15 years ago or so there was some discussion of the Fed or Treasury intervening through the stock index futures contracts in Chicago. This action, which nicely leveraged the money the govs used, would trigger -- and was designed to trigger -- program trading in the stock markets themselves. If I recall correctly, there were highly credible reports that the money was coming from a "stabilization fund" Treasury had originally established to deal with one of the IMF crises (as I call them) such as Mexico or Argentina; I forget which.

And if I may take off my tin-foil hat for a minute: if the U.S. government can covertly deploy and fund Special Ops forces on the other side of the globe, I don't see how it's impossible for the U.S. government to intervene in the markets covertly.

Also, you have to consider the "old boys" network. Remember how Wall Street was the CIA, and the CIA was Wall Street? That raises the question of Paulson and his little phone book of contacts. All types of "agreements" could be reached in Paulson's phone calls, and how would we ever know about them? Say Goldman Sachs agrees to intervene per Paulson's direction, spending $2 or $3 billion to do so. The payoff could be that in a year from now, say, Grumman Northrop is quietly instructed to place a new issue with Goldman Sachs.

This raises some of the issues Krugman raises in his new book,

But Krugman, as he examined the period from Gilded to Gilded, sees two arcs; one in economics and one in politics and they parallel each other. The greatest inequality of incomes in the Gilded Age was mirrored by extreme partisanship. In the 1950’s, post war America, there was the greatest income equality and the greatest bi-partisanship. His book is an examination of the "why?" of these arcs. It is an ode to The New Deal and its reforms.

To his credit, Krugman said that he believed the story that:

"technological changes and globalization caused America’s income distribution to become increasingly unequal, with an elite minority pulling away from the rest of the population. The Republican Party chose to cater to the interests of that rising elite... And so a gap opened between the parties, with the Republicans becoming the part of the winners...the Democrats represented those left behind."

But in his research he became more and more convinced that the arrow pointed in the other direction; not from economic inequality causing a growing political rift, but a radical political shift caused the economic inequality. This idea is heresy to traditional economists who believe that the invisible hand of the market mattered most in how income is distributed.

And more and more economists are starting to take another look at the shenanigans of the political right and neo-liberal crookedness disguised as theory. Krugman posits:

"Forces of technological change and globalization...affect everyone. If the rise in inequality has political roots, the United States should stand out; if it’s mainly due to impersonal market forces, trends in inequality should have been similar across the advanced world. And the fact is that the increase in U.S. inequality has no counterpart anywhere else in the advanced world.

Political change seems to be at the heart of the story. How did that political change happen?"

As Dan Briody recounts in his book The Halliburton Agenda, Cheney was on a fishing trip in New Brunswick, Canada, with a group of high-powered corporate CEOs. “The men were discussing the ongoing search for a CEO at Halliburton,” Briody reports. “Cheney was asleep back at the lodge and, in his absence, the men decided that Cheney would be the man for the job, despite the fact that he had never worked in the oil business.”

The Curse of Dick Cheney: The veep’s career has been marred by one disaster after another

And so it goes.

My claim that the Working Group is intervening directly in the markets clearly comes from outside the quoted Bloomberg article. I have not yet located one of sources. It came from a Canadian firm, which concluded that there was indeed frequent intervention. (I think this came out in 2006 or 2007.) But for me the clincher was from a person whose opinion I have followed for years. I blogged about Todd Harrison. If it is good enough for him, it's good enough for me. Please note that he shared your skepticism and has adopted the intervention hypothesis only after years of thought and quiet conversations with colleagues. I sent him an email about it. He says he doesn't know how they are doing it, but that he is now convinced that it is being done in some way. Tony Wikrent's post is probably more like what is going on--some kind of "arrangement" in which there is coordinated trading of index futures by some hedge funds at key times. Nice work if you can get it.

If it were really buying equities we would not have seen the panic sell-off/capitulation in August.

I would have to disagree. Intervening in the markets does not presume that they are painting the tape full time. But I could even imagine some very bright people contributing to a huge sell-off knowing that, for example, a "dramatic announcement" will be coming from Bernanke late in the day. Sell 'em in the morning and buy 'em in the afternoon.

I wrote this article to provide what I think is a plausible context around what I believe is going on in markets. I want to suggest how far fear is causing our elected and un-elected leaders to attempt to turn our democracy into The Truman Show.

Numerian, I guess I am suggesting that you turn your skepticism in the other direction. Things seem to work out just a little to neatly. Gosh darn if that 'ol market rallied in the last hour again.

This scheme can't work forever because liquidity is no substitute for solvency.

See my comments in Stirling Newberry's diary earlier yesterday.
http://agonist.org/stirling_newberry/20071214/dancing_on_a_volcano

Without the repatriation of offshore dollars to support its debt appetite (or maybe addiction), the US would likely be unable to sustain the status quo for long. The US elite apparently thinks that it has the best of both worlds in that it can financialize its economy without real risk because China and the Arabs hold too many greenbacks to let the dollar crash or the US financial system seriously falter, let alone fail. The US financial geniuses are patting themselves on the back for this clever maneuver while China and the Arabian oil barons exact their toll in rent as US debts pile up. And increasingly often the US elite have to let go of another choice piece to maintain stability, like a chunk of Citi to Dubai. If I had school kids growing up now, I'd be encouraging them to learn Chinese and Arabic to be able to curry favor with their new masters.

numbers are being faked, but I will call your attention to a recent post of mine. It consists of notes taken of a speech by Lawrence Lindsay, for Bush economic adviser.

In answer to a question from the audience about the obviously bogus Consumer Price Index numbers, Lindsey said that it was a government statistic and that, speaking as a businessman himself, anyone in business should definitely not rely on it.

Anyone in business should not rely on it? Who should? Oh, I know. You and me. What's happened to the price of milk, of anything? There's no inflation? Anyway, I hope they aren't doing it, but who knows?

It has been a big subject here at the Agonist, but I hear a lot about the end of the American empire. It is going to be a huge shock when we are challenged to realize how dependent we are. Demagogues will be a dime a dozen.