During bear markets conspiracy theories run rampant. (Why? Human Nature: success in a bull is my cleverness; failure in a bear is someone else’s fault.) Here is a doozy: that the current market drop is caused by Goldman Sachs (GS). I suppose it should be considered a companion piece to Karl Denninger’s argument that Bernanke intentionally crashed the market in Sep2008 to spook Congress into passing TARP, but at least that one has a clear factual basis; intent is the open issue. This one is pure speculation.
The article picks up on Murray Rothbard’s view that the monetary history of the early 1900s is largely a fight between the Morgans and the Rockefellers. (Rothbard is a well-know Austrian who wrote a good assessment of the Great Depression, and his banking fight argument has some basis in fact.) When JP Morgan (JPM) merged with Rockefeller’s bank, Chase, it supposedly signaled the two former foes had aligned for some reason. The article argues it was to fend off the growing power of Goldman Sachs, and especially “Goldman Sachs South”, formerly know as the US Treasury Dept. Goldman had gone too far by front-running the market and getting away with naked shorts.
The recent ascendency of Volcker, who came up through Chase Bank, and his proposal to end the proprietary trading desks of places like Goldman, is to curtail these excesses. The particular proposal was a bit of a puzzle, since it seems a bit small time when compared with Volcker’s prior calls for a reinstatement of Glass-Steagel, and his editorial in the Sunday NYT. This article suggests it is targeted at Goldman and can be seen as a shot across the bow.
So far nothing particularly alarming as conspiracies go, but the article drops this bombshell: that Goldman is deliberately driving the market down in a game of chicken to get Obama to back off real banking reform. That slide started when Obama announced the Volcker Plan. Obama’s reiteration of banking reform in his SOTU speech shows he is fighting back. The sharp drop since SOTU is the purported reply from Goldman.
If this theory is substantive, the market should drop hard next week, even crash.
If you love this stuff, I suggest you follow the links and come to your own conclusion. I discount conspiracy theories. Oswald killed Kennedy. Fluoridation is not a commie plot. Aliens do not abduct people. Area 51 does not contain spacecraft. And I don’t buy this one, even if the market crashes.