Wednesday, July 1, 2009

There Is Intervention, Manipulation

Joe Saluzzi of Themis Trading is noticing some of the same inconsistencies as I am over the past few months. He talks about how the market appears to be liquid, but in reality it is not. The volume figures reported are essentially double counting as program traders step up their activity and trade rapidly with themselves (in 50 milliseconds or less).

It is a classic example of a ponzi scheme. Goldman sells to Morgan for $1, Morgan sells to Merrill (BAC) for $2, Merrill sells to Citi for $3, Citi sells back to Goldman for $4. They all show a profit - until, of course, Goldman can't find a greater fool to pay $5 and the whole thing collapses. And it will collapse. The only question is when.

"I have a feeling one day the door is gonna close, everyone is going to be running for the exits, there is going to be a major move in the market and everyone is going to wonder "what happened?"

There is problem structurally in the equity markets that nobody wants to talk about. There is intervention, there is manipulation going on. No one has exact proof of what is going on but it's out there, and the real liquidity has been gone for a while. People don't understand, the liquidity is not coming back."

A must watch:



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7 comments:

Fish10 said...

Yeah yeah yeah. Sorry these guys just don't make sense.

On one hand they want controls over the big broker incestuous trading, on the other hand they are against intervention by regulatory authorities.

Duh..

Doesn't he see the flaw in his own agrument. The ONLY way you can prevent the behemoths from dominating the markets is by regulating, which BTW, only the democrats are talking about.

The republicans, having presided over the biggest debcale of the last 80 years still have their heads collectively buried in the 'free-market' sand.

Matt H said...

Fish10, the only reason Goldman, BAC, et. all are still playing this game is because your knights in shining armor from Wasington have given them billions to stay alive. The free market has a solution to a house of cards being built: let it collapse while it's still small. Instead, your beloved "regulators" are going to help build it so huge it will literally take everything financial, commercial, and political down with it when it finally goes.

RRB said...

Amen, Matt.

Fish10 said...

Everything in a civilized society needs regulating. From the water we drink to the medicines we take and the food we eat.

How it is that Wall Street and Bay Street and the City of London etc managed to convince the power brokers (or buy them) that they were the only industry that did not need regulating is beyond my understanding.

Roger Jarema said...

Matt,

Sorry for the OOT post here. But I think you should take a look at this: Sweden Riksbank is now applying NEGATIVE interest rate!

http://www.riksbank.com/templates/Page.aspx?id=32047

Well, well,... with people strapped out of cash (unemployment, asset price deflation, etc) now they have their money blatantly robbed, too. I guess it will sooner or later generate the mother of bank runs -- and possibly the start of the next liquidity event. It'll be wonderful to have your takes.

I wonder if such enormous stupidity has ever been applied in history.

By the way, Matt.. I'm planning to study history of great financial bubbles during this summer & consequent great social generational cycles. Could you recommend some good sources? Thanks in advance.

Matt Stiles said...

Roger,

send me an e-mail. I'll put together a list for you. StilesBC@hotmail.com

Yeah, I saw that come across on Mish's blog, re Sweden. Might do a post myself, but the result is pretty obvious - BANK RUN!

Fish,

You're right. Everything needs regulating. The question is who does it and what incentive structure are they operating under? Your question was how did the financial industry convince us that they didn't need regulating? First, that is a bogus question, because they were regulated - by 5 separate agencies in the US (Fed, OTS, OCC, FDIC, SEC). They were, however, able to get around the regulation the same way every industry has; by putting industry insiders in government, spending millions on lobbying to save billions, and eventually by recommending "friendlies" to be their regulators. It's even got a name: "Cognitive Regulatory Capture."

The only way around this, Fish, is to eliminate the false incentive structures that regulation enables. If there was no regulatory body, then there would be no regulatory body to regulate for anti-competition legislation, tax breaks, bailouts, etc. There would be no possibility for corporations to grow near-monopolistic under these conditions because their customers would only choose a service provider based on fundamentals, convenience, price. Rather than, "who has the best connections on the hill?"

The answer is to eliminate corruption, fraud, misappropriation (fractional reserve lending that violates property rights) and most of all, access to the spigot of newly created fiat money. Because where that is, is precisely where you'll find the "behemoths" sucking like vampires.

Then again, you still seem to think that Republicans believe in "free market" ideologies. Which should have been enough to laugh uncontrollably and go back to my book, rather than waste my time responding. Oh well, too late.

Fish10 said...

Lets bury the hatchet and watch another Matt Taibbi on the worst of the 'blood sucking squids' Goldman Sachs

http://watch.bnn.ca/the-close/july-2009/the-close-july-2-2009/#clip189690


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