What Really Lies Behind the Fed's Moves?

As the news is still breaking on the massive fraud at Societe Generale (SCGLY.PK), we can speculate that this may have been what caused the Fed to take such decisive action pre-market Tuesday. If so, the oil they spread upon the turbulent waters does seem to have helped, but I think the truth would have been better.

From early reports, no one but S.G., its shareholders, and perhaps an insurance company or two will take losses, and those losses will be limited. What we do know already is that far too many traders are shooting from the hip with little or no oversight by management.

This is not good for the markets as we expect a certain amount of honesty and professionalism, even though we swear by caveat emptor.

These rogue traders inflate or place artificial bottoms in markets that impact us all. A good example of inflation by traders are Oil Futures and Housing.

If one goes back in recent history one would see that OPEC had set a price range for their products. If I recall correctly they had set their range in the $25 to $30 range and then futures started climbing. It was Chicago and London that started the ever-increasing rise in oil prices. OPEC just went along for the ride raising their price ranges.

In the housing market, we saw that people were buying properties with no intention of retaining them for an extended period. The idea was to flip them for a quick profit. This worked as long as interest rates were low and property prices were rising. We now know how that is turning out.

Going back to the Fed for a moment before closing.

There has been a lot of buzz about a so-called Plunge Protection Team. These people seem to start buying lotsa-lotsa in the closing hour of the market making substantial losses smaller ones or even index gains for the session. A recent article I read even claimed that there was evidence the Fed was involved in this as part of their Price Stability Program.

Personally, I can see the Government trying to stabilize the stock market. After all, they have been looking to eliminate Social Security and set up individual retirement accounts. The Government cannot allow the markets to gyrate uncontrollably if the public has all their pension money in that basket. The Fed may be moving in the direction of the FDIC, which guarantees savings accounts in Insured Institutions. In the long run, very long run, the stock market will go up if for no reason other than inflation. If Social Security is to be replaced by the stock market, then some agency must insure that those funds would be available for the retirees when they try to collect.