E Fed Premeditated Mispricing Of Risk In Housing, Oil, Junk Bonds And Other Markets

I have written that skeptics of Wall Street view the housing bubble of the mid 2000's as a premeditated mispricing of risk. More on that at the end of this article. Now that we have Bank of America coming out and saying that stocks and other assets are mispriced regarding risk and the Fed is behind it, so we have to wonder what else is mispriced regarding risk.

It looks as though investors may be buying financial assets that were meant to fail, but are inflated for a time before failure, due to this mispricing. This allowed assets to reach pricing heights not possible had the risk been priced correctly and crashes to be delayed. To a certain extent, we often see what finance wants us to see, and we don't see the big picture until after the fact. But Bank of America (BAC) has put the blame for bubbles and busts squarely upon the shoulders of the Federal Reserve Bank.

In the private sector the continual application of fraud looks like racketeering, and one could say that there should be RICO laws opposing the behavior. The Fed is more private than most people think.

In one case, pricing of oil, it appears that there could be political motivation for asset price declines and the duration of those declines. However, most of the asset manipulation is inflated, which results in speculation that allows bankers to make some money.

That is exactly what Will Rogers said prior to, and during the Great Depression. He believed that speculation was premeditated and made statements in jest about how bankers claim they don't know much about their business. He accused them of criminal behavior to their faces. Rogers said this to the bankers at the American Bankers Association in NYC:

 "You have a wonderful organization. I understand you have ten thousand here. And if you count the ones in the various federal prisons, it brings your total membership up to around thirty thousand." 1923

However, apparently they do understand their business, especially when the manipulation of speculation, through mispricing of risk, comes from the top.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Ayelet Wolf 1 year ago Member's comment

Fascinating expose to say the least.

Gary Anderson 1 year ago Author's comment

Thanks Ayelet. The Fed fixes prices the old fashioned way, in the back room. Abenomics seeks to fix them out in the open. It is all a sign of desperation, but the alternative, negative rates and cashlessness, is far worse.