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Huh? The purpose of government is to
provide services that are most effectively provided collectively, such as
defence and security, and to provide a system of accepted and predictable law,
like personal property rights.
It's interesting how practices considered
undesirable 70 years ago have been renamed and sanitized. "Providing
liquidity" means inflating the currency or, in other words, stealing from
holders of the currency. Government "support" means appropriating and
redistributing taxpayer wealth.
When government's perceived role is to ensure a
market exists, economies become distorted as political interests decide which
markets or firms are worthy of support and which aren't. Supported
markets or firms begin taking bigger and more unjustified risks when they know
they cannot fail. The end result is an escalating reliance on government
to support foolish risk.
A free and unencumbered market can do a better job
of deciding who should thrive and who shouldn't.
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Dan
Goncharoff
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Wednesday, November 19, 2003 10:44
AM
Subject: Re: [RT] Re: Fed supporting
market
Because the purpose of the government is to ensure that the
market exists the next day. That is why liquidity is provided.As you
yourself point out, some players went bankrupt, even a big bank, and survived.
As you also point out, the market stopped functioning, and there was no way to
hedge.The specialists with negative balances were deciding to commit
yet more capital, in a situation where they taken significant losses already,
to 'provide a bottom'. How did they know it was the right decision to buy when
they did? They were taking yet more risk, and could have been
wrong.RegardsDanGIra wrote:
During the Crash of 87 there were futures, the S&P was traded and options
on futures as well as the OEX. As for being bankrupt, many broker dealers
on the NYSE as well a market makers on the NASDAQ and on the options floors
and Specialists were carrying negative balances. In fact a bank in Chicago
did finally go belly up. There were many that didn't get the benefit of
that very favorable government loan treatment and lost millions on that day.
I personally know of one person that lost $80 million and another who lost
$20 million in a couple of hours. To lose a million on that day was no big
trick. There was no way to hedge because every time you went to hedge they
would stop trading that item. With unlimited borrowing power many
specialist firms were allowed to stay in business with negative balances and
provide a bottom to that market. Options on the OEX that were almost 100
points out of the money were quoted as high as $65 and there were no
sellers for several hours. What happened to the American way then? Why
not let those that took the unlimited risk go the way they should, bankrupt,
and those that did have limited risk or those that were short reap the full
benefit of their positions? Once again the government stepped in to protect
the privileged and the political favoritism goes on. Will the Fed and Bush
let the Dow go to 5000 in an election year? How much pressure is placed
upon the Fed by the party in power? No one really knows except those in
power. All I can relay is what I have seen happen. The rest is just guess
work by those trying to find a reason.
----- Original Message -----
From: "Adrian Pitt" <apitt@xxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Wednesday, November 19, 2003 1:53 AM
Subject: RE: [RT] Re: Fed supporting market
Ira,
You're a well balanced and well educated person....therefore you should
have no problem providing reference to the statements you made below.
Such as what do you mean by unlimited credit? We all know central banks
can print money...so what?
Who went bankrupt? The Fed?
Equity futures have only been around since early 80's so are you saying
the fed went bankrupt sometime in the past 20 years???
If they went to buy futures to make the market go up to help them from
bankruptcy you must also be saying that their stock portfolio which you
say they held was also a significant part of their assets??? Can you
present a balance sheet please showing this in the relenvant year?
This would be a fascinating insight for me, as it would show one of the
most extraordinary events of the 20th century, with barely a murmur in
the press about it, and show something radically different from every
central bank balance sheet around the world.
Adrian
-----Original Message-----
From: Ira [mailto:mr.ira@xxxxxxxxxxxxx]
Sent: Wednesday, 19 November 2003 6:05 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] Re: Fed supporting market
What do you think they did with the unlimited credit when
they were bankrupt? They went out and bought futures and
stock to support the market and increase the value of their
portfolios.
----- Original Message -----
From: Dan Goncharoff
To: realtraders@xxxxxxxxxxxxxxx
Sent: Tuesday, November 18, 2003 8:43 AM
Subject: Re: [RT] Re: Fed supporting market
Why is the Fed providing liquidity at a time of high risk,
when free markets may otherwise no longer function properly
in the short term, be worse than a branch of the government
making an active decision to buy futures. Providing liquidity
allows the market to function; buying futures favors one side
of the market over the other. In my view, buying futures is
as bad as selling futures -- it means the government is taking sides.
Ensuring the proper functioning of the market is one of the
stated functions of the financial markets is one of the
purposes of the Fed.
Regards
DanG
Ira wrote:
I thought that it was aimed at government intervention in
the markets. It may not be the same as buying futures, it is worse.
----- Original Message -----
From: Dan Goncharoff
To: realtraders@xxxxxxxxxxxxxxx
Sent: Tuesday, November 18, 2003 7:18 AM
Subject: Re: [RT] Re: Fed supporting market
Providing liquidity to the markets is not the same as
buying futures, which is the charge leveled in the original message.
Regards
DanG
Ira wrote:
The fact is it did happen in 1987. The fed told the
banks to give unlimited credit.
----- Original Message -----
From: Dan Goncharoff
To: realtraders@xxxxxxxxxxxxxxx
Sent: Tuesday, November 18, 2003 5:21 AM
Subject: Re: [RT] Re: Fed supporting market
Have you ever seen it claimed in a respected
source? If so, I would be interested in the reference,
because I have long sought such a mention in the established
press, without success. AFAIK, it is just foolish gossip.
Regards
DanG
BobsKC wrote:
It is commonly accepted knowledge in the business world and
while I most
certainly have not personally observed the practice, I have
no recall of
the White House ever denying it, either. If the market
tanks, so does
Bush. Do you not believe that he has the means to prevent this?
Bob
At 02:57 PM 11/17/2003 -0800, you wrote:
This is a strong statement, variations of which I've heard
many times with no factual support. Is there any support here?
regards,
tbr
> the Fed has shown in the past how it can hold up
markets via futures purchases
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