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Marshall Auerback: Gold''s perfect storm
9:12p ET Wednesday, September 28, 2005
Dear Friend of GATA and Gold:
Sprott Asset Management's recent report about
U.S. government intervention in the stock
market, "Move Over, Adam Smith: The Visible
Hand of Uncle Sam," was noted this month in
a long article in Electronic Payments Week
magazine and a short but sympathetic paragraph
in Stephen Schurr's "Hands-On Investor" column
in the Financial Times. Both articles are
appended.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Is The Stock Market A Free Market?
Electronic Payments Week
September 20, 2005
www.accessintel.com/cgi/catalog/info?EPW
Capitalism's most prominent home is the American stock market. But a
recent study by Sprott Asset Management Inc., a Canadian company,
makes a strong case that at least since 1989 the federal government
has intervened in those markets so often that Adam Smith, the famed
economist and philosopher, would be ashamed to call them free
markets or anything like them.
Since every stock trade is cleared, settled, and paid for
electronically, and every payments professional is also a citizen of
the financial community -- not to mention a political citizen -- the
study carries great weight.
Relying on the public record and stories that have appeared in
outlets like The Wall Street Journal, ABC News, and The Washington
Post, Sprott Chief Investment Strategist John Embry and co-author
Andrew Hepburn tell the story of the Plunge Protection Team,
operated out of the Federal Reserve Bank of New York and headed by
Peter Fisher. This team's operations are systematically distorting
the so-called "hidden hand" of the stock market, they say, not only
by intervening during crises but also by helping favored traders and
financial institutions maintain their positions within the markets,
presumably so that in an emergency they can be relied upon to help
prevent crashes.
Whether this is a bad thing is a worthy of some debate. Clearly,
stock market crash-induced depressions are in nobody's interest, and
it's no secret that during the global crises of 1997-98, for
instance, it was personal intervention by Treasury Secretary Robert
Rubin that prevented what could easily have become a global
meltdown.
On the other hand, using private companies as instruments of
government policy without informing the nation's citizens, and, as
the authors claim, rewarding those companies and their owners with
privileged information on a day-to-day basis, goes against this
nation's view that it has and champions free and open markets.
The detailed story Embry and Hepburn tell of the Fed's multiple and,
by now, routine interventions in the stock market via certain
favored financial companies has to give any financial professional
pause, because if what they say is anywhere near true -- and the
white paper is impeccably sourced, and filled with footnotes
referring not only to journalists' stories but to studies from the
Fed itself -- then in fact this country is veering away from the
nation described by Lincoln and conceived by a Constitution written
by the people "to promote the general welfare."
It can be easily countered that even if their claims are true, the
effect of the Plunge Protection Team is a public good, and that
given the constraints of American politics, operating an enterprise
like this out of the public eye is not only advisable, but
necessary, since its very existence is tailor-made for grandstanding
by demagogues of all stripes, all over the world.
That is a strong and realistic argument, reinforced by the fact that
most governments --the U.S. included -- routinely intervene in the
currency markets without comment or criticism. In fact, it can be
argued that a group like the Plunge Protection Team is no more
nefarious than the team that did such laudatory work at the Federal
Reserve Bank of Atlanta in responding to the potential payments
crisis created by Hurricane Katrina.
But there is a difference between acting in a crisis and routinely
intervening in putatively open markets, contrary to the premise of
those markets and mainly to the benefit of certain private
companies. If what Embry and Hepburn say is true, then their
conclusion is telling: "There can be no doubt that the firms
responsible for implementing government interventions enjoy an
enviable position unavailable to other investors. ...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."
There is a saying in the journalism business that "news is what they
don't want you to know -- everything else is publicity." In that
sense, the Sprott paper definitely qualifies as news, and Electronic
Payments Week can only encourage our readers to go to --
http://www.sprott.com/pdf/pressrelease/TheVisibleHand.pdf
-- download the 41-page paper, and decide for themselves.
* * *
Hands-On Investor
By Stephen Schurr
Financial Times, London
September 20, 2005
Sprott Asset Management:
http://www.sprott.com/pdf/pressrelease/TheVisibleHand.pdf
While this report had nothing to do with Katrina, its timing
couldn't be more appropriate. It examines the mysterious history of
the "Plunge Protection Team," a supposed organisation composed of
federal agencies and Wall Street firms to intervene in the markets
to prevent market declines. It's a juicy and fascinating read.
Besides, for bears, government intervention sure seems like a
plausible explanation for the market rally after Katrina!
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----------------------------------------------------
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----------------------------------------------------
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