The Fed's Secret Guests

by: Mijka Samora

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?