It is official: The big shots on Wall Street had inside information during the financial crisis. And all the little shots, like you, were cheated.
I’ve already documented exclusively in previous columns how Treasury Secretary Hank Paulson had numerous telephone conversations throughout the financial crisis with friends on Wall Street. Paulson, of course, would have been in possession of highly confidential information that could have been used for insider trading.
And Paulson’s phone calls, at least in some instances, seemed to coincide with unusual activity in the stock market.
Now it comes out that Tim Geithner — who just gave up the US Treasury secretary’s job — was accused in 2007 by a Federal Reserve official of leaking market-moving info to people at banks.
Transcripts of the Fed’s meetings for 2007 were released late last week. While everyone else seems astounded that these notes show how clueless the Fed was about the impending turmoil, I think the even more shocking revelation is how dishonest people in sensitive government positions were.
Jeffrey Lacker, head of the Richmond Federal Reserve Bank, is the one who accused Geithner of having a big mouth — or worse. The Fed held an emergency telephone meeting on Aug. 16, 2007.
One day later, the Fed shocked the financial markets by allowing banks to borrow more cheaply at the Fed’s discount window. With this lower discount rate — as it is called — the financial markets rallied nicely, in fact more than 10 percent. So the information that Lacker said Geithner, then vice chairman of the Fed, leaked was of monumental importance to traders.
Here’s part of the transcript from the aforementioned telephone meeting:
MR. LACKER: Vice Chairman Geithner, did you say that [the banks] are unaware of what we’re considering or what we might be doing with the discount rate?
VICE CHAIRMAN GEITHNER: Yes.
MR. LACKER: Vice Chairman Geithner, I spoke with Ken Lewis, president and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.
CHAIRMAN [Ben] BERNANKE: OK. Thank you. Go ahead, Vice Chairman Geithner.
VICE CHAIRMAN GEITHNER: Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the [discount] window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System — what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about.
Bank of America was in Lacker’s district, so that’s why he was talking with Lewis. And I think it would be safe to assume Geithner was telling other banks as well, especially since rumors started spreading and the stock market moved mysteriously higher on Aug. 16, the very day of the telephone meeting.
Bottom line: The way Paulson, Geithner and probably others were treating confidential information means that the laws on insider information were essentially repealed by their actions.
Anyone who has been convicted of profiting on information he or she shouldn’t have had should be ticked off right now.
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Americans with any sense at all are concerned that our national debt is more than $16 trillion and growing fast. That number will be the one used in all the talks about raising the debt ceiling in the coming months.
But $16 trillion isn’t an accurate number — at least not if the government had to keep its financial books as corporations would be required to.
If Washington counted unfunded liabilities — things like pensions and Social Security — as Generally Accepted Accounting Principles require a company to do, the total national debt would be around $88 trillion, according to John Williams, who has been the most accurate in predicting our predicament.
According to official numbers released last week, the GAAP deficit in 2012 alone was $1.316 trillion and not the $1.089 trillion that is officially reported.
Wow, aren’t we lucky Congress delayed doing anything for another three months?
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I’d like to apologize to the people who make spray-on hair.
I didn’t mean to imply in my last column that their product is as crazy as the trillion-dollar coin proposed by the morons of the world as a way around the US debt ceiling.
And, no, the spray-on people didn’t ask us for an apology. I just figured someday I might need a can.
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NEEDED: An NYC restaurant that doesn’t cheat the state out of sales tax.
JOB: I’ll help you set up a system that will allow you to skip sales tax on many items.
REASON: I’m doing a story that will embarrass Albany into doing a proper job of collecting taxes. If you own a restaurant and would like to join me, e-mail me at the address below. Your cooperation will be kept confidential.