The Fed bombed the market - I ask, "Why?"

Bruce Krasting's picture

Last evening I got the WSJ breaking news story that busted the global capital markets today. Note the time, 8:06.

Look at the immediate consequence to the EURDLR fx rate. There are big gaps down for EUR shortly after the story hit the tape in Asia. That knee jerk reaction was the same market “read” that gutted a number of Euro banks today:

I looked at the WSJ story and concluded that it was a game changer. I wrote Tyler Durden at Zero Hedge about this. The “Re:” that I used was:

Stink on Shit

TD responded:

Obviously a plant.

ZH had a piece today on the WSJ story that caused all the trouble. The “plant” theme was repeated. from the ZH article:

Why would (the Fed) use its traditional mouthpiece the WSJ to spread fear?

Tyler answers his own question with:

Why QE3 of course.

This is very important stuff. Three critical questions:

I) Was the WSJ story a plant?
II) If so, who planted it?
III) Why in heaven’s sake would anyone (especially the Fed) want to bomb the capital markets?

IMHO opinion this was a plant. The author was Carrick Mollenkamp. This guy is a seasoned pro. This story was vetted at the highest levels at the WSJ. The editors knew full well the implication of this article. Every ‘i’ was dotted and all quotes were checked. There are no mistakes in this article.

But who were those “sources” that the WSJ hung their hat(s) on? This was one of the biggest stories of the year. Who are the readers of the WSJ supposed to rely on regarding the serious issues raised in the article? Easy. No one is the answer. These are the attributed sources for the guts of the story:

Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.


The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.


Fed officials recently have held meetings…………. according to the people familiar with the matter.


The New York Fed has also been coordinating with New York's superintendent of financial services, Benjamin M. Lawsky, to monitor the foreign banks' funding positions, said people familiar with the matter.

You can come to your own conclusions on this. It is my opinion that there is no way the WSJ could have run this story without direct confirmation from the Fed. Those people who are so “familiar” with this matter are senior Fed officials.

That, for me, answers #s I & II above. But it begs the question, “Why”?

Is it remotely possible that the Fed deliberately engineered a collapse in markets in order to get the necessary political “cover” to initiate some new massive monetary policy as TD suggeted?

There is one possible clue in the article that points to this conclusion:

Until recently, that (Euro funding problems) hasn't been a problem. Thanks partly to the Federal Reserve's so-called quantitative-easing program, huge amounts of dollars have been sloshing around the financial system, and much of it has landed at international banks

This observation from Mollenkamp is from the Feds lips. The obvious conclusion from this paragraph is that to reverse the crisis now boiling over in Europe more “QE” is required.

What is QE? It can be anything that stimulates the price, velocity and availability of money. It does not have to be LSAP (traditional QE) or an extension of ZIRP. It can take other forms.

The most convenient of which is to open the Fed’s $ swap lines to the Euro banks. We may get this development by Monday morning.

My take on this is that the Fed manipulated the news. It did so very deliberately. The Fed had an agenda; they did whatever they thought necessary to gain acceptance for what they have up their sleeve.
The story was deliberately timed to undermine (further) the European banks. It worked. Now Bernanke and his cohorts have the excuse they need to act.

That's my take on this story. We may never know the truth. I wonder if Governor Perry understands this stuff. If he did, and he got the facts on this “out there” he would have a very big cannon to shoot. If the Fed did manipulate both the press and the markets to justify its actions it would be a very big deal indeed.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Twice a Day's picture

Good job Bruce!

Excellent statement on page 1 DavidPierre.

Latter part of page 3 and 4 was way off original subject; just clouds Bruce's and DavidPierre points.

Twice a Day

Mercury's picture

Bruece - bad link is the WSJ story from Weds night -

Bob's picture


spinone's picture

There have also been multiple articles on ZH about quote stuffing during big down days. This all smells like a setup.

Why? Why did the US enter WWII? To protect the US banking interests in European banks, when it looked like the Germans were winning.

NuYawkFrankie's picture

Please calm down!

A child of 6 coulda seen this coming - that the Fed would  tank the mkts in order to cover for Q3.

What's all the fuss about? The mkts were going down anyway, the Fed just gave 'em an extra push in order to bring 'em back up - however brifly - with Q3.

You're like a buncha freekin hysterical schoolgirls with your knickers in a twist - sheesh, get a grip!

Have nice day.

Bruce Krasting's picture

A number of readers point to the ZH article re the SNB and a $200mm swap advance.

I have no idea what this is about. I looked in the Swiss papers and found nothing. $200mm is peanuts. So I am confused.

This is not (in my opinion) a major step toward a massive funding of Euroland.

When/if the swap lines are drawn, we will know about it. It will be a very big splashy event.

The minimum amount will be at least $500b. It could easily go to $1T.

That said, the Swiss development is very interesting. If I get any type of clarification I will post it.


lower98th's picture

Not to mention the unsanitized release of the Philly Fed survey.  Down 30 and no management of the story?  Unusual.

ReactionToClosedMinds's picture

not to sound like I'm trying to jump on this train .....but Gene Epstein, who I've found to be honest & credible ...not pushing a story ... as Barron's Econ editor ...... expressed wonder at how Q1 growth was so severely revised down from 2% to effectively zero.  That news really set-the table of down leg that day and got lost ....

Epstein with another econ research firm did a correlation analysis with another long-term benchmark econ datapoint that matched well with GDP ..... it cme in at 2%+ for Q1 versus the revision to zero.  And think if your living impression of Q1 was zero or not?  To me no .... more mystery


I tried to highlight this Epstein point here on ZH but there was no reciprocal communication that I saw .....

experience tells me  .. where there are mysteries .. there are reasons and need for antennae to go on full extension .. and start asking questions.

What is going on? .... the trend which is your friend is so 100% down .... cannot it be what it seems?


??'s picture

The Fed had an agenda; they did whatever they thought necessary to gain acceptance for what they have up their sleeve.


Bruce do you really think they need to gain acceptance

Cult of Criminality's picture

Manipulate the casino....come on.

Oligarch wars bitchez

wuzetka's picture

Why is the FED pushing for QE, if it became obvious recently that security purchases, by the FED and ECB have worsened the liquidity situation in European banks by reducing available collateral used for funding? Maybe they are trying to find out if the same problem might be lingering in the US? If so then even if there is another QE it migh be something diffrent that the last QE....Maybe outright stock purchases?

speconomist's picture

Losses for who? Made some nice fiat.

digalert's picture

It's treason (I said it too) with a NWO goal. bastards


I am Jobe's picture

Why Mr. Anderson? Why?


Tuffmug's picture

Fed wants a Eurobond to clear the PIIGS problem. Fed's bomb designed to force the Euro politicians to act.

magpie's picture

and wants the Swiss to lose their independence to the EU ?

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

This crisis is contrived in order to pave the way for a new world currency and a New World Order.  Gee, what a shock!:) The demons have published their plans in their white papers for decades for anyone who has the motivation and ability to read.              Tuco

thegr8whorebabylon's picture

WTF, Perry?  President Doctor Paul would like to see you in his office regarding poor psy-ops presentation, asap.

tom's picture

Besides, I'm not convinced it's a plant. It could be, or it could be a story that started from another source and was confirmed by the NY Fed. Definitely not written in a day.

Rikki-Tikki-Tavi's picture

Considering how little direct communication we usually get from FED there certainly has been a fair bit lately which has been anything but supportive to the stock market, another example:

I'm with Bruce on this one.

He_Who Carried The Sun's picture

I am with you, Tom. No plant as there will be no QE3 before March or April other than the 300b they're playing with at the FED currently.
If that would have been leaked deliberately it would be abjectly mistimed.

tom's picture

I'd guess Dudley here, not Ben.

QE is LSAP that expands total assets. Other kinds of easing are easing, but not QE.

JR's picture

There are no benefits to plundered money. If the Fed bankers have the ethics of criminals – ethics in that they are stealing the money – why would anyone expect that their purpose is to invest it in America or mankind?  They deal it and put it in their pockets.

Says Ayn Rand:

“In a play I wrote in my early thirties, Ideal, the heroine, a screen star, speaks for me when she says: “I want to see, real, living, and in the hours of my own days, that glory I create as an illusion. I want it real. I want to know that there is someone, somewhere, who wants it, too. Or else what is the use of seeing it, and working, and burning oneself for an impossible vision? A spirit, too, needs fuel.  It can run dry.” …

Rand’s husband, Frank O’Connor, was the fuel Rand needed to write The Fountainhead – O'Connor gave her “in the hours of my own days, the reality of that sense of life which created The Fountainhead—and he helped me to maintain it over a long span of years when there was nothing around us but a gray desert of people and events that evoked nothing but contempt and revulsion…”

Rand gave in The Goal of My Writing her motive and purpose -  the projection of an ideal man. The portrayal of a moral ideal, as my ultimate literary goal, as an end in itself—to which any didactic, intellectual or philosophical values contained in a novel are only the means…

“Since man’s character is the product of his premises, I had to define and present the kind of premises and values that create the character of an ideal man and motivate his actions; which means that I had to define and present a rational code of ethics. Since man acts among and deals with other men, I had to present the kind of social system that makes it possible for ideal men to exist and to function—a free, productive, rational system, which demands and rewards the best in every man, and which is, obviously, laissez-faire capitalism…

“The man-worshipers, in my sense of the term, are those who see man’s highest potential and strive to actualize it. The man-haters are those who regard man as a helpless, depraved, contemptible creature—and struggle never to let him discover otherwise.  It is important here to remember that the only direct, introspective knowledge of man anyone possesses is of himself…”   --Ayn Rand, New York, May 1968, Introduction, The Fountainhead

Rand’s view of man helps in the understanding of what is happening to the American dream: “It is not in the nature of man—nor of any living entity—to start out by giving up, by spitting in one’s own face and damning existence; that requires a process of corruption…”

Watauga's picture

I once tried to read ATLAS SHRUGGED, back in college, and found it utterly boring.  Since then, I have read enough about Rand and enough short pieces by her to know that there is some value in studying her ideas.  That said, the combination of quotes that you employ, above, JR, is reflective of nothing so much as of a cult of some kind.  The odd mix of pop psychology, new age religion, and messianic "Superman" bullshit is somewhat shocking.  I admit that I may just be so ignorant of Rand and her ideas that I am missing a valuable meaning in all of this, but I confess that the combination of your quotes unnerved me.

JR's picture

I  can understand the rebirth of spirit from individual accomplishment. That’s why I like Rand. The basic theme of Rand’s We the Living about Soviet Russia appeals to me; it is the sanctity of human life – in the sense of “supreme value.”  Like you, I do not subscribe to Rand’s atheism or Friedrich Nietzsche’s mystic “Superman.”  Rand had a profound disagreement with the philosophy of Nietzsche, but admired the "magnificent feeling for man’s greatness” and worth that he projected as a poet with his belief in the self-esteem of the inner state depicted in his quote: “The noble soul has reverence for itself.”  (Friedrich Nietzsche, Beyond Good and Evil)

Said Rand regarding We the Living, “the essence of my theme is contained in the words of Irina, a minor character of the story, a young girl who is sentenced to imprisonment in Siberia and knows that she will never return:

 ‘There’s something I would like to understand. And I don’t think anyone can explain it…. There’s your life.  You begin it, feeling that it’s something so precious and rare, so beautiful that it’s like a sacred treasure.  Now it’s over, and it doesn’t make any difference to anyone, and it isn’t that they are indifferent, it’s just that they don’t know, they don’t know what it meant, that treasure of mine, and there’s something about it that they should understand.  I don’t understand it myself, but there’s something that should be understood by all of us. Only what is it? What?’”

Said Rand: “I could not understand how a man could be so brutalized as to claim the right to dispose of the lives of others, nor how any man could be so lacking in self-esteem as to grant to others the right to dispose of his life.  Today, the contempt has remained; the incredulity is gone, since I know the answer … of the men who value their own lives and of the men who don’t … the first are the Prime Movers of mankind and the second are the metaphysical killers, working for an opportunity to become physical ones. … men motivated either by a life premise or a death premise.”

Rand was the age of twelve at the time of the Russian revolution when she first heard the Communist principle that Man must exist for the sake of the State.

When I compare the spirit of youth, individualism and the towering possibilities of man depicted in Rand’s characters, say Howard Roark – showing that man’s reasoning mind and sense of worth are the fountainhead of human progress – with the current best-seller heroes and their valueless existence, I despair.

To readers that thrive only on recorded “real-life” dialogue and trivia, Rand’s work would not appeal. As she would say: “You’re casting pearls without getting even a pork chop in return.”

But from reading your response, Watauga, if you can overlook Rand's transfer of all belief in man rather than in God, and concentrate on man's God-given possibilities for great achievement that Rand believed gave life its meaning, I think you would fine value in Rand. She's worth a retry in your postgraduate days.

Irish66's picture

you should read again.  spot on

GoldmanSux's picture

Geitner really needs the printing to fund the defecit and rollovers. Since the end of June, primary dealer banks have naturally been backing away from the auctions. We are so close to an epic meltdown. I can think of at least 5 things that could trigger this.

Michelle's picture

Bruce, this is a preposterous notion, shame on you! Anybody with any common sense would see that sucking TRILLIONS out of the global markets so the Fed can inject $500-$1000B with QE3 is deluding themselves and apparently doesn't have a pulse, let alone a brain! The Fed isn't bringing down the system and let's not forget today's Syria news. Start thinking and stop speculating.



callingnew's picture

The Fed has already shown it will trample on the rule of law, savers and fair play to save the bankers and $2 trillion is peanuts when you look at the banks liabilities. The Fed can figure it can scare the country into accepting QE 5 and the global markets will go up and make investors whole anyway. So some home traders get chased out of their longs and the Buffetts pick up some shares cheap. The Fed was created to cover the banksters ass, not little joe public.

sun tzu's picture

Yeah the market crashed 400 points because of Syria. HAHAHAHA

web bot's picture

"IF" this is true and this is a precurser to QE3... there is ABSOLUTELY no doubt in my mind that the Fed is intent on inflating away the debt and destroying the economic wealth that resides with the middle class.

Gold and PMs will no doubt soar. All that it will take is some company to call in their contracts for physical and we`ll see a squeeze on PMs like never before. We are starting to enter the end game.

I never thougth that I`d live to see the day that this would happen.

Idiot Savant's picture

Bruce, I apologize for the rudimentary question, but I'm not familiar with how swap lines work. You state;

"What is QE? It can be anything that stimulates the price, velocity and availability of money. It does not have to be LSAP (traditional QE) or an extension of ZIRP. It can take other forms.

The most convenient of which is to open the Fed’s $ swap lines to the Euro banks. We may get this development by Monday morning."

I thought the FED opened swap lines earlier today. What am I missing?

Boston's picture

So the logic is:


Unstressed markets ==> Crash/stress the markets ==> Launch QE3 ==> Return the markets to original unstressed status ?


Why not just skip the entire sequence?  Otherwise, you're just ending up in the same place you started--unstressed markets.


heyligen's picture

No, not the same place, just more billions in circulation to cover the kleptocratic losses everywhere.

DavidPierre's picture

theatre of the absurd !

Lets cut right to the chase. Investors have had their shorts in a knot for 2 weeks and much of the angst is related to weak economic data that is coming out almost daily. Well  in that regard nothing has changed, since we have been highlighting horrible data throughout the year and it never seemed to spook the markets at all. In fact the bananaheads were often chirping on just how strong the markets were to be able to climb the wall of worry. This has always been interpreted as a sign of the markets looking ahead to a recovery. Fast forward to the present and suddenly the narrative has changed and the supposedly the driving force is the threat of another dip into recession.

Nothing - absolutely nothing - has changed during the last few quarters. The only big difference at the current time is the lipstick has been taken off the pig.

The spin is now suggestive of dark economic clouds ahead. Well ... bullshit on that too. The only source of stability during the last couple of years has come from the fire hose of money printing. The Obama regime has even seen fit to hand over hundreds of billions of dollars to foreign banks, all of which the US taxpayers are on the hook for by the way.

This allowed for the illusion of a recovery at the same time the efforts of the PPT and the propaganda blitz allowed the illusion of a strong market. Take away that puppet show and we are back to the stark horror of an imploding economy that remains fully leveraged to the inflationary impact of printed money sloshing around. We have been in recession for the last 2 years, but the effects of this recession have been masked by handouts and phony data that distort the real truth.

Allowing unvarnished economic data to show how bad things are at the present time, plus letting the market hit air pockets and scare the shit out of everybody, the conditions are being set up to allow for the FED to run to the rescue with another openly acknowledged stimulus spending spree.

The credibility of the FED is at stake here after so recently stating that no more easy money was on the way. It would take a very nasty episode to allow for a complete reversal of policy and the reluctant announcement of another 'temporary' spending package to stabilize the situation.

This has all been carefully orchestrated. It has been the plan since day one.

The leadership of the current administration is a collection of complete idiots but even they are not so clueless that they could fail to appreciate how weak the entire system has become. Take away the easy money flowing through the economy and the situation is more severe by far than at any point in the great depression. They know this and so it becomes a great confidence game to keep flooding the money into the economy and pretending at the same time that things really are getting better and normal economic growth can resume.

If there was a hint to the severity of the situation, it came from the FED agreeing to maintain zero interest for 2 years into the future. 

 That is the most obvious admission of failure in the history of the nation and yet people appear to be so out of touch with reality that it went by with barely a hiccup. This fits right in with the failure for the majority to comprehend the magnitude of market intervention that is ongoing daily. No one wants any part of reality as long as the illusion is palatable and people can pretend that things are okay, and that no major sacrifice or pain will be called for to fix the problems. Printing money has been accepted as the solution to all of the problems. Well, it is like booze - the cause of and the solution to all of life's problems. The hangover is what we have to look forward to and that will be felt in the mother of all inflationary crackups.

So I am not at all impressed with the depth of the selloffs lately, nor the appearance that the PPT has not been able to prop things up. They have been told to stand down and the HFT players will trample the longs today, and then run the shorts tomorrow. There will indeed be shock and awe. I will be very surprised if we do not hear of an emergency stimulus package before mid-September, and then at last we will see the mania in the mining stocks commence along with the overall rally that will run through the fall in the major markets.

None of this will be good for the long term. But it is what it is and a few people can connect the dots to see what is coming.

falak pema's picture

Theatre of the absurd indeed. While the Oligarchy, that is hook, line and sinker in the 'global' thingie à la Bilderberg, play with unlimited supplies of printed 'reserve' currency, that FED has with superb aplomb decreed its self-imposed, regal rights to print ad nauseum to save world capitalism since 2008 meltdown, their bed-brothers in global play, the PDs and the HFs, play arsonist by precisely attacking the global ponzi at its weakest links. "We want our gravy now, and damn those Imperial shills who want to tax and regulate us to death and can't tell shit from shine hole". Voila, the essence of this theatre of the absurd!


Now the chickens are coming home to roost, and the global arsonists, with their dark pool HFT moves and their 'burn Rome' vandalism, are precisely the enemy of central planned Oligarchy play, by the so called 'global firemen'. 

Can't reconcile short term arsonistic play and longer term fireman central planning, in this incestuous, interlinked, shadow banked, derivative piled, mega-complicated, NWO financial ponzi architecture. Rome must burn! Alas, for us all.

tip e. canoe's picture

a side dish to your crystal ball comment from an interview with Orlov:

"Now Americans at large are not capable of self-governance. They expect to be protected from each other. They expect to be provided for. They expect for things to remain the same even when this doesn’t make any more sense. And those are their expectations. So they expect to be lied to.  If you stop lying to Americans they would kill you. That is the bind that our national politicians are in and we should feel sorry for them."

Isotope's picture

This is what I have said to some of my friends for years.

If you tell people the truth they will hate you and try to hurt you. It disturbs them so much that they will lash out at you in anger.

Pay Day Today's picture

That's what people do when you threaten their dreams (illusions).

Anyone in their thirties and forties now should count themselves lucky. You saw and experienced the best of what a cheap energy high growth world had to offer. And you are still (hopefully) healthy, fit and strong enough to deal with the coming storm.

Those who are in their sixties and seventies now. The next ten years to twenty years will be very challenging.

Those who are children or teenagers today. Everything they're seeing or are being told now is a lie. And they are going to be very pissed off when they realise that nothing which has been promised (or implied) as theirs is going to actually eventuate.

Expect more riots.

Blankman's picture

Make the little people afraid and the people who get voted into positions of power by the little people cave in to their uneducated wills.  It really is that simple, when the under educated become afraid (and demand the politicians do what the tv is telling the under educated people is right or they won't re-elect) the political will for survival caves into the banking cartels demands.  The fed reserve and its cohorts (the uber-banks) will extract more and more power out of the middle class until the middle class implodes upon itself.  1984    

Tucson Tom's picture

So the Commander-in-Ept has the playbook handed to him from the Bernank before he leaves for vacation and dovetails his "plan" to be announced after labor day to fit the next announcement from Ben.  How convenient. Never let a crisis go to waste! Has anyone seen Rohm lately?

DeadFred's picture

No, I haven't seen Rohm lately but then I haven't turned over any rock recently.

whirlybird rules's picture

Protests and riots throughout Europe, the likes of which have not been seen for 30 years, and still these slimy bastards keep rolling this shell game along.  fwiw:  headlines drone on about eurodollar weakness... the euro is only off about 1.7% vs. the buck since the poop hit the fan 10 days ago.  Soooo,  who benefits from continued US dollar weakness, besides Treasury...  corporate America, the Chinese (weak dollar vs euro discourages trade with Europe and supports trade w China) and the elite, especially those on both sides of the Atlantic.  At best, Bernanke is somewhat clueless.  Reich offered a fairly straight forward plan last night that might actually help the US get back on its feet.  (Please, try and forget the politics, just look at the ideas!)  

Eireann go Brach's picture

So perhaps the Philly Fed report may have been downgraded a few notches today too then? With all this bad news, QE3 is a shoe in, just what the Fed wanted!

PaperBugsBurn's picture

Or it could be connected to this S&P-US GOV battle royal. Note that the NYTimes ran the story on S&P DoJ probe last night as well and S&P opened fire today too.


Beautiful... bankster wars, bitchez

IMA5U's picture

I am surprised Macgraw Hill (MHP) has held up so well.  They own S&P and its about 50% of their revenues.  It is considered the "crown jewel" of their businesses. 

reader2010's picture

Everthing is of course managed and mismanged at the same time. Perpetual QEs, Perpetual Wars, and Perperual Debts.  Inflate and Die!

PulauHantu29's picture

I'm expecting a few trillions to flood EU banks and provide "liquidity" and watch gold soar in the European Theater.