Manipulation - How Markets Really Work

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By Stephen Lendman (about the author) Page 2 of 5 page(s)

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(2)....governmental (and other) actions under existing laws and regulations....that are appropriate to carry out these recommendations."

In August 2005, Canada-based Sprott Asset Management (SAM) principals John Embry and Andrew Hepburn headlined their report on the US government's "surreptitious" market interventions: "Move Over, Adam Smith - The Visible Hand of Uncle Sam" to prevent "destabilizing stock market declines. Comprising key government agencies, stock exchanges and large Wall Street firms," this group "is significant because the government has never admitted to private-sector membership in the Working Group," nor is it hinting that manipulation works both ways - to stop or create panic.

"Current mythology holds that (equity) prices rise and fall on the basis of market forces alone. Such sentiments appear to be seriously mistaken....And as official rhetoric continues to toe the free market line, manipulation has become increasingly apparent....with the active participation of selected investment banks and brokerage houses" - the Wall Street giants.

In 2004, Texas Hedge Report principals Steven McIntyre and Todd Stein said "Almost every floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seen the PPT in action in one form or another over the years" - violating the traditional notion that markets move randomly and reflect popular sentiment.

Worse still, according to SAM principals Embry and Hepburn, "the government's unwillingness to disclose its activities has rendered it very difficult to have a debate on the merits of such a policy," if there are any.

Further, "virtually no one ever mentions government intervention publicly....Our primary concern is that what apparently started as a stopgap measure may have morphed into a serious moral hazard situation."

Worst of all, if government and Wall Street collude to pump and dump markets, individuals and small investment firms can get trampled, and that's exactly what happened in late 2008 and early 2009, with much more to come as the greatest economic crisis since the Great Depression plays out over many more months.

That said, the PPT might more aptly be called the PPDT - The Plunge Protection/Destruction Team, depending on which way it moves markets at any time. Investors beware.

Manipulating markets is commonplace and as old as investing. Only the tools are more sophisticated and amounts involved greater. In her book, "Morgan: American Financier," Jean Strouse explained his role in the Panic of 1907, the result of stock market and real estate speculation that caused a market crash, bank runs, and hysteria. To restore confidence, JP Morgan and the Treasury Secretary organized a group of financiers to transfer funds to troubled banks and buy stocks. At the time, rumors were rampant that they orchestrated the panic for speculative profits and their main goals:

-- the 1908 National Monetary Commission to stabilize financial markets as a precursor to the Federal Reserve; and

-- the 1910 Jekyll Island meeting where powerful financial figures met in secret for nine days and created the private banking cartel Federal Reserve System, later congressionally established on December 23, 1913 and signed into law by Woodrow Wilson.

Morgan died early that year but profited hugely from the 1907 Panic. It let him expand his steel empire by buying the Tennessee Coal and Iron Company for about $45 million, an asset thought to be worth around $700 million. Today, similar schemes are more than ever common in the wake of the global economic crisis creating opportunities to buy assets cheap by bankers flush with bailout cash. Aided by PPT market rigging, it's simpler than ever.

Wharton Professor Itay Goldstein and Said Business School and Lincoln College, Oxford University Professor Alexander Guembel discussed price manipulation in their paper titled "Manipulation and the Allocational Role of Prices." They showed how traders effect prices on the downside through "bear raids," and concluded:

"We basically describe a theory of how bear raid manipulation works....What we show here is that by selling (a stock or more effectively short-selling it), you have a real effect on the firm. The connection with real value is the new thing....This is the crucial element," but they claim the process only works on the downside, not driving shares up.

In fact, high-volume program trading, analyst recommendations, positive or negative media reports, and other devices do it both ways.

Also key is that a company's stock price and true worth can be highly divergent. In other words, healthy or sick firms may be way-over or under-valued depending on market and economic conditions and how manipulative traders wish to price them, short or longer term.

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I am a 72 year old, retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

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