Eric King:  “Jim, there is a growing feeling that we are seeing increasing corruption in financial markets, with evidence of rigging taking place in LIBOR as well as other illegal activities in key markets coming to light.  But I wanted to ask you, if the perception grows that financial markets are a rigged casino, what is the risk there, or is there a risk?”

Grant:  “In a meeting a couple of months ago, I happened to be in the audience with one of the Fed governors, Jeremy Stein.  And at the end of his talk I said, ‘Governor Stein, can you help us understand the substantive difference, not the legal difference, but the substantive difference between the Fed’s manipulation of the federal funds rate, and the yield curve, and it’s talking up of the stock market -- the difference between that on the one hand, and LIBOR rigging in the private sector on the other?’ 

That was my question and I thought it was a pretty fine question....

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“Governor Stein hemmed and hawed, and he said, ‘There’s no (pause), it’s not the same thing.  It’s a criminal activity, these LIBOR riggers, and we are going to bring down the force of the law on their heads,’ or words to that effect.

So as corrosive as the alleged manipulation of the LIBOR rate might have been, it is nothing compared to the federal program of substituting price administration for price discovery.  At the heart of the Fed’s regime is the subordination of freely discovered prices, to policy goals. 

So, no doubt there is some danger that ‘bad actors’ in the private sector are going to undermine the integrity of our market.  That is a risk.  It’s always a risk.  It was a risk when there were bucket shops on Wall Street, and when the specialists were all too cozy with each other.  But the far greater risk, in my mind, is the national program of price manipulation. 

You know, Eric, I guess a year ago, or 18 months ago, Chairman Bernanke gave a series of talks to the students of George Washington University in Washington, D.C..  And in one of these talks he ranged over the history of finance, and he talked about Richard Nixon’s unhappy experiment with wage and price controls in 1971 - 1972. 

But the Chairman glided over the obvious question about, so, what actually is the difference between price control, generally, and the control of the very important price we call the basic money market interest rate, which is the Fed’s current work?  That’s what it (the Fed) does, it manipulates or controls a price.  So, anyway, I think the Fed has much more to answer for than do the banks that have been brought to justice.

... So, again, the Fed is systematically conscripting financial markets to policy ends, and I think it’s a hugely distorting thing.  People can’t make sound and economic decisions in a market economy without true prices -- without (true) prices, economic science is a joke.  So I think it’s a very slippery slope indeed.”

Grant also issued this warning:  “A lot of the concentration of wealth, it seems to me, is a consequence of our monetary regime.”

IMPORTANT - Amazing audio interview with Jim Grant available now and you can listen to it by CLICKING HERE.

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