The government is known for leaking to the press things it wants people to hear to manage scandals and soften political blows. Deepthroat - Abu Ghraib - Valerie Plame - some go well and usually - not so well. When there is a leak in the stock market business that leads to insider trading - government prosecutors go crazy and will not stop until they put someone in jail either for actual insider trading (Sam Waksal) or more commonly for obstruction of justice (Martha Stewart.) Supposedly this is critical to maintain the integrity of our financial markets.

I’ve always appreciated the assumption that the Fed is as they say “independent within the government” and that it is mostly unpolitical. That is essential for stability in our financial system - without it we would never have been able to develop as an economic world leader. Without it, credibility of our system is gone - stocks - bonds and any asset whose pricing is determined by them (which is everything).

Yesterday afternoon there was a rumor about a “secret” “special” Fed meeting and the market took off at 3:00 pm. The Fed is known for its secrecy and we all have to sit here and endure the days of speculation and things like the Greenspan Briefcase Indicator and Fed Funds Futures gyrations prior to their pronouncements. That extremely tight secrecy is essential for the Fed’s integrity and with it the integrity of our financial system. In this case, it appears that a new operator I’ll call “CutThroat” leaked the “special” Fed meeting info.

I can understand the speculation about Fed cuts and special meetings. Even a few rants on CNBC from time to time. When rumors about sensitive activities turn out to be facts then there is a high probability that the facts were leaked. I am a huge fan of the Fed and have been very evenhanded about encouraging everyone to just let them do their job. If there was no leak either intentional or accidental and this was just a very lucky and well-timed guess, then an investigation would find that out. If there was a leak, it just created the biggest insider trading opportunity in history. Everyone, including the Fed, knows how volatile this market is and how it can move on any rumor, especially about rate cuts. I doubt there will be an investigation which would lead back to “CutThroat” but if this is how the new openness and communication by the Hair of the Dog Fed is going to proceed, the credibility of our financial systems are at extreme risk.