A Totally Rigged Market

[murray t turtle]

Not trying to argue the other side but....

If you agree with it and believe it, then you should be able to profit from it.

Perhaps they complained because they missed the boat, couldn't figure out how to profit so are pissed off because of that?

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Good points;
BY the way, we had some great bull + bear markets before the FED ever got in the game [ 1913]. NOT that i'm that old, but i can read charts LOL i noticed the court ruled against the FED,+ AIG,, in the AIG/Greenburg lawsuit against US gov; but offered AIG/Greeenburg/sharholders but no money LOL. Good judgement against both the FED , + AIG. 2017 FED really did not want to take 80% of AIG stock, but AIG got killed using insane leverage.

 

[piezoe]

Great Article!

http://www.econmatters.com/2017/06/a-totally-rigged-market-with-world.html

This article is unbelievably off base. Central banks don't by stocks!!! And everything they buy is disclosed on their websites. The crap that is on the internet these days is astounding!! This article is almost entirely bullshit!


For example' the Norwegian global investment fund is managed by Norges Bank Investment Management as a service to the Norwegian ministry of finance, The fund is overseen by the Norwegian Central Bank. But Central Bank operations are entirely separate from the Global Investment fund management. The fund contains equities, but the Fund operations are separate from Norwegian Central Bank operations.

When the Author says Central Banks, does he mean the U.S. Federal Reserve System? The ECB? Which central bank? What Central Bank? The U.S. Central Bank does not by stocks, they buy bonds. They Bought some GM Stock as an expedient and convenience for the U.S. Treasury, and held it for a few hours before it was Transferred to the Treasury Department. The U.S. Central Bank, and other central banks buy Bonds, typically sovereign bonds. The U.S. Central Bank bought, during the recent crisis as an emergency measure, discounted CDOs (another type of Bond) from some banks who could not otherwise meet their reserve requirements when the market for CDOs collapsed and these CDOs could, therefore, not be fairly valued by a normal price discovery process.

The U.S. Central Bank does not by equities. It is no wonder people have such weird ideas with crap like this being published.

 

[Gotcha]

from some banks who could not otherwise meet their reserve requirements when the market for CDOs collapsed and these CDOs could, therefore, not be fairly valued by a normal price discovery process.

I chuckle at this part. Not that I have any in-depth understanding in all of this (nor did I read the article), but its kind of like saying that a trader shouldn't be liquidated because its not his fault that the market dropped so low and he now doesn't have enough money in his account to maintain margin. He is sure the market will go up, so its not fair to liquidate him now because if you just wait for the rally, he will be in good standing again.

What on earth is the normal price discovery process? If a player all of a sudden is in trouble, that is an opportunity for price discovery, true price discovery. You don't all of a sudden change the rules because the price discovery will lead to an event you don't like. That is manipulation of price discovery.

 

[vanzandt]

This article is unbelievably off base. The central banks don't by stocks!!! And everything they buy is disclosed on their website. The crap that is on the internet these days is astounding!!

.

The guy's pretty accomplished. I'm not saying you're wrong, but what he says he backs up with facts. Its journalism. I don't discount anything. Only a fool would. Right?

 

[piezoe]

I chuckle at this part. Not that I have any in-depth understanding in all of this (nor did I read the article), but its kind of like saying that a trader shouldn't be liquidated because its not his fault that the market dropped so low and he now doesn't have enough money in his account to maintain margin. He is sure the market will go up, so its not fair to liquidate him now because if you just wait for the rally, he will be in good standing again.

What on earth is the normal price discovery process? If a player all of a sudden is in trouble, that is an opportunity for price discovery, true price discovery. You don't all of a sudden change the rules because the price discovery will lead to an event you don't like. That is manipulation of price discovery.

It does sound like that, but that is a mis-characterization. The Central Bank is charged with bank regulation and with maintaining stability of the banking system. When the market for CDOs dried up it wasn't because the CDOs were suddenly worthless, it was because the usual buyers of these instruments no longer had trust in their value. Without a liquid market, the traditional way of determining the value of these instruments was not available. There was no way to fairly mark CDOs in bank inventories to market. The Fed realized that the CDOs held by Banks were not worthless, but just illiquid. The Fed did there own evaluation of holdings and agreed to purchase CDOs at a discount from banks. The Fed credited the banks reserve accounts held at the Fed with the proceeds. When they did this, some banks could then meet their reserve requirements. Quite a few banks could not meet their reserve requirements because they did not hold enough assets of sufficient quality to satisfy the feds rigid standards. These banks failed. There were many of them that failed. Had the Fed not taken these extraordinary steps to preserve bank solvency the world would have been thrown into a far worse financial crisis.

It is true that the rules used by the Fed during the Crisis may have been tailored or bent to make sure that some of the very largest financial institutions did not fail. Failure of these huge institutions would have made the crisis far worse. This is the problem we know as Too Big To FAIL. It is a problem that has not been adequately addressed, and there seems to be a move afoot to undue strictures placed on banks, as a result of the crisis, and let them return to the same kinds of risky behavior that precipitated the last crisis.

You can find out every asset the Fed bought by going to the New York Fed Branch Banks website. It's all right there for you to see, exactly what they bought, and every bond is fully identified.

 

[vanzandt]

You can find out every asset the Fed bought by going to the New York Fed Branch Banks website. It's all right there for you to see, exactly what they bought, and every bond is fully identified.

Devil's advocate here.... but why did the writer not do that?
And why has someone not called him out on it?
Just sayin'.....

 

[piezoe]

The guy's pretty accomplished. I'm not saying you're wrong, but what he says he backs up with facts. Its journalism. I don't discount anything. Only a fool would. Right?

There is no fact showing that the U.S. central bank buys equities!!! The guys a charlatan! How can anything so off base be published in any respectable publication??

The Central Bank won't touch stocks, and when they had to buy GM stock simply as a necessary way of expediting the Treasury's acquisition, they couldn't wait to get that stock off their books.

 

[piezoe]

Devil's advocate here.... but why did the writer not do that?
And why has someone not called him out on it?
Just sayin'.....

I'm calling him out RIGHT NOW!

 

[Gotcha]

It does sound like that, but that is a mis-characterization. The Central Bank is charged with bank regulation and with maintaining stability of the banking system. When the market for CDOs dried up it wasn't because the CDOs were suddenly worthless, it was because the usual buyers of these instruments no longer had trust in their value. Without a liquid market, the traditional way of determining the value of these instruments was not available. There was no way to fairly mark CDOs in bank inventories to market. The Fed realized that the CDOs held by Banks were not worthless, but just illiquid. The Fed did there own evaluation of holdings and agreed to purchase CDOs at a discount from banks. The Fed credited the banks reserve accounts held at the Fed with the proceeds. When they did this, some banks could then meet their reserve requirements. Quite a few banks could not meet their reserve requirements because they did not hold enough assets of sufficient quality to satisfy the feds rigid standards. These banks failed. There were many of them that failed. Had the Fed not taken these extraordinary steps to preserve bank solvency the world would have been thrown into a far worse financial crisis.

It is true that the rules used by the Fed during the Crisis may have been tailored or bent to make sure that some of the very largest financial institutions did not fail. Failure of these huge institutions would have made the crisis far worse. This is the problem we know as Too Big To FAIL. It is a problem that has not been adequately addressed, and there seems to be a move afoot to undue strictures placed on banks, as a result of the crisis, and let them return to the same kinds of risky behavior that precipitated the last crisis.

You can find out every asset the Fed bought by going to the New York Fed Branch Banks website. It's all right there for you to see, exactly what they bought, and every bond is fully identified.

Great reply, and I certainly don't mean to argue with you, but the part where you mention the illiquid aspect is another part where I have to roll my eyes. Liquidity and fair value go hand in hand. When something is illiquid, it just screws the weak hands. You explain that there was no way to determine the value of something in an illiquid market, but I say that it was simply that they wouldn't like the price they got. If something is discounted by 50%, even in an illiuquid market, someone will see the value and snatch it up.

Clearly the whole thing is well orchestrated, and it isn't so much about finding fair value, but just to give the appearance of that. Its true that a greater calamity was averted, but someone will still be left holding the bag one day.

 

[piezoe]

Liquidity and fair value go hand in hand.

Those of us in the market daily are accustomed to thinking that. For liquid instruments we say their value is whatever the market says it is, and we call that, by definition, "fair value'. We forget, however, that for illiquid assets the market can't determine fair value and it must be determined in some other way. The asset may be worthless or of great value, but because there is no market at the moment, the assets value can not be determined using a market mechanism. If we are traders, we stay away from illiquid assets for that reason.