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Greenspan Rigs Market, Violates Law

  • The Establishment press finally confronted Greenspan's market fixing, but not its tainted results.
By James Harrer

In the waning days of last year, The New York Times, faithful town crier of Wall Street, suddenly reversed itself and admitted an anomaly it has denied for a decade. Beginning in 1987, Federal Reserve Chairman Alan Greenspan had massively rigged the stock market in violation of federal criminal law and regulatory standards.

"On Greenspan's orders, E. Gerald Corrigan, then president of the New York Fed, discreetly instructed bank executives to keep on lending money, enven to insolvent debtors, and not to worry about potential losses, the Fed would make them whole," wrote the noted economist Robert Kuttner in one of the major book-review essays the Times is known for.

The "insolvent debtors" were, of course, the brokers, specialist market-makers and speculators who had lost their shirts in the October 1987 stock-market collapse.

"Forget your losses and start buying stocks again, even if they are in sharp decline. We will supply the cash, no matter how much is needed," the Fed urged them.

In the end Greenspan and corrigan rigged the market and sped its hemorrhaging with "not much more than $1 billion in federal cash -- it was a cheaper fix than most of us expected," Tim Metz, former chief financial reporter for The Wall Street Journal, told The SPOTLIGHT in an interview in early 1988.

"All this was illegal, of course," confirmed Kuttner, "and if it didn't work, Greenspan would have been liable for prosecution under federal criminal statutes that prohibit such market-rigging -- as well as under rules defining the Fed's fiduciary duties and 'prudent-man' obligations."

But Greenspan and Corrigan got away with their mammoth scam because in the end, "the system held," concluded Kuttner.

The only detailed investigative reports exposing this scheming and fraudulent use of taxpayer's money have appeared over the years in this populist newspaper.

Moreover, the "system" no longer holds. After years of denial, during which neither. Congress nor the Establishment media ever dared challenge the convoluted explanations Greenspan gave out to cover his backroom deals, the Times decided to admit some of them with the justification that "the system held" -- precisely at year's end, when the chaotic, devious and lawless financial system created by the Fed's manipulation is plainly crumbling.

The National Association of Purchasing Management's year-end report, a key bellwether, warned that in December U.S. manufacturing production has fallen to its lowest level in a decade, and was sinking toward recession-threatening cutbacks.

Business debt defaults are on the rise and will hit the all-time high of 10 percent of total outstanding corporate debt, warned Moody's old-line market-watch service.

The economy is wilting, in large part, because the capital markets -- the "system" Greenspan supposedly held together -- are now ruled by a smash-and-grab elite of financial magnates such as Ronald Perelman, known on Wall Street contemptuously as the "Finagle King," who have devised ways to milk billions of dollars from securities deals on which multitudes of small stockholders end up the big losers, seasoned market-watchers say.

As an example, they cite the example of Revlon, the well-known family-owned cosmetics company, which fell under Perelman's control in February 1996 and was taken public shortly thereafter.

"Small investors who thought Perelman might turn around the slowing company eagerly bought Revlon's stock at $55.63 per share," says financial writer Christopher Bryon. "Today that single share of Revlon is worth les that $3, making the investors a lot poorer -- but by some devious means, the deal has made Perelman himself much richer."

Of course, Revlon is by no means the only falling star on Wall Street., the internet book retailer run by the celebrated Jeff Bezos, feted as "Man of the Year" by Time magazine in 1999, has seen its market capitalization -- that is, the total value of all shares issued -- shrivel from $10.7 billion to a more realistic $1.8 billion. Priceline -- a favorite investment of Saudi billionaire Prince Al-Walid bin-Talal -- plunged from last year's market cap of $5.2 billion to a pathetic $62.6 million.

"Millions of working people have hocked their family homes in order to invest in such wildly speculative securities because they believed that Greenspan would prop up all of the market all the time, by what ever under-the-table means were necessary," said veteran portfolio manager Raoul Tonetti.

But Greenspan tactics are not devised to sustain small, inexperienced investors. The Greenspan strategy is essentially a vast scheme of wealth transfer. It illegally diverts tens of billions of dollars in taxpayer money bail out imprudent bankers and make good the back-breaking losses occasionally inflected by the reckless market bets of highly-leveraged stock speculators and "macro" hedge funds, investigative writers such as William Greider, author of a definitive book on the Fed,* have found.

"Greenspan used to say that welfare was unfair, because it drained off the resources generated by productive workers to people who produced nothing," wrote the respected Greider. "Ironically, that is exactly what he has been doing as Fed chairman -- siphoning off the wealth generated by the productive segments of society and transferring it to non-productive elements who happen to be rich instead of poor, such as Perelman-style market, finaglers, self-dealing corporate chieftains, money-laundering bankers and bet-a-billion speculatators who have learned to use the U.S. payments system as a giant casino with quite a few roulette wheels rigged in their favor."