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Whose derivatives are these, anyway?
Government Intervention in Stock Market
is Detailed by New Report, GATA Says
GATA Press Release via Business Wire
Tuesday, September 6, 2005
http://biz.yahoo.com/bw/050906/65371.html?.v=1
A major Canadian financial management firm that a year ago published
a compilation of evidence of central bank manipulation of the gold
price has just done the same in regard to the U.S. stock market and
has reached a similar conclusion.
The new report is titled "Move Over, Adam Smith: The Visible Hand of
Uncle Sam," and has been published by Sprott Asset Management of
Toronto. It was written by the firm's president, John P. Embry, and
his assistant, Andrew Hepburn, and concludes that the U.S.
government has intervened to support the stock market so many times
that "what apparently started as a stopgap measure may have morphed
into a serious moral hazard situation, with market manipulation an
endemic feature of the U.S. stock market."
The new report relies largely on reports of news organizations and
the essays and research papers of economics academics that, as might
be expected, have not been well-publicized in the United States. But
some of these reports have been circulated by the Gold Anti-Trust
Action Committee over the years.
The Sprott report does not maintain that the government should never
intervene in the stock market; it recognizes that certain
emergencies may argue strongly for temporary intervention, such as
the 1987 stock market crash and the terrorist attacks of September
2001. But, the Sprott report notes, frequent surreptitious
intervention, conducted through intermediaries, the government's
favored financial houses in New York, gives those intermediaries
enormous advantages over ordinary investors. Frequent intervention,
the Sprott report adds also makes it impossible to distinguish
between national emergencies and political expediency.
The Sprott report concludes:
"Given the available information, we do not believe there can be any
doubt that the U.S. government has intervened to support the stock
market. Too much credible information exists to deny this. Yet
virtually no one ever mentions government intervention publicly,
preferring instead to pretend as if such activities have never taken
place and never would.
"It is time that market participants, the media and, most of all,
the government acknowledge what should be blatantly obvious to
anyone who reviews the public record on the matter: These markets
have been interfered with on numerous occasions. Our primary concern
is that what apparently started as a stopgap measure may have
morphed into a serious moral hazard situation, with market
manipulation an endemic feature of the U.S. stock market.
"We have not taken a position on the wisdom of intervention in this
paper, largely because exceptional circumstances could argue for it.
In many respects, for instance, the apparent rescue after the 1987
crash and the planned intervention in the wake of September 11 were
very defensible. Administered in extremely small doses and with the
most stringent safeguards and transparency, market stabilization
could be justified.
"But a policy enacted in secret and knowingly withheld from the body
politic has created a huge disconnect between those knowledgeable
about such activities and the majority of the public, who have no
clue whatsoever.
"There can be no doubt that the firms responsible for implementing
government interventions enjoy an enviable position unavailable to
other investors. Whether they have been indemnified against
potential losses or simply made privy to non-public government
policy, the major Wall Street firms evidently responsible for
preventing plunges no longer must compete on anywhere near a level
playing field. It is most unfair that the immensely powerful have
been further ensconced in their perched positions and thus
effectively insulated from the competitive market forces ostensibly
present in our society.
"In addition to creating a privileged class, the manipulation also
has little democratic legitimacy in the sense that the citizenry has
not given its consent. This has tangible ramifications. By not
informing the public, successive U.S. administrations have employed
a dangerous policy response that is subject to the worst possible
abuse. In this regard, the line between national necessity and
political expediency has no doubt been perilously blurred.
"We can only urge people to see what the evidence indicates and
debate what is and ought to be a very contentious matter. The time
for such a public discussion is long overdue."
The Sprott report can be found in Adobe Acrobat format at the Sprott
Internet site here:
http://www.sprott.com/pdf/pressrelease/TheVisibleHand.pdf
It also can be found at the GATA Internet site here:
http://www.gata.org/SprottReportTheVisibleHand.pdf
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