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Props to Zerohedge for having the nads to run this unconfirmed:

Which is why we were greatly troubled when we learned recently on good authority that Federal representatives may have opened multiple undisclosed-type accounts with none other than State Street Global Advisors over the past few months. All of these accounts are allegedly handled by one single trader, who is cocooned and isolated from interaction with other partners.

Zero Hedge can, as of yet, not vouch for this being 100% factual and is asking readers who may have additional knowledge of the situtation to please come forward and share their views (tips@zerohedge.com). If, indeed, the Federal Reserve or other derivatives of the administration, are now directly involved in trading, managing repo terms, stock lending, collateral distribution and other liquidity-crucial aspects of what was once an efficient market, then indeed this rally could be written off not merely as the biggest short covering rally of all time, but one that has been explicitly orchestrated by those who should be most impartial to an efficiently working market.

Uh, there's a bit more than just "writing off this rally" there.

If this is true and especially if The Fed is involved, there is a major problem with the law.

See, The Federal Reserve is explicitly not permitted to buy anything that doesn't have the full faith and credit of The US Federal Government behind it.  It is that fact (found in Sections 13 and 14 of The Act) that has led me to repeatedly rant about The Fed's purchase of Fannie and Freddie paper - distinctly outrageous acts, given the plain language of the law. (Note that purchase of Ginnie Mae securities, which are fully guaranteed with full faith and credit, would be fine.  Note also that Ginnie Mae didn't get in trouble fiscally either.  Hmmmm....)

The Fed's charter and statement of operation is that liquidity operations are to be performed through the NY Fed dealing desk.  That transparency is important.  It is why I was able to detect the liquidity drain on September 24th and sound the alarm - even though it went unheeded - three days before the equity market collapsed.

This sort of transparency of open market operations is critical.  Even though nobody gave a damn about the huge liquidity drain in September, the record remains for Congress and others to look at in the future, should they so choose, and if there is an investigation of the propriety of those actions, the proof is right there in front of people's nose. 

If The Fed is dealing through one "special trader" at State Street, then all such transparency of action and intent is GONE.

Such intentional obfuscation can only have the purpose of being able to "act in the shadows."  It is entirely possible that while Congress ignored my warning call, The Fed did not, realizing that there is a tremendous amount of exposure for them (as there should be!) for such an action, and therefore, acts were undertaken to hide this sort of thing in the future.

Bad juju folks.

Worse is that if this is true and is proved the risk of capital flight is extremely high.  Do you want to participate in a market that is "rigged" like this by The Fed, operating with essentially limitless liquidity to game the markets any time they'd like in violation of the law? 

If this is just a bad rumor or some tinfoil conspiracy, then it is.  Lord knows there have been plenty about the "Plunge Protection Team" over the years.

If this proves up as real, The Fed must be immediately decertified and, if we can find a criminal act in here (I suspect that prosecutors might be able to) everyone responsible for this, or who acted with knowledge of it, needs to wind up in prison.

The Congressional hearing yesterday with Ken Lewis was amusing.

You know my belief and viewpoint, and it has remained constant since "Bailout Nation" began:

Ben Bernanke and Hank Paulson orchestrated the worst part of the collapse last fall for two purposes: To cover up their own malfeasance and misfeasance in how we got here in the first place, and to benefit their cronies in the banking business.

I further maintain that these two individual's actions constitute official misconduct at best, with the worst possibly reaching racketeering in the form of the conspiracy to commit securities fraud (with various other actors in the private sector.)

Now we get to see if Congress has a pair of 'nads between its legs. 

We have had Dick Durbin in the Senate (who I personally despise, but heh, when you're right you're right) state that "The Bankers own the US Congress".

We have had both Paulson and Bernanke make statements for the last two years that have sugar-coated our economic issues, belying either intentional deception or rank incompetence.

We have had a decade-long litany of malfeasance and fraud within Fannie and Freddie - for the second time - but just like the last time, the worst outcome has been some executive terminations.  Oh, and $5 trillion of securitized debt sitting around like a ticking nuclear weapon, looking for a good time and place to blow up.  The bad news is that the US Government foolishly took that trojan horse partially inside the walls, leading to the real possibility that the detonation will blow us to bits, instead of the executives and buyers of their garbage.  The firms that stuffed Fannie and Freddie with shoddily-underwritten (or simply NOT underwritten) paper, and their executives, remain free to fly around in their Gulfstreams (cough-Mozilo-cough!) with the worst "fate" for any of them being civil securities litigation.

Contrary to the claim that "nobody saw it coming", in point of fact many people did see it coming, yet we were ridiculed, including on national television among the "pumpers" such as CNBC.  Among the "truth-tellers" were myself, Nouriel Roubini (before he jumped the shark recently - gee, you think he might be interested in a political position?), "Mish" Shedlock and Janet Tavakoli.  That people like us are not on CNBC and/or Bloomberg literally daily is proof positive that we no longer have "reporters" or a "media" - we have infotainment slanted for the specific purpose of funneling sheep into the break in the fence - behind which is, of course, a pack of wolves.

We have a press that screamed from the rafters (and rightly so) about Bush's deficits but who remain oddly silent about deficits five times greater when they come from a Democrat Administration.  Oh, and neither administration, both of which handed over $1 trillion of taxpayer money to banking interests, received anything but silence from the very same press on the bailouts.  Hmmmm.

Last fall The Fed drained over $100 billion from the banking system's "slosh" while claiming to be providing "extraordinary liquidity."  The next day Washington Mutual blew up and three days later the stock market began its September crash.  Coincidence?  I think not.  The number of questions asked by Congress of Bernanke in this matter over the subsequent six months, despite two appearances on Capitol Hill for hearings and my personal faxing of the "smoking gun" to all 535 members at the time it happened?  ZERO.

"Quantitative Easing" was put forward as the way we would knock down mortgage rates to 4% and hold them there as a means of "stabilizing" the housing market.  Here are the two things I said in December of 08 about these "programs" - how am I doing?

The Fed's attempt to "pump liquidity" will be shown to be an abject failure.  We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.

If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%.  You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity.  This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting.  The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)

Geithner now appears to be set to tell The Fed - the very institution that "got it wrong" all the way back into the 1990s by intentionally blowing bubble after bubble, first in Tech Stocks and then in Real Estate, that they are to "gain the most" in regulatory overhaul.  This, despite the fact that The Fed could and should have put a stop to the outrageous risk-taking in the banking system years ago - but did nothing.  Let's remember this fact:

In President Barack Obama’s plan, scheduled to be released June 17, the Fed is also expected to retain supervisory authority over bank holding companies and the state-chartered banks it currently regulates, the people familiar with the matter said.

That's right, including the banks that got us into this mess, including most specifically Citibank and Bank of America.  Only in government do you get to really screw the pooch to the tune of trillions of dollars and get rewarded with even more power.  In private business such a record finds you lucky if you don't wind up in the greybar motel.

The people of this nation have stuck their heads in the sand for over two years on this series of scandals and fraud since they burst onto the scene in the first part of 2007.

Washington DC seems to think that they can keep sweeping the elephant under the rug, and that Americans will continue to keep their TVs tuned to American Idol, even while they are evicted from their homes, fired from their jobs and their retirement funds shrivel into irrelevance.

Perhaps these hearings are a consequence of personal loss among Congress, rather than true representation of the people's interest:

The forms for the 2008 calendar year were quickly removed from the House site, but are now available at Legistorm.com Nancy Pelosi and her husband lost between $100,000 and $1 million in American International Group Inc. stock last year. The California couple also spent more than $250,000 to increase their ownership of a luxury spa in Napa Valley.

When you're one of the most powerful people in a demonstrably corrupt organization - Congress - I guess it would only make sense that you'd buy a million dollars worth of stock in a company that made $500 billion worth of credit bets with zero capital behind them.

What Pelosi seems to have forgotten is that eventually the truth comes out, and it usually happens when the elephant in the room that you swept under the rug starts tripping up everyone who comes through the door.

Here's what I would define as a "good start" in cleaning this crap up:

• Go after Bernanke.  As noted yesterday, Bernanke must go.  If he refuses, The Fed must go.  Congress has the authority - now let's see them use it.
• Go after Paulson.  He's going to be tougher, but I believe he can be nailed for official misconduct.  If so, there's a whole plethora of potential civil and criminal legal pitfalls that lay directly in front of him.  In my opinion if there is one man who deserves to get locked up out of this whole mess, it's Hank Paulson.
• Nail Lewis to the cross.  Executives cannot hide behind government coercion.  Fiduciary responsibility isn't a relative term and one of the best antidotes to government malfeasance are executives that understand that they will wind up in the hoosegow if they sit silently for such abuses rather than discharging their responsibility to bond and stockholders - the latter requiring singing like a canary when their arms are twisted.

And finally, I want to see a special prosecutor with lots of assistants to investigate Congress.  I'm willing to bet out of the den of felons in Washington DC we can - and must - find at least 100 solid indictments.

There is nothing like watching the guy in the office next to you being hauled off in irons that incents people to grow a backbone and straighten up their act.