I just finished Michael Lewis’ new book, Flash Boys, and I’m still laughing—just like I was for a month after I read his book about the last financial crisis, The Big Short.
Given that the subject matter was high frequency trading and front running on Wall Street, you might reasonably ask what’s so funny? That’s eye glazing subject matter.
Or maybe not so much.
Just like in The Big Short, every time the big Wall Street banks and their accomplices get caught with their pants down around their ankles, ripping you and me off, they respond with the same well practiced spin.
“We’re America. No Main Street without Wall Street. Adds liquidity to the market. Makes markets work more efficiently. Yadda, yadda, yadda…”
And, for the most part, everybody buys it.
These clowns (see The Big Short) made billions, individually and corporately by encouraging banks to make bad real estate mortgages that everybody involved knew damn well would never be repaid. Then they manufactured securities out of those mortgages, which they sold to investors. And then they manufactured securities which were a BET AGAINST the mortgages, and NOBODY WENT TO PRISON!
Fast forward a few years, and most of the trading on the stock market is done by computers in response to the human system that couldn’t keep up with the expanding needs of the technology.
So we get into a Wall Street arms race for milliseconds of additional speed in getting the orders from the stockbrokers to the various stock exchanges.
Because the shops that have gone into business to trade with computers millions of times a day could see where the market was going and beat the mere customers to the punch, buying up stock a penny low and selling it to us a penny high.
Doesn’t sound like much?
Some of these guys are making a billion dollars a year, stealing it from you and I. The art of it is that none of us feels a screw job. But, in the immortal words of the late Senator Everett Dirksen, “A billion here, a billion there, and pretty soon you’re talking about real money.”
The money is significant. But the real issue is that it is just another reason you cannot trust the clowns on Wall Street. And, somehow, whenever they get too deep (every decade or so), we have to bail them out. These guys take no risks. They end every day owning nothing. They add nothing of value to the market.
And the big banks we had to bail out a few years ago were (and still are) absolutely complicit.
Essentially, these guys are like the mob selling protection. They impose a tax on your retirement funds you never see. And if you think you can beat them by using an online broker, you are even more wrong. The online brokers SELL the rights to execute their orders to these clowns.
Look up the list of the big Wall Street players who got bailed out in 2008, and they’re all on that list.
And virtually all of them are spinning their spin, which is, of course, horse manure.
And I haven’t even written about the “dark pools” the big Wall Street banks have set up to execute as many trades as possible in house—where there is absolutely NO pricing transparency.
All of these things—high frequency trading, dark pools, electronic exchanges—started as a good idea, as a solution to a “problem”.
But just like mortgage derivatives and complex securities, which were also invented to solve problems, they morphed into things that could be used for one party’s advantage to the disadvantage of the counterparty.
In other words, gentrified stealing.
And there is almost no disincentive. Very few people have ever gone to prison for doing what they consider normal on Wall Street.
Send a Lloyd Blankfein or a Jamie Dimon to jail—just charge a Goldman Sachs or a J.P. Morgan Chase criminally and watch confidence in Wall Street go straight up.
Photo credit: Emmanuel Huybrechts (Flickr)
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This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom