner, a former Fed official, made similar arguments.

Mr. Bernanke’s predecessor, Alan Greenspan, devoted substantial effort to mollify Congress so that legislation like that sponsored by Mr. Sanders and Mr. Paul would never come to the Senate floor. Mr. Bernanke, though pressing the Fed’s case with conviction, lacked Mr. Greenspan’s political success in part because of vastly different economic conditions that spurred a backlash from Congress and the public.

On 6 May 2010, a bill was to be passed to have the Fed Reserve audited and open its books. On 6 May 2010, the stock market crashed by an unprecedented 1000 points. On 6 May 2010, there was a last minute change that resulted in limiting the powers of Congress to have the Fed Reserve (a private enterprise) audited comprehensively through the bill. The stock market made a partial recovery the same day.

Strange coincidences?

On second thought, maybe someone from Fed Reserve paid someone in Citi to “accidentally” sell off 1 billion shares of P&G – which means the Citi rumour could be true after all.

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Related Link:
US Stock Crash 6 May 2010, Part 1 – Fragility of US Market

>US Stock Crash 6 May 2010, Part 1 – Fragility of US Market

>Let’s face it. If the (US) economy is sound, and if it has real value, it won’t react to news or glitches in such a manner. Yes, we are talking about last night’s stock crash in the US.

Panic sends Dow crashing

NEW YORK – PANIC selling swept US markets on Thursday as the Dow Jones plunged a record of almost 1,000 points before recouping more than half those losses.

It was unclear whether the sudden sell-off, the Dow’s biggest ever intra-day drop, was the result of fears over the Greek debt crisis, a mistaken trade or technical error. At the close, the Dow had recovered to 10,520.32, down 347.80 (3.20 per cent), while the Nasdaq was down 82.65 points (3.44 per cent) at 2,319.64. The Standard & Poors 500 Index was down 37.72 points (3.24 per cent) to 1,128.15.

The crash began shortly before 2.25pm local time (2.25am Singapore time), when in a white-knuckle 20 minutes America’s top 30 firms saw their share prices dive 998.5 points, almost nine per cent, wiping out billions in market value. The drop eclipsed even the crashes seen when markets reopened after Sept 11, 2001 and in the wake of the Lehman Brothers collapse.

The Dow later recovered, closing nearly four per cent down, but spooked traders were left wondering whether a technical glitch had caused the blue-chip index to erode three months of solid gains. Rumours swirled that a Citigroup trader had mistakenly sold 16 billion rather than 16 million stocks in Procter and Gamble shares, forcing the Dow down.

Shares in the consumer goods giant lost more than US$7, falling in a similar pattern to the Dow, trading at a low of US$55 (S$76.45) a share. ‘At this point, we have no evidence that Citi was involved in any erroneous transaction,’ said company spokesman Stephen Cohen.

A spokesperson for the New York Stock Exchange said the cause was still not known. ‘We don’t know, right now we’re looking into it,’ said Christian Braakman. ‘It’s all speculation.’ But after three days in which stocks have suffered triple-digit intra-day losses because of concern about Greece’s debt crisis, it was clear that the sell-off was real for some investors. — AFP

This is ridiculous. The fear of the Greek debt has been around for quite a while. To place blame on it is to say that those investors did not know about the Greek crisis before last night and only panicked now. Whatever existing bad news the Greek economy has for investors had already been reflected in the market the last few weeks.

As for a trading error, if it is true, it exposes how artificial the US market is. If there is real value in the stock market, the Dow would not have dived that much. The fact it did, shows that most of the pricing in the stocks if not all, are based on sentiment – which means the Dow was just an inflated bubble with no real value.

In the meantime, Citigroup denies that it is responsible – Citigroup Trading Error Cause Market To Crash? Citigroup Says No

A dramatic drop in Procter & Gamble(PG) looks like the smoking gun. The stock went from $60 at around 2:45 pm ET to plunging below $40 in moments. The Dow Jones Industrial Average, which was already down triple digits, sank another 600 points in less than 15 minutes right around that time. It closed off roughly 350 points.

“That doesn’t happen unless someone made a huge mistake,” a trader that declined to be identified for this story told TheStreet about the P&G trade. The same trader said the latest speculation was that Citigroup(PG) was the firm behind the wrong trade, mistakenly putting in a 15 billion futures sell order, instead of a 15 million one, but the company would not confirm or deny that…….

…..Citigroup Inc. said it found “no evidence” that it was involved in erroneous trades after U.S. equity markets plunged today.

“We, along with the rest of the financial industry, are investigating to find the source of today’s market volatility,” bank spokesman Stephen Cohen said in a statement. “At this point, we have no evidence that Citi was involved in any erroneous transaction.”

New York Stock Exchange spokesman Rich Adamonis said “there were a number of erroneous trades” during a slide that took the Dow Jones Industrial Average down almost 1,000 points, its biggest intraday loss since 1987, before paring the decline. The Dow average ended the session down 347.8 points, or 3.2 percent, at 10,520.32 at 4 p.m.

The Nasdaq OMX Group Inc. said it’s working with other markets to review transactions during the plunge. Procter & Gamble Co. said it’s looking into electronic trading of the company’s stock to determine whether the trades were made in error. Its shares sank as much as 37 percent and closed down 2.3 percent.

Proctor and Gamble dropped from $60 to $40 and the whole market crashed on that just one stock? Isn’t this truly a sign that all the value in the stocks are just about sentiment? If there is real value in them, they would not have followed P & G down, would they?

So what caused that crash? For sure we know that P & G did crash. But was that the trigger? If it was, who caused P & G to crash?

There is another rumour that is swirling around and that sounds a little more credible than the Citigroup news. It’s about Federal Reserve Chairman Ben Bernanke firing a warning shot at the Obama who is trying to get Congress to audit the Fed Reserve.

More of that in my next post later today in – US Stock Crash 6 May 2010, Part 2 – US Fed Reserve’s Involvement?