Thursday, September 08, 2005

Wonder if they bought any Halliburton stock?

According to a Canadian financial firm has published a report suggesting that the stock market is indeed being manipulated. By the U.S. Government.

The report, entitled, Move Over, Adam Smith: The Visible Hand of Uncle Sam has been published by Sprott Asset Management of Toronto. It was written by the firm's president, John P. Embry, and his assistant, Andrew Hepburn.

The report concludes that the U.S. government has intervened to help the stock market so many times that, it has become a serious moral hazard situation, with market manipulation an endemic feature of the U.S. stock market."

The hazard is not an unfamiliar one. We all remember the way the confidence of investors was shaken by the Enrons, the Tycos, the WorldComs, the Imclones, etc. We know how badly insider trading hurt the market, as millions of small investors, who previously believed that they were on an equal footing with the big guys, discovered they weren't because the big guys were cheating. Many of those investors have still not returned to the stock market, despite the prosecution of a few high profile insider traders.

The hazard is that, aside from the moral grey area of whether the Federal government should be in the business of manipulating the stock market in the first place, someone must know what they are doing. What they are buying, for how long, and in what quantities. And the money the Federal Government can put into or take out of the stock market dwarfs anything that Ken Lay or Bernie Ebbers could come up with. It is not hard to suppose (in fact, it is hard not to suppose) that someone with the knowledge of this isn't taking advantage of this to their favor.

When they are exposed, it could be the mother of all insider trading scandals.

The report acknowledges this:

a policy enacted in secret and knowingly withheld from the body politic has created a huge disconnect between those knowledgeable about such activities and the majority of the public, who have no clue whatsoever.

"There can be no doubt that the firms responsible for implementing government interventions enjoy an enviable position unavailable to other investors. Whether they have been indemnified against potential losses or simply made privy to non-public government policy, the major Wall Street firms evidently responsible for preventing plunges no longer must compete on anywhere near a level playing field. 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.

The full text of the report is available (PDF) at

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