An Overview Of The Fed's Intervention In Equity Markets Via The Primary Dealer Credit Facility

[naaman fletcher]

The end message is: The Fed is manipulating the stock market.

The money quotes:

"In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent.

Readers who have been concerned with the moral hazard provided by the Fed's monetization of Treasury and Mortgage debt, should be doubly concerned by this Fed action which sent three key messages to Wall Street: i) it made sure that Primary Dealers would generate massive profits on risky assets as the Fed would provide the funding to acquire any and all stocks (keep in mind the cost of funding of the PDCF to primary dealers was negligible); ii) it tipped its hand as to the existence and modus operandi of the rumored "plunge protection team," iii) and it made clear that the much maligned, by none other than Chairman Bernanke, concept of "moral hazard" is the one and only systemically relevant doctrine as long as the Fed's Chairman is in control, and not subject to any auditing auspices. The fact that PDs used over $140 billion of taxpayer money within a few weeks of the program's expansion in September to fund what one can assume were exclusively equity purchases, demonstrates that the American financial system got the message."

....

Furthermore, by being a self-professed "lender of last resort" as well, providing a perpetual backstop for an indirect way to bid up equities at a 50 bps funding cost, the Federal Reserve has now managed to singlehandedly take over the entire capital market.

...


If there is no risk associated with borrowing
practically free taxpayer money, it is obvious that banks will manipulate
stock prices to the point where nobody but other Primary Dealers who enjoy
the same Fed backstop benefits will remain in the market. As more and more
American retail and institutional investors realize the magnitude of the
scam, the risk that equity markets will remain an isolated bubble in
perpetuity where Primary Dealers simply play around with the Fed's excess
capital, becomes tangible. And as long as there is no regulatory reform to
commence the split of TBTF institutions, as long as financial system
crutches persist and as long as the opportunity cost of being wrong is zero
(and borne only by US taxpayers), US equity markets will continue to be a
scam. Therefore, Zero Hedge advises all readers to immediately remove all
their capital from the stock market, until such time as proactive steps are
taken to remedy these numerous concerns, or alternatively suffer the
consequences of not only another Fed inflated market bubble, but the even
sadder consequences of its unwind."


http://www.zerohedge.com/article/overview-feds-intervention-equity-markets-primary-dealer-credit-facility

[mule_train]

1. fed's role: heads wall street wins, tails taxpayer loses

and the fed is flipping the coin as fast as it can

[naaman fletcher]

2. yes, that is even a better summary

[truedelphi]

3. Precisely and concisely. Yet people still have their head

Buried in the sands about this.

[mule_train]

4. you mean they dont get that this year's wall street "profits" are the taxpayer's stolen dollars? nt