This week was an abortion. Currency collapses, volatility, margin calls, liquidations and manipulations. It was not without serious implications. The manipulators won. But what did they win?
Well, that is an interesting question. First, take note that Morgan Stanley, JPM and Goldman Sachs and the Fed are at risk of a lot of dangerous litigation and regulation - both of which they do not want. I am quite sure that Goldman, for one, is tired of being painted as the villain - though they and the others are, but it could finally have been time for them to show Washington who really runs Washington. Ironically, if these financial institutions spending $100 million per week on lobbying is not enough why not use a bat.
On the very day that the senate was supposed to vote on the breakup of these very banks, including a few others, their computers and market making shenanigans, unlimited naked short selling capability, systematic front-running mechanisms, rebates and liquidity miraculously paused and the market crashed by 10% intraday. Ironically, creating one even larger shenanigan, in my opinion - if you want to call playing with millions of peoples lives a shenanigan.
Note 5/9/2010: Mike Shedlock indicated today in his post Human Judgment Needed or Computers Bid $.01 that this was not a coordinated event but a symptom of inefficiencies in the system. I do not agree. I would like to point out is that the markets have been down 300+ points many times before with NYSE curbs starting to take effect without causing a cascading crash. Liquidity was pulled from the market in a different manner than any previous trigger and most definitely not without some coordinated responses or trigger events in the liquidity systems. For the record, liquidity trading systems are quite aware of the electronic exchanges and use them quite well in fact. Please refer to this post for more information: PG and the market...more lies from the press
Think about the result of breaking up these banks. The Fed's deceit would be readily visible - as the balance sheet issues of the large banks would prove their insolvency once their assets could no longer be commingled and their balance sheet could no longer be marked to fantasy. If that happend, there would be more scrutiny of the Fed's balancesheet aswell. Politicians paniced when Paulson and Bernake went to capital hill claiming the the end of the world was near...seems to me a good panic would be just the ticket again to trigger them to forget sound reasoning and instead worry about they're election contributions, near-term perceptions of their constituents or special interests. Score is Fed 9, us tax payers 1 and special interest politicians 8. So far, I would say the Fed has done a very effective job of fighting Ron Paul and his attempts to hold them or their buddies accountable.
As if to let the senate know that their vote could be a disaster - the entire financial computerized market liquidity system was shutdown and then rebooted to demonstrate just how powerful these powerful forces really are. 1987 was probably more easy to understand actually and though it was also contrived it was not the same kind of contrived and coordinated effort that was required to create Thursday's action. This event was just ridiculous, highly orchestrated and well coordinated. Just take a look at the program trading chart below. If ever there was a clear blackmail of the senate and the policy makers in Washington -this was it. And guess what? ...the vote failed. These arrogant manipulators got what they wanted.
Market making is a ludicrous business, with access to hugely leveraged capital at nearly no cost, nearly free trading costs and settlements, rebates, exchanges, offsets and finally dueling and often coordinated computer programs. If you can hitch a ride on those coat tails fine, otherwise, quite frankly you are screwed. Even with this market as it stands, I would not be surprised to see these dueling and coordinated market liqudity trading algorithms used to engineer a move to new highs.
Ironically, the frailties of the system were laid bare for all to see if only they were willing to look. However, many people may have seen the end of day closing prices as a minor drop in their portfolio values and heard the press flaunting their ever popular fat finger type theories (I wonder how many favors they curried for that effort) and thus trivialized the implications of the greatest Wall Street blackmail of since Paulson and Bernake assaulted capitol hill.
So, where do we go from here...certainly, the markets can not be trusted, the government can not be trusted the regulators can not be trusted, the banks can not be trusted....that's a lot of trust that is lost. Maybe greed can over power it, but in my opinion if the markets can rally, it will be because big PPT member banks like JP Morgan's computers trading with Goldman Sach's (or other PPT member's) computers and not because there is any real buying, confidence or trust.
We need to support real change not Obama type change. We need a stable currency and a free market. To get there we will need to audit the fed, dismantle this confidence game and its ponzi scheme banking system. And finally we need to remove people who would prefer the totally manipulated and non-free market markets that have been the hallmark of the current system. Ron Paul, Rand Paul, Peter Schiff and even Alan Grayson are a few people who are going the right direction.
We need to get involved.
