Uhhhhh…. Ben? (Blatantly Unlawful Acts?)

Props to Zerohedge for having the nads to run this unconfirmed:

Which is why we were greatly troubled when we learned recently on good authority that Federal representatives may have opened multiple undisclosed-type accounts with none other than State Street Global Advisors over the past few months. All of these accounts are allegedly handled by one single trader, who is cocooned and isolated from interaction with other partners.

Zero Hedge can, as of yet, not vouch for this being 100% factual and is asking readers who may have additional knowledge of the situtation to please come forward and share their views (tips@zerohedge.com). If, indeed, the Federal Reserve or other derivatives of the administration, are now directly involved in trading, managing repo terms, stock lending, collateral distribution and other liquidity-crucial aspects of what was once an efficient market, then indeed this rally could be written off not merely as the biggest short covering rally of all time, but one that has been explicitly orchestrated by those who should be most impartial to an efficiently working market.

Uh, there’s a bit more than just "writing off this rally" there.

If this is true and especially if The Fed is involved, there is a major problem with the law.

See, The Federal Reserve is explicitly not permitted to buy anything that doesn’t have the full faith and credit of The US Federal Government behind it.  It is that fact (found in Sections 13 and 14 of The Act) that has led me to repeatedly rant about The Fed’s purchase of Fannie and Freddie paper – distinctly outrageous acts, given the plain language of the law. (Note that purchase of Ginnie Mae securities, which are fully guaranteed with full faith and credit, would be fine.  Note also that Ginnie Mae didn’t get in trouble fiscally either.  Hmmmm….)

The Fed’s charter and statement of operation is that liquidity operations are to be performed through the NY Fed dealing desk.  That transparency is important.  It is why I was able to detect the liquidity drain on September 24th and sound the alarm – even though it went unheeded – three days before the equity market collapsed.

This sort of transparency of open market operations is critical.  Even though nobody gave a damn about the huge liquidity drain in September, the record remains for Congress and others to look at in the future, should they so choose, and if there is an investigation of the propriety of those actions, the proof is right there in front of people’s nose. 

If The Fed is dealing through one "special trader" at State Street, then all such transparency of action and intent is GONE.

Such intentional obfuscation can only have the purpose of being able to "act in the shadows."  It is entirely possible that while Congress ignored my warning call, The Fed did not, realizing that there is a tremendous amount of exposure for them (as there should be!) for such an action, and therefore, acts were undertaken to hide this sort of thing in the future.

Bad juju folks.

Worse is that if this is true and is proved the risk of capital flight is extremely high.  Do you want to participate in a market that is "rigged" like this by The Fed, operating with essentially limitless liquidity to game the markets any time they’d like in violation of the law? 

If this is just a bad rumor or some tinfoil conspiracy, then it is.  Lord knows there have been plenty about the "Plunge Protection Team" over the years.

If this proves up as real, The Fed must be immediately decertified and, if we can find a criminal act in here (I suspect that prosecutors might be able to) everyone responsible for this, or who acted with knowledge of it, needs to wind up in prison.