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Please consider this my attempt to provide some newly-discovered context for current events, as they've played out this month regarding realities concerning the real market trading environment on Wall Street. Apparently, as I've learned over the past few days, Wall Street has actually institutionalized illegal frontrunning as an acceptable practice for years, unbeknownst to most folks on Main Street.

THE VOICES OF THOSE TELLING US, "WE ARE BEING SCREWED BY WALL STREET," ARE GROWING LOUDER...

In short, stating the obvious (to some but not to most of us), the Wall Street casino is quite the rigged game; and, as we all know, the biggest player at the table is Goldman-Sachs.

Accepting what I've just stated, above, as fact, and combining it with the sheer credibility  of excoriating comments of late regarding Goldman Sachs' business practices from the likes of people such as Nobel laureate Paul Krugman, in today's NY Times (not to mention noted recent tomes from others such as Matt Taibbi), I would like to hope public sentiment has at least begun to shift with regard to the hoped-for realization that this country's voters will no longer accept lip service from a Legislative Branch that has been bought and paid for by Wall Street. That is the deal, at least according to the recently-stated sentiments of Illinois Senator Dick Durbin, the second-highest ranking member of the Senate, as well as Congressman Collin Peterson, the Chair of House Agriculture Committee.

In many ways, perhaps yet to be fully realized, I would like to speculate that today's column by Krugman (See: "The Joy of Sachs") may turn out to be one of his most important ever.

IMHO, while many have beaten around the bush (pun intended) about certain unpleasant truths relating to Wall Street, the so-called pinnacle of American capitalism, I believe this column by Krugman is the first time someone as widely-read and credible as him has charged at the likes of a Goldman-Sachs, head-on. Indeed, by virtually coming out and saying Goldman has been doing little more than outright screwing the public for quite some time, maybe--just maybe--this will serve as a small milestone along the road to the voting public's realization that, indeed, in our "free" society, there are a few people that profit obscenely on the backs of everyone else. And, as our economy sinks deeper and deeper into recession, these thieves become even more emboldened with every passing day (finally) before our very eyes (in the MSM).

But, in the event that the words of people like Krugman (and others), now,  don't enable a true call to outrage by the voting public, perhaps a concurrent story that is much more quietly playing out in the background with regard to recently-acknowledged-but-illegal trading practices on Wall Street will do the trick. (More about that after providing you with a bit of Krugman's latest, all below.)

One can only hope we are finally getting a clue.

From Krugman's latest in today's NY Times: "The Joy Of Sachs."


The Joy of Sachs
By PAUL KRUGMAN
Published Online: July 16, 2009   In Print: July 17, 2009

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits -- and it's preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

Second, it shows that Wall Street's bad habits -- above all, the system of compensation that helped cause the financial crisis -- have not gone away.

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

Let's start by talking about how Goldman makes money...

--SNIP--

...The bottom line is that Goldman's blowout quarter is good news for Goldman and the people who work there. It's good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it's bad news for almost everyone else.

So, while we have the crowds growing restless in the MSM, perhaps on another level--where it counts--we may now have the authorities being not-so-tacitly called into action (at least if the public starts screaming loudly enough).

...WHILE THE, APPARENTLY, ONGOING CRIMINAL PLOT THICKENS.

Approximately two weeks ago, on Thursday, July 2nd, the NY Stock Exchange did something they've only done on a handful of occasions in the history of that venerable institution--they extended their closing time by 15 minutes due to "connectivity problems."

The last time this had happened was on September 30th, 2008... (See: "NYSE Extended Trading Until 4:15 PM EDT.")


Jul 2, 2009, 5:35 p.m. EST
NYSE Extended Trading Until 4:15 PM EDT Thursday
By Jacob Bunge

NEW YORK (MarketWatch) -- Trading on NYSE Euronext's /quotes/comstock/13*!nyx/quotes/nls/nyx (NYX 26.61, -0.18, -0.67%) U.S. equity markets closed at 4:15 p.m. EDT Thursday after officials extended the close due to a connectivity problem.

An additional 15 minutes were added to the session to allow the exchange to "execute customer orders impacted by system irregularities," according to spokesman Eric Ryan.

--SNIP--

The exchange is investigating whether those irregularities, and others that have affected trading on NYSE Euronext markets in the last two sessions, are related to the exchange operator's recent systems upgrade this week, though Leibowitz said the new technology wasn't to blame.

--SNIP--

It isn't uncommon for the NYSE to trade a few stocks after close to allow both floor and electronic traders to get all their orders in, but it's very rare for the closing bell to ring 15 minutes late.

--SNIP--

NYSE Euronext is pushing to make trading on its markets faster as rival Nasdaq OMX and electronic venues BATS Exchange and Direct Edge draw high-frequency traders with low-latency systems that execute trades in microseconds.

The very next day, a "cut-to-the-chase version" of Bunge's story also appeared in the online edition of the Wall Street Journal, here:  "NYSE Cuts Trade Times to 5 Milliseconds."


NYSE Cuts Trade Times to 5 Milliseconds
JULY 3, 2009

BY JACOB BUNGE

NYSE Euronext cut order-execution times 20-fold at the New York Stock Exchange, part of an effort to catch up to faster competitors that have taken market share.

With the implementation of a new system for processing orders on the NYSE, customers will see trades executed within five milliseconds, compared with 105 milliseconds previously. As recently as 2007, the time was 350 milliseconds.

That change is huge in the realm of high-frequency trading firms, which now measure time by the microsecond, or one-millionth of one second...

Within hours of the posting of the online WSJ story, above, Sergey Aleynikov, a former Goldman-Sachs I.T. vice president who had just started a new job at a Chicago hedge fund, at a salary three times greater than his $400k annual pay at Goldman, was arrested by the FBI at Newark Liberty International Airport on alleged charges of intellectual property theft from his former employer. (The public quickly learned that the charges were filed over the previous 24 hours by Goldman-Sachs.)

(See: "COLUMN A: A Goldman Trading Scandal?")


COLUMN A: A Goldman Trading Scandal?
By Matthew Goldstein

NEW YORK, July 5 (Reuters) - Did someone try to steal Goldman Sachs' secret sauce?

While most in the United States were celebrating the Fourth of July holiday, a Russian immigrant living in New Jersey was being held on federal charges of stealing secret computer trading codes from a major New York-based financial institution. Authorities did not identify the firm, but sources say that institution is none other than Goldman Sachs.

The charges, if proven, are significant because the codes that the accused, Sergey Aleynikov, tried to steal are the secret sauce to Goldman's automated stock and commodities trading business. Federal authorities contend the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major financial institution generate millions of dollars in profits each year.

The platform is one of the things that gives Goldman an advantage over the competition when it comes to the rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and using secret mathematical formulas, allows the firm to make highly-profitable automated trades.

Excluding the developments at the NYSE, the day before, I had posted three diaries about all of this:

On July 6th--"Breaking: FBI Arrest Opens Goldman-Sachs' Pandora's Box,"
On July 9th--"The Outrage Against Goldman-Sachs Builds," and
On July 11th--"DKos Diary Reverberates Throughout Wall St."

My last diary (see link, immediately above) was about Kossack vets74's diary, entitled: ""Incredibly Shrinking Liquidity" as Goldman Flushed Quant Trading."

The last time I checked the search engines, vets74's diary had generated well over 1,000 links online, many of them to other stories that ran on leading Wall Street websites that were posted within hours after his diary first appeared here at Daily Kos. Here's a link to just one example of the firestorm it created: "*FLASH* Goldman Code Theft BOMBSHELL?"

All of those stories were picking-up the general theme that it appeared that Goldman-Sachs may have been  enabled to"frontrun" others' trades (i.e.:  jump ahead of another trader's trade to capitalize on the profits that would occur as a byproduct of knowing the other party's trade was about to occur). However,  in Goldman's case, due to their unique status as the first and only active "Supplemental Liquidity Provider" ("SLP"), under the government's auspices as they related to a new Wall Street-government-sanctioned program of the same name, many questions remain as to whether or not Goldman had been enabled to do, legally, what had otherwise been considered an illegal practice on Wall Street up until now.

What we do know is that Goldman had gained well over three billion dollars in record trading revenue in Q1 '09, alone, wherein the firm had just recently heralded a record-breaking 34, $100,000,000-plus gross revenue days via its trading efforts during the first quarter of this year, too. But,  just this past week, Goldman announced that they earned another $3.3 billion in net revenues during Q2 '09. All this from a company that had just repaid $10 billion to the government for loans it was required to take as a byproduct of former Goldman CEO and then-Treasury Secretary Hank Paulson's TARP initiative this past Fall.

Wow! 'Those brilliant masters of the universe! Those folks with that Midas touch! Those kings of Wall Street!'

As even Krugman reminds us  today, 'Not so fast...'

In his diary, and much to the chagrin and skepticism of many online readers, vets74 illustrated many questionable ways by which a company might be enabled to frontrun the system and to illegally gain an edge on the rest of the world when it came to placing trades in our stock markets.

I have to admit, even I was skeptical!

At least until I read these pieces, courtesy of links provided in comments on the Zero Hedge blog over the past 24 hours:

"Equities industry clashes over flash and step-up orders"

"Exchanges' anonymous trading sets off alarms"

You see, the not-so-widely-known truth is that frontrunning has been occurring in the markets for a long time, both from a technical and institutionalized basis.

That's it. Plain and simple. It's all but official; the game is rigged--bigtime--and the players, from the SEC on down, have known about this all this time, too.

As I said at the very end of my diary, entitled: "DKos Diary Reverberates Throughout Wall St," and echoing market guru Karl Denninger's sentiments (see my link to his piece, up above) after reading vets74's diary just a few days ago:


...any doubts some may have had about our country's financial system having become the laughingstock of the planet will be disspelled by these newly-acknowledged and quite pathetically sad realities. Others will just refer to it as "the biggest financial abuse story of our times."

So, is it "the biggest financial abuse story of our times?" If we scream loudly enough, we may just make it so.

Originally posted to http://www.dailykos.com/user/bobswern on Fri Jul 17, 2009 at 09:43 AM PDT.

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