:44p ET Sunday, September 4, 2005
Dear Friend of GATA and Gold:
Sprott Asset Management President John Embry and
his assistant, Andrew Hepburn, who one year ago
published a compilation of evidence of central
bank manipulation of the gold price, have just
done the same in regard to the U.S. stock market
and have reached a similar conclusion.
The new Sprott report, "Move Over, Adam Smith:
The Visible Hand of Uncle Sam," concludes that
the U.S. government has intervened to support
the stock market so many times that "what
apparently started as a stopgap measure may
have morphed into a serious moral hazard
situation, with market manipulation an endemic
feature of the U.S. stock market."
The new report by Sprott, an investment firm
based in Toronto, Ontario, Canada, relies
largely on reports of news organizations and
the essays and research papers of economics
academics that, as might be expected, have not
been well-publicized in the United States. But
some of these reports have been shared with you
in GATA's dispatches over the years.
The Sprott report does not maintain that the
government should never intervene in the stock
market; it recognizes that certain emergencies
may argue strongly for temporary intervention,
such as the 1987 stock market crash and the
terrorist attacks of September 2001. But, the
Sprott report notes, frequent surreptitious
intervention, conducted through intermediaries,
the government's favored financial houses in
New York, gives those intermediaries enormous
advantages over ordinary investors. Frequent
intervention, the Sprott report adds also makes
it impossible to distinguish between national
emergencies and political expediency.
The Sprott report concludes:
"Given the available information, we do not
believe there can be any doubt that the U.S.
government has intervened to support the stock
market. Too much credible information exists
to deny this. Yet virtually no one ever
mentions government intervention publicly,
preferring instead to pretend as if such
activities have never taken place and never
would.
"It is time that market participants, the
media and, most of all, the government
acknowledge what should be blatantly obvious
to anyone who reviews the public record on
the matter: These markets have been
interfered with on numerous occasions. Our
primary concern is that what apparently
started as a stopgap measure may have morphed
into a serious moral hazard situation, with
market manipulation an endemic feature of
the U.S. stock market.
"We have not taken a position on the wisdom
of intervention in this paper, largely because
exceptional circumstances could argue for it.
In many respects, for instance, the apparent
rescue after the 1987 crash and the planned
intervention in the wake of September 11 were
very defensible. Administered in extremely
small doses and with the most stringent
safeguards and transparency, market
stabilization could be justified.
"But a policy enacted in secret and knowingly
withheld from the body politic has created a
huge disconnect between those knowledgeable
about such activities and the majority of the
public, who have no clue whatsoever.
"There can be no doubt that the firms
responsible for implementing government
interventions enjoy an enviable position
unavailable to other investors. Whether they
have been indemnified against potential
losses or simply made privy to non-public
government policy, the major Wall Street firms
evidently responsible for preventing plunges
no longer must compete on anywhere near a
level playing field. It is most unfair that
the immensely powerful have been further
ensconced in their perched positions and thus
effectively insulated from the competitive
market forces ostensibly present in our
society.
"In addition to creating a privileged class,
the manipulation also has little democratic
legitimacy in the sense that the citizenry
has not given its consent. This has tangible
ramifications. By not informing the public,
successive U.S. administrations have employed
a dangerous policy response that is subject
to the worst possible abuse. In this regard,
the line between national necessity and
political expediency has no doubt been
perilously blurred.
"We can only urge people to see what the
evidence indicates and debate what is and
ought to be a very contentious matter. The
time for such a public discussion is long
overdue."
The Sprott report can be found in Adobe Acrobat
format at the Sprott Internet site here:
http://www.sprott.com/pdf/pressrelease/TheVisibleHand.pdf
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