Was there illegal manipulation of the markets yesterday?

[Pale Blue Dot]

Yesterday was a tough day on Wall Street. The Dow spent most of the day down over 200 points, thanks to worries about the solvency of Freddie Mac and Fannie Mae. Then, at about 2:45, a rumor started that was reported on by all of the financial press:

Fed's Bernanke tells GSEs discount window open: source
WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, according to a source familiar with the conversation.

The source said that Bernanke and Syron spoke by phone Thursday afternoon and the central bank chief said in that call he intended the discount window to be opened if necessary to the two largest U.S. mortgage finance companies.

The Fed declined to comment on whether it was considering opening its discount window to the government-sponsored enterprises (GSEs). A senior senator said at a press conference on Thursday afternoon that such action was among a range of possibilities under discussion to help the struggling mortgage lenders weather a crisis of confidence.
http://www.reuters.com/article/topNews/idUSWBT00938820080711

For those who need a translation, the article is saying that the Fed has promised the two companies that they could borrow any money (U.S taxpayer money) they need from the Federal Government at low interest rates.

The markets reacted with joy to this news. Within 15 minutes, they had regained over 200 points and were in positive territory. Over the course of the next 45 minutes, the Bears prevailed and the Dow closed down 128 points, still well off of the day's trading lows, and much higher than it would have been had that rumor not circulated.

There's one problem, though. As reported after the close of business, the rumor turned out to be false:

Fed Says No Talks With Fannie, Freddie About Loans
July 11 (Bloomberg) -- The Federal Reserve has not had any discussions with Fannie Mae and Freddie Mac about access to direct loans from the central bank, Fed spokeswoman Michelle Smith said.

``Federal Reserve officials are following the situation closely,'' Smith said in a telephone interview today. ``However, there have been no discussions'' with the companies ``about access to the discount window,'' she said.

Shares of the two largest U.S. mortgage-finance companies plummeted this week on concern they don't have enough capital to offset losses from the mortgage meltdown. The discount window offers direct loans to commercial banks at an interest rate that's now 2.25 percent, a quarter point above the Fed's benchmark rate.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a79GKfbIbW10&

Some person or persons deliberately planted false information yesterday in a blatant attempt to manipulate the markets. This person had to have been well connected enough for Rueters, Bloomberg and others to treat him/her as a trustworthy source.

This could have been done for a variety of reasons: Someone connected with Freddie and or Fannie may have wanted to prop up their share prices, which had been off up to 50% during the day; or someone connected to our government may have wanted to pare the losses in the overall market before the weekend, and before the announcement of the failure of Indymac Bank (which also happened after the close of business).

Whatever the reason, a lot of money was lost yesterday by people and institutions that bought into a false rumor that was reported as legitimate by "reputable" news sources. I doubt that we've heard the last of this story, and I believe that investigations are in order.

[marmar]

1. There's CONSTANT manipulation of the markets.....

...... but there's not enough lipstick in Saks Fifth Avenue for this pig.

A story in MarketWatch described Bernanke's move as "shoving a deck chair off the Titanic."

[Pale Blue Dot]

2. According to the 2nd article, Bernanke never even made that move.

Someone or some people just said he did in order to drive share prices up.

[marmar]

3. Yup. I think MarketWatch was basing it on speculation he was going to make the move.

n/t

[NC_Nurse]

4. Every day. The books are totally cooked at this point. Who knows how bad

things would VISIBLY be if it weren't for behind the scenes Fed manipulation (and God knows who else's)...

Scary, huh?

[NC_Nurse]

5. Oh, But wait! I forgot! It's all in my head! Phil Gramm said so, and we all

KNOW what a fine upstanding guy he is! :eyes:

[bemildred]

12. Indeed, there is manipulation of the markets every day.

Whether it is legal or illegal depends on the judge, if it ever gets to a judge. But anyone that thinks the game is not rigged is not paying attention.

[jazzjunkysue]

6. Yesterday? Why should yesterday be anny different? n/t.

[Pale Blue Dot]

7. Here's why I think yesterday was different:

1. It was blatant (identifiably so).

2. All of those people who bought back into the market at 3:00 lost a lot of money very quickly based on this blatant manipulation. Those people and institutions, some likely quite wealthy and well-connected, are sitting home this weekend stewing over it. Because of that,

3. I believe this time there will be calls for investigations.

[Karenina]

8. Hmmm...

:popcorn:

[pscot]

9. Tough to prove

How do you source a "rumor"?

[lonestarnot]

10. Gee that's too bad.

:rofl:

[Pale Blue Dot]

11. UPDATE: It turns out the Fed lied in the 2nd statement.

Well it turned out that the Friday denial by the Fed was a lie, as the announcement this evening is that the Fed board approved discount window lending to Fannie and Freddie. How anyone has an confidence in any statement of the government, especially the Fed, when they are willing to just flatly lie is beyond me. Paulson is also asking for a bigger line of credit with the Treasury for the GSEs, and authority to buy equity in them. As Gretchen Morgenson says in the NYT, “Bill Coming Due“.

http://alamedalearning.com/reality/2008/07/13/they-lie-like-a-rug/


Here's the full statement from Paulson:


July 13, 2008
HP-1079

Paulson Announces GSE Initiatives

Washington, DC-- Treasury Secretary Henry M. Paulson, Jr. issued the following statement:

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure.

In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer.

Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator's process for setting capital requirements and other prudential standards.

I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package.

http://www.ustreas.gov/press/releases/hp1079.htm

[kentuck]

13. It's all manipulation.

Just as the purchase of the big bank in California yesterday or the day before. Before the market opens tomorrow, a lot of smaller banks will be re-assured that the government, meaning we, the taxpayers, will bail them out if necessary. They would not bail out the big banks and not bail out the smaller banks, would they? Still, it should be a very unpredictable day on Wall Street. But not as bad as it might have been if it had not been "manipulated".

[KoKo]

14. Thanks FinnFan...I was listening to CNBC when this was reported as FACT...so

it's very interesting that this was put out there and later discounted. As you know, Larry Kudlow and GE are what runs the news at CNBC...but even "so--called liberal leaning Jim Cramer was on promoting Bush for his capitulation over not "privatizing Fanny and Freddie." He turned...to the RIGHT and CNBC's Kudlow had the whole morning on Thursday to promote his "Ain't AMERICAN CAPITALISM GREAT" meme.

I shoulda' known something was up when CNBC (Corporate Media Whore shill) was on there and later on Friday they reported this great agreement/compromise that the "Fed would Open Discount Window."

Dammit! There might have been those who lost money on this news...but WHO MADE TONS OF IT. It's the Busholini's taking care of their "own" ..once again.

It's a Crap Shoot. Nothing is real as reported...it's all a game where some benefit to get their winnings out so they don't go down...and the rest are losers.