I'm no conspiracy theorist, but circumstantial evidence builds a fascinating case which suggests that during the past few weeks we have seen a massive manipulation of monetary policy to support US bank stocks.
There are several parties who, motivated by self-protection, would be interested in executing such manipulation. Primarily these are the banking executives and regulators who, should the banks collapse, would be revealed as having insufficient competence to secure banks' viability.
Managers would lose their jobs, not to mention any money invested in their employer (which is often substantial thanks to generous stock option packages), and would face trouble with future employment.
The best example of poor management on Wall Street was seen in the Board of Lehman Brothers. Out of 11 directors in 2006, five were aged over 75 years, including an ex-Broadway producer and an 82-year-old former actress. Hardly the right personnel to manage one of the world's great risk machines!
Then there's the regulators. Despite all the puff about tighter bank regulation, the truth is banks are already heavily regulated. Central banks fix the price of the core commodity (money), and regulators receive continuous reports of banks' financial status. Failure of any bank raises questions regarding regulators' competence.
The Federal Reserve regulates US banks and has a massive conflict of interest, as it has also 'pumped money' into the credit markets to give ailing banks enough funds to limp along. Like a desperate gambler, it can get in too deep and, intimidated by potential losses from collapse, convince itself the bank is too big to fail.
Other conflicts arise from the revolving door that moves senior officials between banks and regulators and establishes a spiderweb of connections. No doubt they find it hard to separate favours to old mates from sensible support for troubled institutions.
A third important group of stakeholders is US politicians facing re-election. Even if the risk of collapse was low, few of these politicians could take the chance of standing up against even the most outrageous claims of the bankers and regulators.
So there is motive aplenty for the manipulation of monetary policy. But where is the opportunity?
The global credit system is so complex and opaque that it deflects scrutiny from all but a few of the most determined analysts. Journalists have been required to explain the financial meltdown to readers, but have no idea of what is happening.
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