My faith in the markets has been restored. U.S. Securities and Exchange Commission Chair Mary Jo White while testifying before Congress today was asked about Michael Lewis' new book about high-frequency trading markets.
"The markets are not rigged," she told a U.S. House of Representatives panel. "The U.S. markets are the strongest and most reliable in the world."
Well that's certainly a relief. I was worried for a moment.
Normally you might think that when someone gets between you and the exchange in order to buy or sell in anticipation of your trade, it would be considered either front-running or insider-trading. But Mary Jo White says that it isn't, so it must not be. Consider how the SEC
has approached the issue.
“I think you really do want to do a soup-to-nuts review,” says White, who stresses that any study will begin with the presumption that “the markets are not rigged.”
When you start off an investigation with the assumption that something doesn't exist, and you don't find it, then the investigation is a success.
In an ironic twist, the huge bank RBC, was sanctioned in U.S. district court for stock-manipulation almost at the exact same time that White was giving testimony that stock manipulation wasn't happening.
Since the SEC seems to be unable to find any rigging of the markets while they watched porn, I would like to offer my assistance in the market investigation.
Oil:
Another funny thing happened on the very same day that White was testifying that there was no market manipulation going on in America, Mercuria Energy Trading SA and Hess Corp. were added as defendants in a Manhattan federal court to a lawsuit for oil-price fixing. They joined BP, Statoil, and Royal Dutch Shell.
These energy companies couldn't rig the oil market by themselves.
Nope. They needed Morgan Stanley, also listed as one of the defendants.
Can you imagine that? The same industry that allowed Dick Cheney and George Bush to rise to power? Pashaw! Corrupt?
Don't get confused that we are only talking about oil. The commission involved is investigating "a wide range of oil products — crude oil, biofuels, and refined oil products, which include gasoline, heating oil, petrochemicals and others."
And let's not forget Ethanol.
Which brings us to...
Energy:
Yes, the entire energy market.
In the past couple weeks there has been legal cases filed in Texas and New Jersey for energy market manipulation.
In fact, so many fines are being handed out for manipulation in the energy markets that Wall Street hedge funds are fighting back.
Our second-favorite bank (right behind Goldman Sachs) is JP Morgan Chase. It seems they were caught red-handed.
JPMorgan Chase & Co. (JPM) manipulated power markets in California and the Midwest from September 2010 to June 2011, obtaining tens of millions of dollars in overpayments from grid operators, the U.S. Federal Energy Regulatory Commission alleged today.
Did you think you were paying too much to heat and light your house a few years ago? Well, you were.
This is not to be confuse with the time
Enron did the same thing. Of course, since JP Morgan Chase was involved with
aiding and abetting Enron securities fraud, you can be excused for getting confused.
Money:
Yes, the value of money itself is manipulated and controlled. Oh, sure. Manipulating the value of money is a primary reason why central banks were created in the first place, but its supposed to wash out in the $5.3 Trillion-a-day foreign exchanges.
Well, guess what? Funny story. It turns out foreign exchanges are being manipulated.
Switzerland's competition commission this week became the first public regulator to confirm evidence of suspected rigging, while authorities in Hong Kong and Great Britain disclosed new moves in their investigations.
Separately, an amended U.S. federal court lawsuit filed by municipal retirement systems and financial funds added new allegations against 12 major banks whose traders are suspected of colluding to boost their own profits by rigging currency rates.
The SEC might want to check with the U.S. federal court for more information about market rigging.
They might want to
call the Swiss as well, who seemed to have found evidence against JP Morgan Chase and Citigroup.
Interest Rates:
$800 Trillion of assets are affected by the Libor, the mechanism that is supposed to represent market interest rates. Well, guess what? Another funny story.
The SEC might want to contact the FDIC, which has opened a lawsuit against Bank of America, JPMorgan Chase and Citigroup, for more information.
While they are at it, they should call British regulators who have filed criminal charges against Barclays employees.
And the best part of this funny story is that even after these banks were caught, they
kept on manipulating the Libor.
The U.K. bankers and regulators charged with reviewing Libor in the wake of regulatory probes are resisting calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts.
Libor, schmibor, right? What's that got to do with me?
It seems that local governments were the ones who got
scalped by the Libor manipulation.
In the U.S., municipal borrowers used swaps to guard against the risk of higher interest costs on variable-rate debt by exchanging payments with another entity and tying how much they pay to an underlying value such as an index. The agreements can backfire if rates move in unexpected directions, resulting in issuers making larger payments.The derivatives were often designed to offset the risks of increases in the short-term rates tied to auction-rate securities, fixing borrowers’ costs by trading their debt- service payments with another party. Instead, rates dropped.
Jefferson County, Detroit, and Oakland, are just some of the examples of local governments that got screwed by
Libor manipulation. Interest-rate swaps were simply a conduit.
Not that the banks needs to rig the Libor to screw the local governments, because they were
rigging the muni bond market as well.
“The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.”
By the way, speaking of
interest-rate swaps, the price of those were manipulated too.
It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates.
But then why should interest-rate swaps be any different from the rest of the derivatives market, which is
heavily manipulated.
That reminds me of something. I seem to recall derivatives being the source of the 2008 financial crisis.
Other Commodities:
The Senate is opening an investigation of manipulation in the general commodity market. Base metals, like copper and aluminum, are the ones being most looked at, but food products are also being investigated.
The London Metals Exchange is at the center of the scandal.
Mortgages:
Since the banks are already manipulating interest rates, it seems only natural that they would manipulate the mortgage market too.
Credit Cards:
Did you ever get the impression that you were paying too many fees on your credit cards? That's because
you were.
According to the press release, the credit card companies and banks will pay $6.6 billion in cash; furthermore, the companies agreed to a temporary reduction in the level of these interchange fees paid by merchants, with an estimated value of $1.2 billion according to Reuters.
Stocks and Bonds:
Stocks and bonds manipulated?!? Pashaw! That could never happen.
Well, actually it
could happen, but it would be legal.
However, if it was
illegal it would be the exception.
Or if it was
widespread then you would be foolish not to.
Or something like that.
Are there other markets that are manipulated? No.
Well, maybe.
Possibly.
OK, yes. There are others.
In fact, the price for everything is being rigged by a very small cartel of wealthy elite. Is there really any wonder why the 1% keep getting richer at our expense?
"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.
However, there is one market that is
not being manipulated.
Precious metals.
Sure, they manipulate money, interest rates, oil, energy, pretty much everything under the sun. But manipulate precious metals? Hah! Break out the tinfoil hat, because that's
crazy talk!
Parting thought
1) 30-some years ago the federal government basically decided to stop enforcing anti-trust laws.
2) the multinational businesses are bigger than ever. They are able to set the prices of commodities and labor through monopoly pricing.
3) the middle class is vanishing before our eyes.