The recent ethics outcry over stock trades by Robert Kaplan, president of the Federal Reserve Bank of Dallas, which we detailed in “Bankster Bandits Get Rich Playing the Inside Track” (14 Sep 2021), were foretold by information in his financial disclosure forms covering 2020, Wall Street on Parade (WSOP) reported.
Kaplan reported in the document that he had made “multiple” trades of more than $1 million in S&P futures.
Kaplan also had at least $1 million in an S&P exchange-traded fund, which trades during market hours.
Futures, which place bets on the markets’ next moves, can be traded outside of market hours, which is also the time when the Fed makes statements about policy changes.
Futures contracts also can be leveraged more heavily than regular stock trades.
In 2020, while Kaplan was dealing in S&P futures, as well as in stocks of tech companies, oil and gas firms, and other businesses being tossed up and down by the crisis, the Fed was a—perhaps the—key player in shaping market direction during the COVID War’s financial chaos, particularly in the early days of the crisis, when the S&P fell 30 percent in late March and climbed back 10 percent a month later.
During the period, Kaplan was a voting member of the Fed’s policy-setting Open Market Committee with access to non-public information, WSOP noted.
The Fed declined to answer a series of detailed questions that WSOP put to it about whether Kaplan shorted the market—made bets that would profit if stock prices fell—during 2020, WSOP reported.
After news of Kaplan’s conflict of interest became public, Fed chair Jerome Powell directed Fed staffers to have a “comprehensive look” at the central bank’s ethics rules governing officials’ permissible financial holdings and activities.
The nonprofit watchdog Revolving Door Project went further, sending a letter to Powell, urging him to direct the Fed’s inspector general “to cooperate with other federal agencies in investigating whether these trading activities violated criminal statutes on insider trading or improper use of confidential information.”
When news of Kaplan’s trades broke, Senator Elizabeth Warren sent letters to each of the 12 Fed regional bank presidents, urging them to forbid stock ownership or trading by their senior officials.
After Powell announced the internal review of ethics standards, Warren tweeted, “A review of Fed ethics rules is long overdue but it shouldn’t prevent regional Fed leaders from acting on their own. Today, they can adopt strong ethics rules that bar leaders from trading and owning individual stocks.”
TRENDPOST: “The more things change, the more they stay the same.”
New officials come and go but the lax rules governing federal officials will remain in place until public attention and outrage grows strong enough to pressure those in power to act. We will not hold our breath; such double-dealing has become so common that more and more people are cynical enough about it to be blasé.
TREND FORECAST: As we noted in the article cited above, with the gap between the rich and poor widening, so, too, will the animosity between the “haves” and “have nots.” As Bigs keep getting bigger, income inequality will be a key platform in the formation of new political movements across the globe.