A few days ago, two top officials at the Federal Reserve suddenly decided to retire. I’m sure most Americans do not care about the comings-and-goings of Fed officials, but this was a truly unprecedented situation. The Fed officials retired after they were caught front-running important announcements regarding monetary policy. That is to say, they profited from pandemic.
“Front-running” in finance is when someone with inside information trades a stock or other financial asset ahead of some significant disclosure or event. People who are front-running are exploiting some kind of information asymmetry in the markets – in the case of Fed officials, how they intend to vote on shifts in monetary policy. They knew in advance that markets would move wildly and they took advantage of that. This is something other market participants cannot do.
This situation is significant, not only for the corruption aspect, but because it could potentially change the course of monetary policy going into a hyperinflationary environment. These guys were “hawks,” meaning they wanted to move aggressively against policy that could put the economy at risk. This means the Federal Reserve is left with folks who might actually let the situation boil over. Not good, on so many levels.
But it turns out the front-running activity was more common among folks at the Federal Reserve than we thought. Now Federal Reserve Vice Chair Richard Clarida was caught making multi-million trades ahead of policy announcements:
According to the disclosure, just as markets were starting to freak out about the Covid pandemic, Clarida shifted anywhere between $1 and $5 million out of a Pimco bond fund (the Pimco Income Fund PIMIX) on Feb. 27, 2020, and on the same day buying between $1 and $5 million of the Pimco StocksPlus Fund (PSTKX) and the iShares MSCI USA Min Vol Factor exchange-traded fund (USMV). Aside from these three trades, Clarida had a grand total of two more trades in 2020, the sale of $500K-$1MM of the Shwab SCHK ETF on August 3 and another purchase of the USMV ETF to the tune of $250K-$500K…
Just a few days later, on March 3, with stocks crashing, the Fed launched the first of many emergency market bailout operations that would double the S&P from its March 2020 lows, including trillions in QE, repo and reverse repo operations…
When contacted by Bloomberg, a Fed spokesman for the vice chair said that “Vice Chair Clarida’s financial disclosure for 2020 shows transactions that represent a pre-planned rebalancing to his accounts,” adding that “The transactions were executed prior to his involvement in deliberations on Federal Reserve actions to respond to the emergence of the coronavirus and not during a blackout period. The selected funds were chosen with the prior approval of the Board’s ethics official.”
Of course they were… just like the Dallas Fed was perfectly fine with Kaplan’s “tens of millions” in stock trades in a year when the Fed’s policies injected trillions to the balance sheet until he was busted and an epic scandal followed… just like “daytrader” Rosengren suddenly deciding to retire for “health reasons.”
Adding to the shadiness, Bloomberg notes that Clarida – who is a former PIMCO executive, if not one blasting the theme song to Gilligan’s Island in his back yard – was visiting faculty and students at Yale University the day of the trading, and not in his office in Washington. Furthermore, his calendar for the month shows a single phone call with a Board member on Feb. 27 at 4:45 p.m. after the market close, as well as numerous meetings with Fed staff on prior days. No calls to either PIMCO or a brokerage are disclosed.
What makes Clarida’s trading transgressions even worse, is that the Fed can’t punt them on the flawed policy book of some regional Fed – these come from the Marriner Eccles building itself. The Fed spells out clear guidelines for trading activity by policy makers. Its Voluntary Guide to Conduct for Senior Officials says “they should carefully avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions.” It also says that they should avoid dealings that might “convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest.”
And yet, casting even more doubt on the Fed’s integrity, ethics and especially capacity to think clearly, even the Vice Chair failed to realize that buying millions in stock ahead of a greatly market moving decision had all the “appearance” of massive insider trading.
(endquote – back to KC)
Powell is likely going to be replaced by a Biden nominee next year, which is a truly worrisome situation. I think it is pretty clear this point that Biden himself is merely a figurehead, and extreme-leftists in his administration are running the show behind the curtain. Biden was visibly senile before the election, and cannot be trusted even to answer media questions now, as he will inevitably go off on some incoherent tangent about the hair on his legs or whatever. The kinds of policies that “Biden” is advancing now are things the moderate senator would have never proposed historically.
The people the administration have nominated thus far have included some extreme radicals – and that’s not much of a subjective statement there. His nominee for the Bureau of Land Management was involved in ecoterrorist tree-spiking incidents. No kidding. His nominee for the country’s top banking regulator was raised in the Soviet Union and still praises the failed communist state for its lack of a gender pay gap (men and women were starving, but at least they were starving equally). She brags about wanting to take down Wall Street.
These are things “Old Biden” would have never contemplated. You think the man who landed his kid a sweet gig at MBIA straight out of law school and then launched him into an investment banking career hates capitalism and wants to destroy the financial markets? Give the president another scoop of ice cream and then raid the US Treasury and Federal Reserve for the commie atta-boys – that’s the state of our government right now.
Thus it’s fairly terrifying to think about whom the people behind the curtain will advance to lead a gutted Federal Reserve. Monetary policy is the fastest way to lead an otherwise prosperous country to absolute ruin – on that point, you can ask Venezuela or Zimbabwe or Argentina. The Democratic Party is now full of people with batshit ideas about how to change monetary policy, including some illiterate and innumerate folks who falsely believe with all their hearts that the Fed exists to fund aggressive fiscal policy and that deficits are imaginary concepts.
They WANT the monetary policy of these failed states. They WANT to kneecap the financial markets. This is what’s coming down the pike for Americans, and the monetary swamp made it happen. God help us.