By Pam Martens and Russ Martens: August 18, 2021 ~

Before daybreak on any business day in lower Manhattan, the glow of lights from Bloomberg terminals illuminate windows at 33 Liberty Street, home of the New York Fed. The New York Fed not only has its own trading floor with speed dials to the Wall Street trading houses, but it also has its own global markets intelligence gathering group, called simply the Markets Group.

According to a previously released educational video featuring Karin Kimbrough, then the Director of Financial Stability Market Monitoring at the New York Fed – a position she held until November of 2014 — the traders at the New York Fed take turns coming in at 4:30 a.m. in order to get a jump on market intelligence by calling their contacts in London, Frankfurt and Japan. (See video below.)

Kimbrough explains what kind of intelligence the traders and analysts are looking for: “…if there was a fundamental reason to see German Bund yields rising, what would be the consistent view across all asset prices. Are we seeing something similar in other sovereign bond markets? Are we seeing something moving in equity markets? Typically, we also try to think a little bit about the context of these moves. Are they large moves; are they moves that we see daily and really something that we’re expecting every morning or every season.”

Kimbrough says this market information is then conveyed to the Federal Reserve Board of Governors in Washington, D.C.: “…we’re essentially doing a lot of market monitoring for these twice a day conference calls with the Board. In addition to that, we’re writing reports throughout the day as well. We have staff who are either writing short-term updates on what’s going on in the equity markets or corporate bond markets. And we’re looking to see if we have any inclination of what market participants are expecting; because market expectations are hugely important for the Fed in thinking about the course of the economy.”

The traders and analysts wrap up their day around 6 to 6:30 p.m. Kimbrough says that it’s a long day because they “try to cover the closing of Japan as well as the middle point of Europe all the way through the U.S. session.”

The New York Fed is also apparently keenly interested in what equity analysts think of the banks that own the New York Fed – the mega banks on Wall Street. On September 17, 2011, Kathleen Margaret (Katie) Kolchin spoke at the annual Lehigh University Financial Services Forum. According to the handout given to participants, she worked at that time for the New York Fed, “performing equity research on the large cap US and European banks.”

In 2013, Kolchin’s LinkedIn profile indicated that the New York Fed had an “internal equity research team,” of which she was the Senior Analyst. The team’s coverage included Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, UBS, and Wells Fargo.

Every major Wall Street trading house has its own bank analyst. Why the New York Fed would need its own bank analyst is more than a little curious.

According to Kolchin’s current LinkedIn profile, she’s now the Director of Research at SIFMA – Wall Street’s trade association.

In the leadup to the financial crash of 2008, the U.S. Treasury Department decided it needed to beef up its own market intelligence gathering team. At that time, Henry (Hank) Paulson was Treasury Secretary under President George W. Bush. Paulson had been Chairman and CEO of Goldman Sachs and had worked there for three decades. The market intelligence group at Treasury became known as the “Markets Room.”

At the time of the financial crash in 2008, the Director of the Markets Room was Michael Pedroni. His current LinkedIn profile says that he is currently the Executive Vice President and Managing Director of the Managed Funds Association – a trade association for hedge funds.

According to a 2017 help-wanted ad, this is what goes on in the Markets Room:

“The Treasury Markets Room advises senior Departmental and White House officials on developments in global financial markets, prepares daily market briefings for Treasury staff, and provides guidance on market ramifications of policy initiatives. The goal is to ensure a deep, coordinated, and relevant understanding of market dynamics among senior policymakers and Treasury staff at large. The office analyzes global fixed income, foreign exchange, equity, and derivatives markets, as well as financial market infrastructure and the interrelations between policy and price action. Outputs include daily oral and written briefings for senior officials, in-depth market analysis memos, and synthesis of markets-related research. The Markets Room also acts as a primary conduit for Treasury’s engagement with the financial sector.

“In its daily activities, the Markets Room (i) analyzes price developments on a real-time basis using Bloomberg, Reuters, and other financial information resources, (ii) speaks to a wide range of financial market participants, (iii) tracks financial markets research and trends, (iv) performs quantitative markets analysis, and (iv) interacts with various agencies and institutions, including regulators, international financial institutions and the Federal Reserve System. Markets Room analysts travel periodically to their various regions of coverage.

“The Markets Room reports both to the Assistant Secretary for International Finance and to the Assistant Secretary for Financial Markets through their delegates in International Affairs and Domestic Finance. The Markets Room staff includes financial markets experts and economists with a range of backgrounds including foreign exchange, fixed income, equities, risk and supervision, and emerging markets.”

Rather than deal with breaking up the dangerous mega banks on Wall Street and separating them from the federally-insured banks that hold trillions of dollars of mom and pop deposits, the current game plan is apparently to create the illusion of supervision through intelligence gathering operations.

Unfortunately, gathering intelligence will do nothing to prevent the next collapse on Wall Street and the ensuing hit to the U.S. economy. Only the restoration of the Glass-Steagall Act by Congress will prevent that.