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Memos, mysteries, manipulations in the banking sector

By Ward Harkavy in Bankers, Cabals, Featured
Friday, Mar. 27 2009 @ 7:15AM
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Connecting more dots on the connecting-the-dots conspiracy theory:

Take Seeking Alpha contributor Harold Goodman's intriguing analysis of this week's market movement (see my item here): He noted some particularly mysterious movement in stocks of the big banks, like Citigroup. (See his "How to Profit from Market Manipulation.")

Go back about 16 days, when Citigroup seemed to be ailing the most. Suddenly, an interoffice memo from CEO Vikram Pandit popped up, claiming that the bank conglom was actually profitable in January and February. Citi's stock started rallying on the news, sparking a slow rise from its near-zero value and helped along by news that the U.S. government planned to absorb the banks' toxic assets.

Pandit's memo was followed almost immediately by similar reports by other big-bank CEOs, and the sector has seemed somewhat healthier ever since.

The surprising news from the banking sector, meanwhile, sparked an overall record rise, at least in percentage. Now that the surge seems to be flagging, Bloomberg notes today:

The gauge of 23 developed countries had gained 12 percent in March through yesterday, the biggest surge since 1975, as banks from Citigroup Inc. to JPMorgan Chase & Co. said they made money in the first two months of 2009 and U.S. Treasury Secretary Timothy Geithner unveiled plans to rid financial firms of toxic assets.

Back to Pandit's memo: Some observers (even respectable ones) were more than skeptical at the time. As I noted back then ("Any port in a storm: Clinging to hope, market rallies on Citi memo, true or not"), SA's Tyler Durden wrote:

Good read on the purposefully leaked Citi memo [March 10] from Financial Times. The Brits make a good point about Citi's so called bumper revenues, which a) are not bumper at all based on historical standards and b) are to be expected as increased revenues always accompany volatile markets, especially in f/x and cash equities. The main thing Citi did not provide info on is the impact of writedowns, which one can bet their bottom dollar will be large to quite large.

You could have argued even back then that the supposedly good news from the big banks, true or not, was a coordinated move by the banking sector's supposedly rival CEOs to paint a good picture. But maybe the banks were in essence taking orders from the Plunge Protection Team, the cabal of top U.S. government officials, in exchange for the government's not aggressively seeking nationalization of the ailing banks.

Yes, you'd be hard-pressed to argue that much of the market movement since the South Sea Bubble hundreds of years ago is not some sort of big manipulators' collusion, if not conspiracy. Still, this smacks of a PPT move to inject the market with more than just money to reboot it.

Kinda puts the kibosh on the idea that we're a "free-market" system that normally thrives because the government minds its own business.