Bernanke Says Fed Does Not Engage In Stock Market Or "Individual Stock" Manipulation; Some Loose Ends On FX Swaps

Tyler Durden's picture

In a response letter sent to Alan Grayson, the Fed chairman has the following brief retort to the question of whether "the Federal Reserve- alone or in concert with the Treasury Department or any part of the government- ever taken any action with the purpose or effect of supporting the stock market or an individual stock": "The Federal  Reserve has not intervened to support the stock market or an individual stock." Shocking. And we are confident that the fine people at Liberty 33 just sit all day, twiddling their thumbs now that the Fed is no longer in the MBS and UST monetization business. Furthermore, anyone who reads anything into the fact that the FRBNY is continuously ramping up its hiring of traders, both credit and equity, as posted in assorted public venues, is simply paranoid and does not understand that this is only due to Brian Sack's fascination in being surrounded by 400 traders daily. On the other hand, at this point pretty much everyone is aware of the sad state of FRBNY intervention, whether it is in the FX market or the gold market, and indirectly via the discount window and the repo system, in which banks purchase bonds at auction, using discount window or other zero cost capital, only to repo it back, and to use the proceeds to bid up stocks. Maybe Mr. Grayson can ask the Chairman whether the Fed is actively endorsing primary dealers to bid up risky assets to create the impression that since the market is ramping higher (on no volume, mind you, but who cares) that the economy is doing so as well (we will shortly have something to say that refutes this thesis, compliments of none other than Goldman Sachs). All cynicism aside, Grayson at least still continues to ask the right questions: among these are 1) How does the fed plan on dealing with the $1.7 trillion in MBS on the Fed's balance sheet, 2) Why Greenspan and Bernanke were so wrong in keeping the FF rate for so long, and how does the Chairman plan to reconcile the same bubble creation that blew up the economy last time ZIRP was around, with the deflationary threat to the economy, 3) Why does the Fed think a Tobin tax is bad (and, incidentally, why does the Fed even have an opinion on tax policy), 4) Why is the Fed failing at pushing unemployment lower even with ZIRP and QE, 5) How the Fed is lobbying on behalf of its, and Wall Street's interest, 6) How much gold should the US government own, and many others.

Yet the most interest question in our opinion is whether or not the Fed, via its prior and ongoing liquidity swap operations, is actively pumping dollars into foreign CB at the unwind of a swap that has differing entry and exit cross fixings. This is actually a great question which will demand much more thorough analysis, as during the last liquidity crisis, the Fed pumped over $500 billion in capital in foreign banks at a time when the DXY was at then-all time highs, only to unwind these swaps as the dollar subsequently crashed, resulting in a massive net flow of dollars from the Fed to foreign banks. As such liquidity swaps are far more than mere liquidity backstops - they are yet another shadow mechanism to pump money into foreign CBs. Furthermore, the money outflowing in this manner, far outweighs any interest earnings on swaps, which Bernanke determines amounted to about $2.1 billion in 2009.

Another wonderful question to which Bernanke, unless he had completely lost his mind, gives a negative anwer, is whether any foreign banks that were the recipients of FX swaps, used the proceeds to buy US Treasuries. Obviously, Bernanke's answer is no, as this would be yet another shadow monetization process. We do, however, wonder just how Bernanke knows precisely what foreign CBs did with all the excess cash: surely, this money thus created out of the Chairman's printer thin air, is completely fungible, and to say that foreign CBs did not use that money to purchase USTs, would mean that foreign central Banks did not buy USTs at all during the period in question. Bernanke surely sees this problem as in another question he himself notes: "Because money is fungible, in general it is not possible to determine whether a counterparty used funds obtained from loans or through other transactions for a specified purpose. It is not possible to specifically connect the extension of particular loans by the Federa Reserve with the acquisition of US government debt." And herein lies the rub - by outright denying that FX swaps were used to monetize debt, Bernanke may have cornered himself, as the next logical question is just what did foreign CBs buy with any FX lines that were not used up in further downstream liquidity facilitating operations. Does Bernanke in essence say that foreign Central Banks never purchase US Treasuries? That would be an amusing claim, and is certainly refuted by the definition of Indirect Bidders, conveniently provided by the Fed itself.

We surely do hope Mr. Grayson will take his line of questioning to the next logical step, which is catching the Chairman in outright lies. At this point, with so many loose ends over at Liberty 33 and the Marriner Eccles building, it is just a matter of time.

Full response by Bernanke to Grayson.

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nmewn's picture

Maybe it's time for debt jubilee.

Mr Lennon Hendrix's picture

Is that a Brittney Spears song?

geopol's picture

Who is BS....? .Look,,Alan needs to belly up to the bar and simply invoke his oath of office...ABOLISH THIS CREATURE......Coup from beginning to end..agree??

Audit the FED.. just gives it validity!!! No audit...abolish....

Mr Lennon Hendrix's picture

Hmmm....interesting...Brittney Spears is Ben Shalom is BS!

YES!  BURN THE FED!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


STATE CHARTERED BANKS BACKED WITH GOLD, SWEAT, and TERRAS!  I mean tears.  Terra works too.  Terra firma.

nmewn's picture it's an old Biblical process of expunging debt from the system.

What is truely life and death is Miami vs. UF in the super regional college game ;-)



knukles's picture

"The Federal Reserve has not intervened to support the stock market or an individual stock."

Probably the Truth and Nothing but the Truth.  They probably have Some Other Institution execute on their behalf. 
Gotta ask the Exact, Specific Question to Approach the Truth, to Extract the Exact Science.  

For example; Where from comes the Adverse Variation Margin Paid on all of the Short Gold Futures positions held by the likes of JPM and GS? 
Are the positions held on GS and JPM's books as Spec or Hedge....for thier Own Account or Another?  And if Another, what Institution might that be?

Has anyone discovered that information, as of yet?  Have we the knowledge to end our remedial speculations?

Nihilarian's picture

Well, yeah -- nothing can be more certain than when it has officially been denied.

I need more asshats's picture

We know what is going on. The import thing to remember is that the obvious action of manipulation is like spilling liquid bleach on cotton jeans. It stains the fabric, and more importantly damages the core fabric in an irrevocable manner.

The trust has been broken and light has been shed on the actions of the organizations that are suppose to generate and maintain integrity in the marketplace.

It's all down hill from here.

septicshock's picture

Perhaps, but his comment about gold being highly sensitive to even slight disruptions in the governments holdings, up or down... is very interesting.  Obviously, there is fear in the FED about gold prices climbing as they have been and the possibility of a further increase in price destabilizing FIAT money.

Bam_Man's picture

I think they are slowly coming to accept the fact that they will just have to get used to living with a sky-high Gold price as a result of perpetual global ZIRP and QE. An annoyingly high Gold price will be regarded as a "cost of doing business".

junkyard dog's picture

Why do we even ask him anything? He is lost. He no longer knows the truth. The problems we have have eaten him from the inside out. He is a shell. He cannot ask for directions because he would not be a man if he did. So we sit in the back seat of a rocket, watching the last exit go by with a sign  reading ' long bridge ahead, check your gas". But he does not see it because he is looking in the outside mirror- at himself.


Inspector Asset's picture

That dosn't sound like Bend Over Bernake,,

He would of said something like this:

"Obviously, using these instruments in a way that intentionally destabilizes a company or a country is counter-productive."

talking about CDS contracts .....

TheGoodDoctor's picture

And he actually used the word "obviously" when stating the obvious. Man I wonder if there will be a religion made around his philosophy!

ColonelCooper's picture

It's too bad Grayson is such a complete and utter fuckstick, because his efforts on this front are admirable.  As much as I would enjoy seeing his head explode as the result of a massive brain hemorrhage, he does deserve some credit for sticking to his principles, and having an overall large set of testes.

***All I know of him is from national coverage, and the updates from ZH.  Perhaps a constituent could offer more evidence that he is a complete douchenozzle, making me feel better about hating his guts.

TuesdayBen's picture

The execrable Grayson is, near as I can tell, so far left (as evidenced nearly every time he opens his pie-hole) he is starting to come around on the far right (as evidenced by his efforts concerning the FRB).

Mitchman's picture

Do we think that Grayson fully understands the implications of what he is asking and therefore has the savvy to follow up or is he just fronting for his staffers?

Mr Lennon Hendrix's picture

I think Alan Grayson and Matt Simmons should write a book, "How to Tell not the Whole Truth".

sheeple's picture

Bernanke Says Fed Does Not Engage In Stock Market Or "Individual Stock" Manipulation


Right, does JimCramer Rule applies here? [take the opposite side?]

Fred Hayek's picture

Bernanke's thinking to himself after that response, "Well, we don't manipulate every single equity entity and we don't manipulate just one of them, so there's a way to look at that as being true.  Sweet!"

And it was a really slimy way to answer the question because Grayson asked for specifics and Bernanke just answered by playing word games with the language of the question. 

Sisyphus's picture

<Turd Ferguson>

Bernanke is a douchebag.

</Turd Ferguson>

RockyRacoon's picture

Can't have it both ways folks.  Some above comments are critical of Grayson.  If it were not he who was checking up on this stuff, then who should?  It takes a borderline nut to pursue this line of questioning.   If Grayson were silent there would be hootin' and hollerin' about "somebody" needing to ask pertinent questions.  When somebody bucks the system and puts Ben's feet to the fire he is called a "fuckstick".   Who would you be comfortable with doing the inquisition?  Pick a name and write/email/fax this legislator and prod him/her until the legislator either does something or tells ya to leave them alone.   Dr. Paul comes across as a rather unconventional character (and I am being kind here), but he is DOING something.  You just can't have it both ways.   Neither Grayson nor Paul is doing any damage, and they may be setting an example for others in Congress.  Take what you can get... or do it yourself.

Ned Zeppelin's picture

Agree; criticising the few who at least voice some semblence of sanity seems nutty in and of itself. I am fine with Grayson and Paul, would not refer to either as a fuckstick (Bernanke might fit that description; Hank Paulson certainly did; Tony Hayward fits the bill nicely; I could go on).

This has been a persistent thread here, pushing the notion that Grayson is somehow a useless legislator.  I question those who say such things, and ask who they are "for" in this war against the current idiocy.

Mr Lennon Hendrix's picture

Ned, I applaud Mr. Grayson for his pursuit of housing the Fed, but I didn't care for his insistence on the Health Care Bill.  I do believe we need better health care however, but that bill was fascist.

In Mr. Paul's case, I like him well enough, but I question his dedication to corporate entities; although I think Aynn Rand was a more than capable thinker and arguer, I find the notion of unrestrained corporate enterprise appalling.  Large corporations should have limits, as we can tell by this fascist government we have been swallowed by.  I feel both men offer justice to fiscal and monetary policy, but fail to see big government IS big corporation.  I think we should have small government and small corporations.  I hate the 14th amendment (men were free before it, and racism did not end with a swift jerk of a pen).  I think that we are now all of a mind to see that each man is fully capable of doing their own self justice, and that we are hampered by these huge and obnoxious entities.  That being said, I do like having both as Congressmen, but I feel both are a little of their mark.  Nobody is perfect however.

dcb's picture

Grayson had another version of health care reform he wanted passed. don't blame the man for something happening he didn't want. he wanted people to be able to opt in to existing government programs at cost or a bit above. this would have been competition to the forced purchase of for profit insurance. Then people would have had some choice. Instead we got the rigged disgusting reform we got.

Advoc8tr's picture

Neither Grayson nor Paul is doing any damage, and they may be setting an example for others in Congress.  Take what you can get... or do it yourself.

Touche ..... self evident common sense approach.

 From an external perspective the Ron Pauls and Allan Graysons stand out as the obvious sane ones inside a mental asylum and one scratches their head wondering why they do not garner immediate widespread support.

Marvin_M's picture

a possible answer to your question would be: because anyone who dares to discuss the real truth in Washington is labled a naive idiot by the media (or worse by some ZH commentators).  If I was elected (for a single term alas) to Congress, I would spend much of my time making a mockery of the corrupt, lying morons that inhabit the hallowed halls in perpetuity, not to mention the fools who inhabit The FED, the SEC and any of a hundred parasitic and corrupt agencies therein.  A close examination of Mr. Grayson's performances on the floor of the House of Representatives, in committee and in letters to the FED tells me that he is what I would be if I were him.  In this day and age, it seems only one of "liberal" or (in the case of Mr. Paul) "independent" persuasion could possibly fill this bill.  You aren't going to be hearing any truth from the mouth of the Honorable John Boehner (R-OH).

RockyRacoon's picture

Good stuff!

Solution:  Term Limits.

If on the 2nd day of their term they were not already campaigning for the next election there might be some hope.  If they were not looking over their shoulder for the next back-stabbing "deal" that would cut them off at the knees, they could concentrate on some real legislation.   Fear runs Washington DC and that is not an environment conducive to sane law making.  If they didn't have to fear that every word they say (taken out of context as a rule) would be used against them in the next election....   You get the picture.

Kali's picture

Playing devils advocate here.  Term limits.  Not having to worry about getting money for next election.  BUT, there is still the revolving door.  If one knew you only had a short time to milk the system, I think it may also be EASIER to corrupt, offering big bucks or a cushy job after a short stint.  I would add, to term limits, that one must return to the career/biz you came from and not "graduate" to a multimillion dollar Corporate Board position. I don't know. One cannot legislate ethics, morals or integrity.

SRV - ES339's picture


Publicly funded elections (qualification based on documented public support, regardless of party affiliation)... funded through corporate election taxes, 8 week campaigns for all elections, and banning any and all professional lobbying.

Sorry but, IMO, Term Limits do not address the core issues.

RockyRacoon's picture

Since they themselves have to concoct and pass the relevant laws, we won't be getting diddly anyhow.  We're just pissing up-wind.

ColonelCooper's picture

Actually, in this case, I think I was being completely consistent in my having it both ways.

I applauded Mr. Grayson for having the balls to ask the questions he does.  I also gave kudos for his standing with his principles.  On the other hand, virtually every other word that comes out of his mouth (IMHO)  is belligerent, ignorant, and dismissive of dissent.  I disagree with him on nearly every issue I have ever heard him speak.  EXCEPT this one, where I acknowledged his effort.

This is a man who panders to the camera as a cross between some sort of stand up hack, an ambulance chasing lawyer, and Robin Hood.  His repugnant comments beginning with the "Die Early" quote from health care, to his wanting to jail those who disagree with him, qualify him for The Fuckstick of the Year Award.

You CAN have it both ways, IF you are honest and as objective as possible.  I give credit where credit is due.  Why do I have to like everything about him? 

Irregardless, in this case, the bigger point isn't what Grayson is doing on this front, it is what everyone else in Congress isn't. 

RockyRacoon's picture

I understand.  It could very well be that Grayson's idiocy may be his asset.  He has built a platform of irascibility and it gets him attention.   Sometimes the craziest acting folks in the asylum are the sanest.

Cursive's picture

Sometimes the craziest acting folks in the asylum are the sanest.

Brilliant, RR, brilliant.  WRT, Alan Grayson, a long time ago a ZH poster said he was crazy, but he's our crazy.  That sums it up for me.  The good he does opposing the FRB far outweighs anything else he is doing.  Also, a belated hat tip to your handle; brings back good memories every time I get the song in my head....

RockyRacoon's picture

I was 20 years old when the Beatles pressed that record.  Serving in the Air Force in Thailand at the time.

We blasted it on the flight line full blast.  Rockin' and rollin' with the F-4 Phantoms and the F-105 Thunderchiefs.  Ah, the good old days....   4 years of that shit was enough.

Hephasteus's picture

It worked for that hamlet fellow.

Mitchman's picture

The problem with a Grayson is that since he is a fucktard-excuse me, fuckstick- on so many things, when he does focus correctly on something (who can forget his hilarious but well pointed Red Roof Inn gig?) he is easily written off and his serious questions are cast aside with the old "There he goes again".   

Mr Lennon Hendrix's picture

I wonder if him and Vince Vaughn are cousins?

jimijon's picture

Paul / Grayson in 2012 - Once the progressives and libertarians realize that together they can become strong, you will have the third party.


It could work....


David449420's picture

Be careful what you wish for.  Alan Grayson has a dorsal fin that is as big or bigger than anyone he is playing against.  This man is dangerous.  He is new to this particular venue, so he is learning the ropes, so to speak.  In the past, unsettling times (such as the Russian revolution, the rise of the Nazi's, etc) produced aggressive, dangerous individuals (Josef Stalin, Adolf Hitler to name a few of the more prominent examples) that ran with a social/political movement  and had HUGE NEGATIVE  consequences for the majority of the populations involved. 

Alan Grayson has the opportunity right now to wrap his actions in the context of the right side or the moral high ground. This is a tool and a weapon and he will use it and is using it to the maximum.

Do not be deluded that this man has the best interests of the society he proports to represent as his motivation. This is ALL about POWER and ADVANTAGE. 

If this individual ever archives serious political power (think President) what would we be looking at?  Your current President has been a HUGE disappointment. Contrast the two. 

Ask yourself this.  IF Alan Grayson was President, what actions would he take to deal with the problems that beset us?

I would suggest, Pray you never find out. 

Unfortunately, historical precedent suggests that times of great social upheaval do bring dangerous individuals to those influential positions. This man is NOT a Nelson Mandela. Josef Stalin is what he reminds me of.

The next decade is NOT going to be boring.


New_Meat's picture


Ask yourself this.  IF Alan Grayson was President, what actions would he take to deal with the problems that beset us?

Like Roosevelt and Wilson before him, many of us would be locked away for our own protection.

- Ned

Rick64's picture

Agree totally. We have to have unity otherwise there is no power. Nobody is going to please everybody, but on this issue I think everybody is in agreement.

Alienated Serf's picture

Fed owned MBS has no counterparty risk because freddie/fannie guarantee??!?!? really?  so the treasury is on the hook for mtg defaults owed to the fed.  hell of a system.

Mr Lennon Hendrix's picture

When BS lies, is it Treason?  The Fed being a separate entity from the Government and all....

qualia's picture

Classic, yes.  But the reality is the banks bail faster by borrowing cheaper than they lend.  So all water accumulates in the government boat.

Implicit simplicit's picture

Nice. Group emailed it to some friends