Fed's Rightful Role and LTCM

[Lock Limit Down]

from Alan Newmans article "Much of the "pressures of compliance" that are visible today have to do with what has become widely known as the "Greenspan Put." Can we deny that the Federal Reserve comprehends just how important the stock market has become? Can anyone fight against a central bank policy that is designed to promote stocks as an asset class? Of course, this is another controversial subject and none of us would like to admit that the market can be manipulated in any way, shape or form.....but it can....and it is.

 

"

Major Crapper...I would appreciate your take on this ..Thanks

[Guest]

Major Crapper...I would appreciate your take on this ..Thanks

LLD,

 

In my view it is a complete myth, albeit one that is probably enthusiastically propagated by a Fed that by its own admission views propaganda as one of its chief policy tools.

 

Fed paper - Central Bank Talk: Does it Matter and Why?

[growler]

LLD,

 

In my view it is a complete myth, albeit one that is probably enthusiastically propagated by a Fed that by its own admission views propaganda as one of its chief policy tools.

 

Fed paper - Central Bank Talk: Does it Matter and Why?

Is there any doubt the fed has intervened in the currency markets? No

 

Is there any doubt the fed has intervened in the bond markets? No

 

Is there any doubt the fed has intervened in the gold markets? No

 

But the stock market? No way. We've got morals. We've got to draw the line somewhere.

 

Right. And the world is flat!

[Guest]

Is there any doubt the fed has intervened in the currency markets? No

 

Is there any doubt the fed has intervened in the bond markets? No

 

Is there any doubt the fed has intervened in the gold markets? No

 

But the stock market? No way. We've got morals. We've got to draw the line somewhere.

 

Right. And the world is flat!

Well, I'd certainly question whether there is a direct manipulative link between the Fed and the gold market but the other market you mention are forms of money - whch is of course the business of the Fed - while the stock market is not.

 

If you don't believe me you need to bone up on you monetary aggregates.

[growler]

Well, I'd certainly question whether there is a direct manipulative link between the Fed and the gold market but the other market you mention are forms of money - whch is of course the business of the Fed - while the stock market is not.

 

If you don't believe me you need to bone up on you monetary aggregates.

Based on your logic...I take it that arranging a bailout of LTCM falls under their charter as well.

 

That too must fall under your definition of monetary aggregates.

[Guest]

Based on your logic...I take it that arranging a bailout of LTCM falls under their charter as well.

Of course it does.

 

LTCM represented a real risk to the financial system. If that isn't the responsibility of the Fed I don't know what isn't.

[growler]

Of course it does.

 

LTCM represented a real risk to the financial system. If that isn't the responsibility of the Fed I don't know what isn't.

LTCM represented real risk to the financial system...but an 80% drop in the Nasdaq didn't?

 

That's the point. Whatever they deem a risk (read decline in stocks) is also, according to YOUR definition, the responsibility of the fed.

[Guest libertas]

Of course it does.

 

LTCM represented a real risk to the financial system. If that isn't the responsibility of the Fed I don't know what isn't.

Right. So it doesn't matter how risky or leveraged the deal so long as it is big enough, the Fed will bail out the parties?

[Guest]

LTCM represented real risk to the financial system...but an 80% drop in the Nasdaq didn't?

Nope, because - like it or not - banks were not particularly exposed to the Nasdaq and therefore though a great deal of people lost a great deal of money the banks and therefore the financial system itself did not.

 

Stocks=equity=risk capital=could all go down the drain at a moments notice.

 

LTCM on the other hand were largely playing fixed income instruments that the banks do hold for their own acount. Therefore the prospect of forced liquidation of positions presented real risks of cascading price falls in markets that would have damaged banks' balance sheets.

 

See the difference?

[soup]

The problem is that the fed encouraged and facilitated the bubbles, only one way to prevent the negative after effects of a bubble, do not let it happen. That is the job,imo, of the fed.

[Guest]

Right. So it doesn't matter how risky or leveraged the deal so long as it is big enough, the Fed will bail out the parties?

As long as we're not talking equity markets then yes, they would cetainly try to.

 

However, despite what many appear to believe they are NOT omnipotent.

[soup]

Silly me, I always thought the fed was to maintain the purchasing power of the currency. The fed can fill a lot of dikes, but one day it will all blow up . Clearly the prudent course of action was to let the liquidation take place, get rid of the rot, the imprudent, and malinvestment. The above will happen, regardless of what the fed so decrees, only it will be much worse for all the meddling.

[Lock Limit Down]

Of course it does.

 

LTCM represented a real risk to the financial system. If that isn't the responsibility of the Fed I don't know what isn't.

LTCM was the result of a system run amok. The fed stepped in to arrest a situation that threatened to bring the financial system around the world to its knees. How was LTCM allowed to amass a portfolio that was so leveraged the worlds financial foundation was in jeoprady should these "geniuses" guess wrong? Lack of regulation, the same crap that we see today only 10 fold. Sure the fed was able to delay what surely would of plunged the globe into a painful depression. But as we have seen there were no steps taken to regulate systematic risk. The gang of 22 runs wild. No regulation, no restrictions, no rules and very few care because very few know or want to know. A case can be made for the bailout in 1998. The problem I have is the lack of resolve on the feds part to insure that we never find ourselves victimized by this reckless behavior in the future. The madness runs unchecked.

[growler]

Nope, because - like it or not - banks were not particularly exposed to the Nasdaq and therefore though a great deal of people lost a great deal of money the banks and therefore the financial system itself did not.

 

Stocks=equity=risk capital=could all go down the drain at a moments notice.

 

LTCM on the other hand were largely playing fixed income instruments that the banks do hold for their own acount. Therefore the prospect of forced liquidation of positions presented real risks of cascading price falls in markets that would have damaged banks' balance sheets.

 

See the difference?

"Banks were not particularly exposed..."

 

It's time to get up to speed. The evolution of the financial system has relegated banks to just one piece of the mosaic. Its about THE Fed's perceived risk to the system - not yours.

 

 

And whether you want to believe it or not, the simple fact is that equities fall under that category.

[mjkst27]

Of course it does.

 

LTCM represented a real risk to the financial system. If that isn't the responsibility of the Fed I don't know what isn't.

here we are again back at the genesis of it all.