Source: Zero Hedge
In a revelation that should really surprise no one who has been paying attention for the last couple decades, it was reported late last week that Chairman Jerome Powell owned the same type of municipal bonds that the Fed stepped in to buy during the Covid crash in markets around March 2020. It was part of a series of disclosures that raised questions about Fed officials owning securities that directly benefitted from the Fed’s intervention in markets.
For example, the revelation follows our reporting just days ago that the Fed’s Robert Kaplan had made multiple million dollar stock trades in 2020.
While none of the transactions appears to violate the Fed’s code of conduct, CNBC reported, municipal bonds are an asset class that are far more niche that stocks or ETFs. Officials “should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest,” the Fed’s code of conduct says.
That really clears things up.
CNBC reported that “Powell held between $1.25 million and $2.5 million of municipal bonds in family trusts” which made up “just a small portion” of his total assets. These bonds were held last year when the Fed stepped into make more than $5 billion in muni purchases..
It was additionally disclosed this week that Boston Fed President Eric Rosengren held between $151,000 and $800,000 in REITs that owned mortgage backed securities and that he made as many as 37 trades in the 4 REITS while the Fed was buying nearly $700 billion in mortgage backed securities.
CNBC also reported that Richmond Fed President Thomas Barkin held $1.35 million to $3 million in individual corporate bonds purchased before 2020, including bonds of companies like Pepsi and Home Depot.
Powell had no say over the central bank’s individual municipal bond purchases, a spokesperson told CNBC. Why would he? Just because he’s the Chairman doesn’t mean he has any say – right?
Rosengren’s spokesperson made a similarly un-reassuring statement, saying that Rosengren “made sure his personal saving and investment transactions complied with what was permissible under Fed ethics rules.”
Well; we feel put at ease.
Dennis Kelleher, CEO of a nonprofit called Better Markets, concluded: “To think that such trading is acceptable because it is supposedly allowed by Fed’s current policies only highlights that the Fed’s policies are woefully deficient.”
In their defense, Fed officials noted they didn’t trade during its “blackout period”, when Fed officials aren’t allowed to comment on monetary policy or trade.
“The whole year should be considered a blackout period,” Kelleher retorted.
Among the outraged responses to the realization of Robert Kaplan’s conflicts of interest last week was that of Sven Henrich who observed that “the Fed guys are personally actively trading the markets they influence more than anything else.”
“Go figure,” he said. “When are we officially declaring a Banana Republic?”
