By Pam Martens and Russ Martens: September 21, 2021 ~

Fortunately for Americans, the keen-eyed Wall Street watchdog group, Better Markets, is not living in the same alternative reality universe as the cable financial news network, CNBC.

Last Friday, CNBC published a crazy headline regarding Dallas Fed President Robert Kaplan trading tens of millions of dollars of individual stocks and S&P 500 futures in 2020 while Boston Fed President Eric Rosengren traded in and out of REITs (Real Estate Investment Trusts). The trading occurred despite both men being privy to non-public, market moving information coming from the Federal Reserve, the central bank of the United States. CNBC’s headline read: “After years of being ‘squeaky clean,’ the Federal Reserve is surrounded by controversy.” CNBC was royally roasted on Twitter for its “squeaky clean” fairy tale.

CNBC’s flight from reality comes after the Fed’s former Chair, Janet Yellen, went straight from her position at the Fed to a multi-million dollar money grab at Wall Street banks, and the current Fed Chairman, Jerome Powell, had upwards of $25 million of his personal wealth being managed by  BlackRock while handing the firm three no-bid contracts last year to buy up corporate bonds and Exchange Traded Funds (ETFs) for the Fed, including BlackRock’s own ETFs. Oh yes, and the corporate bond bailout program was using American taxpayers’ money as a backstop for losses. The Fed also engaged in a court battle with the media for multiple years during and after the 2008 financial crash, refusing to release the details of the secret $29 trillion it funneled in cumulative loans to prop up insolvent banks on Wall Street. It gave no-bid contracts then as well and was criticized for doing so by an audit conducted by the Government Accountability Office. We could go on and on, and we have.

On Sunday, Better Markets sent a three-page, comprehensive letter to Fed Chairman Powell, making the compelling argument that the Fed should have instituted a trading ban (black out period) for all of 2020 for Fed officials and staff because of the Fed’s unprecedented interventions and market-moving announcements by the Fed that occurred throughout last year. The author of the letter, Better Markets President and CEO Dennis Kelleher, explained in the letter:

“For those officials to now claim that their trading conduct was permissible because their subordinates and direct reports approved their bosses’ trading and/or because the Fed’s so-called ‘code of conduct’ allowed such trading only reveals how grossly deficient their ethical standards and the code of conduct are. Moreover, rules designed for the ordinary course when typical pre-FOMC meeting ‘black out’ periods are appropriate are entirely inapplicable when a once-in-100-year pandemic hits and the Fed engages in innumerable extraordinary and historic actions in the financial markets, including unprecedented interventions in the corporate bond markets (including junk bond markets), muni markets, and virtually every other financial market.

“All of those many actions by the Fed, which were ongoing throughout 2020, involved highly sensitive, likely market-moving information that should have prompted any reasonable person to understand that they were in possession of such inside information at virtually all times, and that they should have acted accordingly, including by refraining from all trading. Their conduct, seeking to profit in the middle of a pandemic that was wreaking havoc and pain across the country, is an insult not only to the American people but also to the thousands of hardworking staff at the Fed, many of whom were working nights and weekends to respond to the pandemic-caused shutdown of the economy and trying to prevent a financial collapse.”

Wall Street On Parade wrote just yesterday about specific occasions when the Fed was making stunning, market moving announcements in 2020, including during stock exchange hours following a 2,000 point crash in the market; on a Sunday evening just as S&P futures had started to trade; at 11:30 p.m. on a weekday; slashing interest rates to zero outside of a regularly-scheduled FOMC meeting; and constant Fed announcements throughout the year about a mind-numbing array of bailout programs for Wall Street. When one carefully examines what the Fed actually did in 2020, Better Markets is spot on — the entire year of 2020 should have been, under any reasonable code of ethics, a complete black out period for trading by Fed officials and staff.

Better Markets writes further in the letter:

“This trading activity is, at best, pandemic profiteering and, at worst, illegal insider trading, which threatens to further erode the public’s trust and confidence in the ethics, integrity, judgment, and priorities of the Fed and its officials. This requires you to take immediate, concrete, and meaningful action, not just PR pronouncements of internal investigations and an internal review of the ethics code, neither of which will adequately address these serious issues.

“First, the public has a right to know if the several individuals already identified reflect the true scope of this pandemic profiteering conduct or if the revelations thus far are merely the tip of an iceberg of more widespread trading by Fed officials seeking to profit off the pandemic while potentially in possession of inside information. Therefore, you must require the full and immediate disclosure of

“(1) any and all trading activities (including all long and short positions, whether direct, indirect, or synthetic) by any and all Fed officials and staff at the Board, FOMC, or regional Feds who had access to information, analysis or other materials that played any part in the Board’s decision-making process regarding its (a) ‘traditional’ monetary policy, (b) ‘unconventional’ monetary policy, or (c) pandemic-related facilities and programs since the beginning of the pandemic though today and the details of their trading;

“and (2) all documents related to any review, approval and/or denial of any such trading.”

“Considering that all of the Federal Reserve’s actions since March of last year have been intended to have a material impact on markets and the economy, the same logic that applies to the pre-FOMC blackout should have applied to decisions for action or inaction on any of the Federal Reserve’s activities at least throughout 2020, if not to date.”

Better Markets is also calling for investigations by the Department of Justice, the Securities and Exchange Commission, and the Fed’s Inspector General, correctly noting that: “Anything less than such independent investigations will lack credibility, if not be viewed as a deficient whitewash or cover-up.”

America needs Better Markets’ brand of rational, analytical thinking at the Fed, the Securities and Exchange Commission, and the criminal division of the U.S. Department of Justice – none of whose leadership over the past dozen years has appeared equipped to rein in the serial crimes involving trading on Wall Street.

Showing just how Street-savvy the folks at Better Markets are, they cc’d the Chairs of the two most powerful Congressional Committees when it comes to Wall Street oversight: Senator Sherrod Brown, Chair of the Senate Banking Committee, and Congresswoman Maxine Waters, Chair of the House Financial Services Committee.