Tags: money manager | Obama | Russia | meeting

Is Obama Using Ukraine to Manipulate Markets?

By Patrick Watson   |   Wednesday, 23 Apr 2014 08:09 AM

An odd headline caught my eye on Bloomberg last week: "U.S. Warns Money Managers of More Russia Sanctions." It seems Obama administration officials met with mutual fund and hedge fund managers to "explain" its planned moves against Russia.

I've said Western economic sanctions won't stop Putin from executing his Ukraine plans. I still believe so, but the sanctions certainly do affect some market segments. Big money is at stake. The U.S. government should communicate policy changes to investors, but it shouldn't tell some investors about its plans while leaving others in the dark.

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Yet that's apparently what they did. The Bloomberg story quoted money managers who trade Russian securities who knew nothing about any such meetings. Bloomberg's sources also requested anonymity, indicating something non-public occurred.

When someone on the staff of a public corporation selectively reveals potentially market-moving information like this, it is a crime called "insider trading." In this case, the government itself talked, so I don't know if it was criminal. I think it was definitely a bad idea.

Just three months ago, President Obama's own National Security Agency review board recommended the administration stop manipulating the financial system. Yet now we have the same administration inviting favored fund managers to get the inside scoop on economic sanctions. How is this not manipulation?

The federal government is perfectly capable of releasing information so that everyone gets it simultaneously. The Labor and Commerce departments do it with economic data all the time. There is no reason to hold private meetings with money managers unless it is giving them non-public information.

The money managers who attended these meetings should ask themselves another question: "Can we believe this?" Were the Obama administration officials sincerely trying to help the managers, or were they trying to influence the managers to make certain investment decisions? Would they have made those decisions without the government's private recommendation?

If the answer is "Yes," and the manager wasn't already doing it, we have strong evidence that he is either incompetent or lazy. Their investors pay them to know these things without political tip-offs.

If the answer is "No," and the manager did what Washington suggested, he violated his fiduciary obligation to investors by acting against their best interest.

Attending these meetings at all was a bad move in either case. The correct response to the invitation would have been, "Thanks, but I'll just read your press release. Don't tell me anything you haven't made public."

Of course, the governmental revolving door is nothing new. Individuals in Washington and on Wall Street talk to each other all the time. This incident is different because it was official policy.

Did someone high in the Obama administration decide to weaponize the financial system in pursuit of foreign policy goals? Is something darker and more mysterious happening?

Either way, it ought to be bigger news.

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