The Fed's Secret Guests

The market rallied 3.6% intraday on the day of the Fed's Wall Street lunch. Coincidence?

As reported by Bloomberg news, Federal Reserve chairman Ben Bernanke had a luncheon with a large number of Wall Street bigwigs on March 11, a few days before the Fed's unprecedented rescue of Bear Stearns.

Were we of a religious disposition, we might call this the Last Supper with Bernanke in the role of Jesus performing miracles. But instead of turning water into wine, the Fed chairman has been turning presumably insolvent (or distressed) investment banks and hedge funds back into the pillars of American capitalism that they once were.

It is like turning back the clock on Enron. One day you are an empty shell hollowed out by a relentless strategy of 'asset-light' financial engineering and maniacal greed. The next day, you are back to your old self, functioning as if nothing happened. It is enough of a restoration to instill you with a new sense of faith.

What is most striking about this news release is not that such events take place at all (although that is striking enough) but that the Fed sometimes keeps secret the names of some guests. The Bloomberg article explains:

Bernanke traveled to New York on March 7 for three meetings, including one over lunch. The Fed blacked out the identities of attendees at all three sessions.

Where national security is not involved, don't the American people have a right to know who sits at the lunch table when they are footing the bill?

In addition, it is odd that the news comes out only now two months after the event. The only possible explanation is that the Fed did not want, at the time, news of its Bear Stearns intervention to be tied directly to its various luncheons with Wall Street. But of course it was.

Finally, oddest of all, the US market started the day poorly on March 11, the day of the big Fed lunch, but then rallied 3.6% from its open at 9:30am to its close at 4pm. Whatever was said at that lunch sure did awaken some investors' animal spirits. And whatever was said was not shared with the world at large. It may be a stretch but can this be called a form of insider trading?

Once again, we have to ask: Whom does the Fed work for: Wall Street or Main Street?

Comments

[bearfund:]

Why do you have to ask? Is it not obvious?

2008 May 14 11:32 PM

[fedhed:]

The Fed is owned by the bankers who sat down for lunch. The bankers themselves are JP Morgan/Chase, Bank of NY, et al... The Fed has never, ever been a US government institution, nor will it ever be.

Here's a research project for you: Find out which banks own the Fed and their respective shares. Then see if there is any "public" ownership interest. I think you'll find there is none.

2008 May 15 09:27 AM

[sivere:]

We, as a nation have 3 choices:

TakeBackTheFed.com

TakeBackTheFed.com

TakeBackTheFed.com

2008 May 15 10:23 AM

[logicalsinger:]

Fedhed you are not entirely correct. The info below is from this website

www.federalreserve.gov...

Who owns the Federal Reserve?
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.

As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

2008 May 15 10:51 AM