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Yves Smith: Suspicions that The Fed is manipulating Wall Street

By  May 24, 2010

Topics: Programming, C/C++

Yves Smith, the nom de plume of the creator of Naked Capitalism and one of the most savvy and respected members of the blogosphere. In professional life Yves is known as Susan Webber. Yves recently gave an interview to an Israeli financial newspaper in which she claims that a federal team unofficially called "the plunge protection team" is manipulating the stocks on Wall Street.

Smith lists several circumstantial pieces of evidence to support this claim: a conversation between a high-ranked industry exec with one of the administration's clerks in which the exec expressed his suspicion that the market was being manipulated. "It would be irresponsible of the government not to intervene" replied the clerk. Another clue was provided a couple of weeks ago when the Dow crashed by nearly 10% in minutes. Within minutes, the plunge was rebuffed and the indexes soared back. Interestingly, I raised similar suspicions about the fed's intervention and manipulation in my blog back in November 2008:

Bloomberg reported today that the Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral. Where have $2,000,000,000,000 gone?

My guess is that most of the money was actually used to buy stocks on Wall Street. The Fed can't buy stocks directly, nor would the public approve of such a reckless move. Therefore, I suspect that a significant portion of this huge amount was used indirectly (via intermediary brokers) for buying stocks on Wall Street with the sole purpose of alleviating the colossal sellout of mid-October.

If this is true, and the fed is indeed manipulating Wall Street, the implications are pretty awful. It means that the economy is in far worse shape than the government wants you to believe. And it also means that another crisis is seen in the horizon because the government can't bolster the markets forever by printing money. Since the IT sector is among the first to be affected by a recession, be prepared!

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