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Sunday, August 23, 2009

Know your place

Here's a guy getting arrested for stealing software that can rip off small stock market investors in a matter of milliseconds. Hey, little guys aren't supposed to be able to do that! That capability is the private property of Goldman Sachs. (I wish I were kidding.)

Comments (15)

If you ever wanted a case study in the fall of the mainstream media this is it. Notice that they never elaborate on the basic unfairness of what Goldman Sachs has been doing which is essentially using insider information to front-run trades - as I understand it.

Now, it's not traditional inside information as it is handled by the computers but it is supposed to generate 100 million a DAY for Goldman Sachs.
The Times declined to point out this outrageous rip-off in the article, and that helps them cover their own lack of reporting on it previously. Then they talk about the banks as victims and use ultra-polite language to describe how the banks find out about these orders electronically and adjust before others can follow. How did the article put it: "and in some instances leap in front of bigger orders."

But these aren't some kids playing hopscotch. How do their computers know about these larger orders so they can short the market or whatever? This article is way too superficial and polite. If you tried what Goldman Sachs is doing in a poker game they'd take you out in the alley and beat the hell out of you.

Meanwhile Goldman Sachs executives are preening around with their latest bonuses acting like this was all the result of good trading skills.

It is wretched. It is a giant leech on our society. 100 million estimated a day because their computers know what is about to happen just a little sooner than anyone else. They think they're building something but they're really just tearing it down. It's another brick in the wall that's about to come down all around us.

This is where the late George Carlin is sorely missed. He would cover it.

"100 million estimated a day because their computers know what is about to happen just a little sooner than anyone else.

Yep. And that's how the stock market works. I'm often stunned at how few folks understand that the stock market is rigged. It's not even a secret, really--the mechanisms that ensure it are well documented and easy to learn about.

or, as Jack and commenters discussed a year ago:

Yes, let's put an end to this insanity. Let's go back to the old days when ordinary folks paid 5, 6 and 7 percent loads or commissions on stock purchases, waited hours or days for purchases to execute, and were victimized by broker/dealers trading from their own/account. These days, competitition has reduced insider advantages to milliseconds and fractions of a cent and these purchases are made, for the most part, in an open/transparent market (hint/hint for the regulation of derivative trading). Yes, let's take away every iota of financial incentive to improve and accelerate this system.

I just love it when the do-gooders intervene looking at these sorts of things as isolated events rather than a process.

The so-called progressives and liberals (aka control freaks) will ensure that innovation and creativity come to a halt. Yes, the lawyers can tell us what all the answers are -- they know for sure.

Anybody who has been involved in real world markets knows how temporary and transitory market advantages are so participants are always moving, always improving -- that's why it pays to be extremely wary of government bureaucrats and academic experts who want to govern our lives. They most assuredly will punish the best in breed and bring responsiveness, growth and innovation to a halt.

If there is some way to improve openess and transparency with respect to market orders, then do it. Otherwise leave them alone.

Speed is an enemy of manipulation -- encourage it.

Disclosure, I don't own any Goldman stock. The only banking stock I currently own is Glacier Bancorp, and so far as I know, they aren't doing a lot of trading or broker/dealering up in Montana.

Grady, it doesn't matter that the advantage only lasts for "seconds" or that the system works more efficiently now than in the past.

In order for people to have confidence in the securities markets, the playing field has to actually BE level. Nobody really thinks it is, but this kind of activity reinforces the (probably accurate) perception that the big players have advantages over the little guys that go beyond more skill or knowledge.

Look how close the system came to collapsing a few months ago. Goldman's smug arrogance and disregard for the recognition of how important widespread support for securities markets is will be felt the next time there's a crisis. And there will be another crisis. It's only a few wild speculators away.

The real world is never 100 percent level, and if it is level there is no incentive to improve, grow and thereby make services/products less expensive and more accessible. Goldman survived and thrived while Lehman, Bear Sterms and Merrill imploded because Goldman walked and chewed gum -- they brought economic value into the calculus -- they didn't play solely a numbers game. If you insist on punishing the winners in the name of having a level playing field we will all be losers.

Grady, that's ironic, given that "control freaks" are responsible for both the stock market and the current meltdown.

And that software with the seconds of advantage? It's just one part of the toolbox. Real players make most of the rules. The real money is made before anybody--like, say, teachers with a pension fund in the stock market that's tanking--get any say in the matter.

The stock market sure is a nice hopeful fantasy, isn't it? And even more irony, it's the ultimate in magical thinking--that very phrase that some folks like to put on "hippies" and "liberals".

An open/transparent market? Are you kidding?
I sense a graymail defense coming up here where the government doesn't sock it to this Russian dude precisely because they don't want Wall Street's secrets explored.
They don't even want any light shed on what we do know, which brings us back to this horrendous computer-based insider trading.
Speed sounds good in markets unless it means you're being fleeced faster.
Giving away part of the financial system so a specific firm can drain money from Americans based on its unique insider position, is like giving up a little of the sovereignty of the United States.
It's like giving up part of our freedom.
You say you don't own any Goldman Sachs? Well, too bad, 'cause Goldman Sachs owns a part of you.

And how many of those (super fast trade) shares are traded naked, way beyond the amount the company has issued..

How much of the huge volumes we saw traded in the last 6+ years were real shares that could be matched against actual certs and how many were just electronic blips that actually diluted the real value of the stock?

The trading of naked shares both long and short is the other big secret that made trillions for Wall Street...

Actually, the whole banking system is about giving up a piece of sovereignty of the United States -- it is the means for creating our money supply. Alexander Hamilton ultimately lost the argument for a US National Bank, largely due to concerns about the concentration of power in a single, monolithic government institution. Sound familiar? No K Street lobbyist told me about that one. No, not even the health care lobbyist who lives across the street from my house aiming to make millions from health care reform with his Obama signs still out. Please don't rat me out to Gibbs.

And by the way, I am a little a guy myself (well, OK until I aged and started putting on the pounds). I took my savings out of stocks starting in March, 2007 when the first shoes began to drop. It was clear as could be that the US consumer was grossly overleveraged (credit cards, mortgages and installment loans) and undersaved (savings rates close to zero) while yields on corporate debt were absurdly low (which turned out to be due to the then mostly unknown and essentially invisible proliferaton of credit default swaps).

Sometimes a little guy knows better than big guys, including teacher pension funds and other large collectivist enterprises which are swayed more by politics and convention than by fact.

One other piece of information about ignoring history. I also understood that the meltdown was coming, in part, because I had taken the time to read "A Monetary History of the United States" published in 1963. Unlike our current President, it seems, I understand that the most important historical lessons go back more than 8 years.

You and he are all are so busy finding people to blame and punish that you don't have any chance of identifying how to restructure financial markets and the banking system going forward. You may feel like blame and villification give you control over the situation, but they do not. You only get emotional release.

I took my savings out of stocks starting in March, 2007 when the first shoes began to drop. It was clear as could be that the US consumer was grossly overleveraged

Grady, if you're as savvy as you claim to be, you'd have known about that over 25 years ago. To artificially prop up the economy, we decided to get vampiric on the middle class by blowing consumer credit and other such techniques wide open. the result? an economy based on not much of anything except Belief.

The monetary system doesn't have a lot to do with the mega-scam that is the stock market. Stock markets exist in other countries all over the world, and use the same scam but with different monetary policy. I'm full aware that banks are mostly a scam too, and money supply is the biggest part of the scam.

Oh, Please, ecohuman - it's clear Grady is right and you're wrong. "Blowing consumer credit... wide open," has been promoted in the government schools for at least five decades. I was in high school in the 50s in progressive California, learning how to obtain credit (i.e. borrow). I didn't realize until many years later that they obscured the reality of the leveraging they were promoting because the parents of the innocent students were dead set against going into debt. These parents knew what it had done to their parents and family as they all struggled through the Great Depression. Those with debt - farmers, for example, who were encouraged to borrow money to become more modern with new tractors, etc., or small business owners, were ruined at that time. But government ag programs and government schools were key instruments in promoting debt as the 'in' thing to do - the sophisticated thing to do.

ecohuman - please allow yourself to be educated by a rational and educated person like Grady, it will do you good.

Interesting point about Great Depression parents there Jo. My Dad turned 20 years old in North Dakota, August 1929. His family started essentially debt free but lost the farm after repeated crop failures (dust bowl was real) and rapid price deflation between planting and harvest times drove the farm into debt that couldn't be repaid. Painful lessons with lifelong implications. Leverage and risk need to be acquired carefully and managed -- there are no guarantees. You always need to be ready to lay low if circumstances dictate.


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