On the US Federal Reserve’s Information Leak

If the Fed had entirely been a private company, they will likely be charged with "insider trading", which based on Wikipedia’s definition, is "trading of a corporation's stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company."

From Bloomberg:

Citigroup Inc. (C), Goldman Sachs Group Inc. and JPMorgan Chase & Co. were among at least 15 financial companies that received potentially market-moving Federal Reserve information 19 hours before the public in a release the central bank called a mistake.

Brian Gross, a member of the Fed’s congressional liaison staff, distributed the March 19-20 minutes of the Federal Open Market Committee meeting at 2 p.m. Washington time on April 9, according to an e-mail obtained by Bloomberg News. The list also included congressional staff members and trade groups. Gross referred questions to Fed spokeswoman Michelle Smith.

FOMC minutes, which include comments on the committee’s discussions about the direction of monetary policy and its outlook for the economy, are among the most closely scrutinized Fed documents as the panel debates when to stop its third round of bond purchases. The inadvertent release raised questions about the central bank’s internal controls among attorneys and disclosure experts.

The US Federal Reserve has partly been owned by the private sector or by “US member banks”, although Fed isn’t a publicly listed central bank, unlike the Bank of Japan (Jasdaq 8301). 

Importantly unlike private companies, the Fed functioning as a central bank, operates as a mandated monopoly which “derives its authority from the Congress of the United States” In other words, Fed policies, which are politically determined, greatly influence the markets, the domestic economy, as well as international economies (given the US dollar standard). 

Such distinction magnifies the importance between privileged access to information via firms operating in a market environment and firms benefiting from political institutions such as the FED.

While I don’t believe in market based “insider trading”, privileged access on political institutions serves as “picking winners and losers”. In short, access to badges and guns serves as a moat against competition.

Thus, special insider access to the FED tilts the balance of market resource allocation (both in financial markets and the market economy) towards those whom the political gods favor, particularly in today’s highly volatile conditions caused by financial repression. This represents the ultimate insider trading.

This also demonstrates of the insider-outsider, cartelized and crony relationships operating within the corridors of the US Federal Reserves.