“SOS to the SEC,” from the New York Post:
Did Federal Reserve Chairman Ben Bernanke give away any secrets to Treasury Secretary Hank Paulson when the two had an hour-long lunch on Aug. 16?
And did Paulson share what he and Bernanke discussed with anyone in the hours immediately after that lunch?
Those are two key questions that the Securities & Exchange Commission needs to address if the integrity of the financial markets is to be protected.Those points are particularly pertinent because Paulson has confessed that he “talks regularly to market participants,” the kind of folks who could profit handsomely from the slightest hint as to what the chairman of the Fed is thinking.
The lunch in question took place between noon and 1 p.m. on Thursday, Aug. 16, according to documents received from Bernanke by Wharton School lecturer Ken Thomas.
That’s the day stock prices were sharply lower because banks and mortgage companies were starting to give the bad news about the amount of subprime loan defaults on their books.
But in the final hour of trading on Wall Street stocks suddenly reversed course, turning what had been a 344-point rout in the Dow Jones industrial index into just a 16-point loss.
The stock market rally took place within two hours of Bernanke and Paulson breaking bread.
The only explanation at the time for the final-hour rally was a rumor that the Federal Reserve was going to “hold a press conference.” The next day newspapers said the stock move was puzzling.
The Fed never holds press conferences and there weren’t any on Aug. 16.
But Bernanke and his colleagues at the Fed did enact a surprise reduction in the so-called discount rate the next morning, on Friday, Aug. 17, sending stock prices sharply higher.
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There definitely was a leak. The night before the discount cut, Eric Bolling, then of CNBC’s “Fast Money”, said at the end of the show he had info that something was going to happen to help the market, wouldn’t say what but made clear he had very definite knowledge. “You’ll see”, he said.
In addition, Bolling’s comment indicated that it would be announced the next day. I’m just going by memory here.
Bolling apparently has a reputation for having a wide network of informants.