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Posts Tagged ‘Wall Street’

Insider Trading Probe Looking at 100s of Potential Targets

In Financial Markets, Law & Regulations, National Economic Politics, Technology on 13.01.11 at 16:21

According to FOXBusiness, we have barely seen the tip of a massive iceberg when it comes to the on-going insider trading investigation by the U.S. attorney in Manhattan and at the SEC. Some people on Wall Street are quite nervous right now.

“There is a possibility of 300 potential targets. What we are talking about is possibly the largest white collar criminal case ever.”

FOX Business News


Sources close to the investigation are talking about hundreds of potential targets involved in this probe, FOX reports. One of its sources says “There is a possibility of 300 potential targets. What we are talking about is possibly the largest white collar criminal case ever.”


This has a lot of people on Wall Street nervous, no doubt. And some are already lawyering up.

One big question is who the ultimate targets are.

The employees who were suborned into providing nonpublic information are not the prosecutorial prizes in all of this.

“They (prosecutors) have not gone after the hedge funds yet. That is clearly the next shoe to drop,” FOX Business News notes.

Many would perhaps agree.

It seems, however, that SAC Capital, led by Steven Cohen, is one potential big fish, but there are most likely others.

It’s unclear how arrests and charges against hedge fund execs will unfold. Could it be that prosecutors are waiting to see how the trial of Raj Rajaratnam plays out? He is scheduled to stand trial Feb. 28.

A lot is riding on it.

FOX Business News reports:

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WikiLeaks With 5 GB File On Bank of America

In Financial Engeneering, Financial Markets, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology, Views, commentaries and opinions on 01.12.10 at 15:22

According to an interview with WikiLeaks founder Julian Assange in October 2009, the whistleblowers are sitting on a huge file, containing documents originated from the hard drive of an executive at Bank of America. This has fueled the speculation about BoA being the target of the next megaleak by the controversial publisher, planning the uploaded early next year. The share price of Americas largest bank drop on the rumors.

“We want to get as much substantive information as possible into the historical record, keep it accessible and provide incentives for people to turn it into something that will achieve political reform.”

Julian Assange


Bank of America dismiss the speculation that it is the “big US bank” that WikiLeaks founder Julian Assange told Forbes magazine will be the website’s next target. However, the investors are not completely convinced. Bank of America tumbled more than 3% at New York Stock exchange yesterday, but at the moment share price is edging up slightly in the pre-market trading.

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The current upward move of 0,6% could also be a sign of traders shorting the stock, taking positions before the US markets open later on today.

No Evidence

“More than a year ago WikiLeaks claimed to have the computer hard drive of a Bank of America executive,” BoA spokesman Scott Silvestri Silvestri says, according to CNNMoney.com.

“Aside from the claims themselves, we have no evidence that supports this assertion. We are unaware of any new claims by WikiLeaks that pertain specifically to Bank of America.”

Here’s the quote from the article in ComputerWorld, October 9 2009:

“At the moment, for example, we are sitting on 5GB from Bank of America, one of the executive’s hard drives,” he said. “Now how do we present that? It’s a difficult problem. We could just dump it all into one giant Zip file, but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it.”

(Read the full story here.)

Assange says in an interview with Forbes published Monday, that the information he was preparing to release “could take down a bank or two.”

(See also: Wiki-Founder Compare Upcoming Bank Leak To Enron)

No Surprise, Anyway

Wall Street watchers, however, wondered just how damaging any material could be to one of the big banks, given that many are already plagued by scandal.

“We already know the banks are grossly incompetent, can’t manage risk and would be dead without taxpayer support,” Barry Ritholtz, a Wall Street money manager who rails on the bankers at his Big Picture blog, told Fortune magazine. “What are we going to find in these leaks — that free checking isn’t really free?”

“Anyone who follows the banking industry knows these guys are essentially insolvent,” said Ritholtz. “So we’re not going to get surprised there.”

Forbes reporter Andrew Greenberg, who conducted the interview with Assange, noted in his blog Tuesday that there likely isn’t much material about Bank of America that isn’t already known.

“As much as any bank on Wall Street, BoA has been scrutinized in recent years by everyone from plaintiffs’ attorneys in class-action investor suits to the New York Attorney General‘s office,” he writes, adding that Assange told him “he had unpublished, potentially damaging documents on multiple finance firms, beyond the bank ‘megaleak’ that we discussed.”

Here’s some of the reports uploaded on YouTube over the last 12 hours.

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CNBC reports that Interpol has issued an international arrest order for Julian Assange – and (of course) advising investors to “buy aggressively” into BoA shares…

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Julian Assange is probably more wanted by the international authorities than Osama Bin-Laden at the moment – it’s no joke messing with the big bankers:

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Wiki-Founder Compare Upcoming Bank Leak To Enron

In Financial Markets, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology, Views, commentaries and opinions on 01.12.10 at 01:09

In an interview with Forbes, WikiLeaks founder Julian Assange says that his whistleblower site will release tens of thousands of documents from a major US financial firm in early 2011. Assange will not say exactly what date, what bank, or what documents, but he compare the coming release to the emails that emerged in the Enron trial – a comprehensive look at a corporation’s bad behavior.

“You could call it the ecosystem of corruption.”

Julian Assange

Julian Assange Talks To Forbes' Andy Greenberg

“It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume,” the Whistleblower in Chief. Julian Assange, says.“You could call it the ecosystem of corruption. But it’s also all the regular decision-making that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest.”

So, the big buzz on Wall Street at the moment is; who is that bank?

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I won’t speculate, but I’m really looking forward to see what Assange & Co comes up with next time.

WikiLeaks have recently published hundreds of thousands of government documents: 76,000 classified documents from the war in Afghanistan, another 392,000 from Iraq, and on Sunday, the first piece of an ongoing exposure of millions of diplomatic messages sent between the US State Department and its embassies.

Assange says the site has received more documents than its able to publish. About half those unpublished submissions are related to the private sector.

He confirmed that WikiLeaks has damaging, unpublished material from the pharmaceutical industry, financial firms, and energy companies.

The Forbes interview with Julian Assange is quite an interesting read.

Here’s a little part of it:

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JA: We’re totally source dependent. We get what we get. As our profile rises in a certain area, we get more in a particular area. People say, why don’t you release more leaks from the Taliban. So I say hey, help us, tell more Taliban dissidents about us.

F: These megaleaks, as you call them, we haven’t seen any of those from the private sector.

JA: No, not at the same scale as for the military.

F: Will we?

JA: Yes. We have one related to a bank coming up, that’s a megaleak. It’s not as big a scale as the Iraq material, but it’s either tens or hundreds of thousands of documents depending on how you define it.

F: Is it a US bank?

JA: Yes, it’s a US bank.

F: One that still exists?

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JA: Yes, a big US bank.

F: The biggest US bank?

JA: No comment.

F: When will it happen?

JA: Early next year. I won’t say more.

F: What do you want to be the result of this release?

JA: [Pauses] I’m not sure.

It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume.

Usually when you get leaks at this level, it’s about one particular case or one particular violation. For this, there’s only one similar example. It’s like the Enron emails. Why were these so valuable? When Enron collapsed, through court processes, thousands and thousands of emails came out that were internal, and it provided a window into how the whole company was managed. It was all the little decisions that supported the flagrant violations.

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This will be like that. Yes, there will be some flagrant violations, unethical practices that will be revealed, but it will also be all the supporting decision-making structures and the internal executive ethos that cames out, and that’s tremendously valuable. Like the Iraq War Logs, yes there were mass casualty incidents that were very newsworthy, but the great value is seeing the full spectrum of the war.

You could call it the ecosystem of corruption. But it’s also all the regular decision-making that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest. The way they talk about it.

F: How many dollars were at stake in this?

JA: We’re still investigating. All I can say is it’s clear there were unethical practices, but it’s too early to suggest there’s criminality. We have to be careful about applying criminal labels to people until we’re very sure.

F: Can you tell me anything about what kind of unethical behavior we’re talking about?

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JA: No.

F: You once said to one of my colleagues that WikiLeaks has material on BP. What have you got?

JA: We’ve got lots now, but we haven’t determined how much is original. There’s been a lot of press on the BP issue, and lawyers, and people are pulling out a lot of stuff. So I suspect the material we have on BP may not be that original. We’ll have to see whether our stuff is especially unique.

F: The Russian press has reported that you plan to target Russian companies and politicians. I’ve heard from other WikiLeaks sources that this was blown out of proportion.

JA: It was blown out of proportion when the FSB reportedly said not to worry, that they could take us down. But yes, we have material on many business and governments, including in Russia. It’s not right to say there’s going to be a particular focus on Russia.

F: Let’s just walk through other industries. What about pharmaceutical companies?

JA: Yes. To be clear, we have so much unprocessed stuff, I’m not even sure about all of it. These are just things I’ve briefly looked at or that one of our people have told me about.

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F: How much stuff do you have? How many gigs or terabytes?

JA: I’m not sure. I haven’t had time to calculate.

F: Continuing then: The tech industry?

JA: We have some material on spying by a major government on the tech industry. Industrial espionage.

F: US? China?

JA: The US is one of the victims.

F: What about the energy industry?

JA: Yes.

F: Aside from BP?

JA: Yes.

F: On environmental issues?

JA: A whole range of issues.

F: Can you give me some examples?

JA: One example: It began with something we released last year, quite an interesting case that wasn’t really picked up by anyone. There’s a Texas Canadian oil company whose name escapes me. And they had these wells in Albania that had been blowing. Quite serious. We got this report from a consultant engineer into what was happening, saying vans were turning up in the middle of the night doing something to them. They were being sabotaged. The Albanian government was involved with another company; There were two rival producers and one was government-owned and the other was privately owned.

So when we got this report; It didn’t have a header. It didn’t say the name of the firm, or even who the wells belonged to.

Read the whole interview with Julian Assange – and more about WikiLeaks – at Forbes.com.

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Blogger Censored By Google?

In Financial Markets, International Econnomic Politics, Law & Regulations, Technology, Views, commentaries and opinions on 19.10.10 at 21:23

I have just received the following newsletter from the founder and manager of the independent investment firm, SmartknowledgeU, JS Kim. The message is kinda disturbing, as it seems like one of the most popular articles ever written by Mr. Kim – “The Death of Capitalism” – have been removed, or made inaccessible, by major search engines like Google. If that’s the case, we’re looking at a serious violation of human rights, and the freedom of speech.

“Is Google censoring the information I’m trying to get out to the people in my articles? I’m not really sure, and maybe it’s just an innocent glitch, but it sure seems that way.”

JS Kim


“I’m not sure if I’m being censored here by Google but it sure seems like that is what is going on,” JS Kim at SmartknowledgeU writes in a newsletter posted about three hours ago.

JS Kim, who is a highly respected author, blogger and commentator with frequent appearances in major media like The Wall Street Journal, Reuters and Financial Times, tells about a rather disturbing discover he just made.
It seems like one his most read articles (“The Death of Capitalism”) has vanished from both Earth and cyberspace.
This is what he writes:
Recently one of my friends asked me to send me the link to one of the most popular articles I’ve ever posted on Zero Hedge called “The Death of Capitalism.”
So to find the link, I googled “Death of Capitalism, Zero Hedge” and the search engine returned zero results.
Okay, I thought, let me search “Capitalism, the Underground Investor (the name of my blog where the article is also posted).
Still nothing.
What makes this so odd is that when I first posted the article on Zero Hedge many months ago, the article eventually received nearly a hundred comments and more than 8,960 reads.
Because of the fair amount of attention my article received, I googled it to see who else had reprinted the article on their site.
I recall from this google search that the search returned the article not only on my blog and on the Zero Hedge blog, but also on dozens of other sites that had reprinted this article.
In fact, if memory serves me correct, there were about FIVE PAGES of returns for this search.
But today?
Google seems to have erased and purged all five pages of returns from their search engines.
So is Google censoring the information I’m trying to get out to the people in my articles? I’m not really sure, and maybe it’s just an innocent glitch, but it sure seems that way.
In any event, if you wish to read my latest article on Zero Hedge titled “Inside the Illusory Empire of the Banking Commodity Con Game,”
I consider this article to be on par with my article “The Death of Capitalism” in terms of importance to the future financial health of all investors.

Too Crazy To Be True?


Here at The Swapper we’re not quite sure to belive.
There’s a saying that goes; “If something seems too good to be true, it probably is”.
Well, that works both ways, I guess, if something seems too crazy to be true, it probably is, too…
However, I’ll wait a few hours to see if any Google representatives will make a comment, or someone comes up with another plausible explanation.
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If not, we’ll contact the Google-people ourself.
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By the way; when I was looking for an illustration to this post I googled “blogger censored by google” (picture mood) and, among others, the pic on the right came up as a thumbnail on the list.
But when I tried to open the original file at the original site, my internet connection fell out!?
It was impossible to download using Google with my Firefox browser.
The same happened with a several other “anti-google-pictures”.
Anyway – not too big of a problem, thou…
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Meanwhile, here’s the full transcript of JS Kim’s article; “The Death of Capitalism”.
Let’s see if this one disappears too.
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The Death of Capitalism

Bankers are destroying Capitalism. Unfortunately, most Westerners won’t realize this until five years from now, when the middle class has been forcibly relegated to the ranks of the poor. And this isn’t just a situation that will afflict America but it will likely afflict Japan and many countries in the EU such as the UK, Spain, and Greece just to name a few.  But for the purposes of this essay, let’s examine how bankers have destroyed capitalism in the USA.

In 2009, when almost every major US bank manufactured profits out of thin air and declared themselves financially healthy by (1) changing their regular reporting periods to exclude months in which huge losses occurred; (2) changing their definitions of bad debt, and (3) by revaluing their assets courtesy of FASB, particularly their commercial real estate portfolios, at fantasy land valuations that they will never receive in the open market, these events all marked the continuation of the Enronization of America that is ushering in the death of capitalism. The systemic injection of fraud and deceit into nearly every aspect of American life, has been unfolding for decades, even prior to the Enron scandal itself.  In 2009, Bank of America CEO Ken Lewis testified that former US Treasury Secretary and ex-Goldman Sachs CEO Hank Paulson instructed him to disobey securities law and conceal material losses in the Merrill Lynch merger from investors. Lewis additionally testified that Paulson threatened to fire him and his entire board if he tried to back out of the Merrill deal. These kinds of activities, devoid of all morals and ethics, have been occurring regularly within the financial industry for decades. It only seems as if such transgressions are more numerous today because of the recent attention given them in the media, but in reality, they have neither proliferated in frequency nor in expanded in their level of egregiousness.

Anyone that has ever worked for a Wall Street firm is well aware of the danger an analyst brings upon himself if he refuses to tow the official corporate party line regarding stock ratings for a company that is simultaneously closing a financially significant deal with another division of his firm.  Even though this atmosphere of “unspoken coercion” of inflated stock ratings existed for decades, when the bull was strong on Wall Street, very few journalists found this story newsworthy. Even though regulatory laws were passed many years ago to separate investment banking interests from securities interests within the same firm, the percent of US stocks covered by Wall Street firms rated as a “buy or hold” actually increased from 89% (2003) to 93% (2007) after the passage of new laws that were supposed to discourage firms from granting inflated stock ratings. Who in their right mind would ever believe that 93% of all stocks covered by Wall Street should be rated a “buy or hold” and that only 7% should be rated a “sell”? Of course, in Wall Street parlance, insiders know that “hold” really means “sell” but still, this is a level of deceit nonetheless.

When regulations are enforced through self-monitoring and self-policing as is too often the situation, and when all financial regulatory agencies are themselves lacking in integrity and transparency, new regulations can be enacted every day without effect. Self-regulations and regulations imposed by morally bankrupt people within a broken and corrupt system have never been effective. That’s why I have zero expectations about the efficacy of any new regulations being proposed today beyond their efficacy as a highly efficient smokescreen for politicians to hide behind. How quickly we forget that in 2002, UBS Paine Webber financial consultant Chang Wu was fired by branch manager Patrick Mendenhall no more than several hours after Enron executive Aaron Brown complained to Mr. Mendenhall about an email Mr. Wu had sent to his clients. In the email that Mr. Brown found “extremely disturbing”, Mr. Wu had advised all of his clients to sell Enron stock due to massive liquidity problems he had uncovered, even though UBS Paine Webber had rated it a strong buy. (Source:  CNN, “Financial Adviser Fired Over Enron Advice”, 26 March 2002).  After Mendenhall fired Wu, UBS sent an email to their clients retracting Mr. Wu’s statement, informing them that Enron stock was “likely heading higher than lower from here on out.” (Source: New York Post, 4 October 2006).  Of course, we all know that just several months later, Enron went bankrupt.

We should be cognizant that in light of the Enron scandal, this level of fraud has not been a recent development. In 2001-2002, a partial list of companies that had to re-declare earnings due to erroneous information contained in previous publicly released earnings announcements included the following companies: Adelphia, AOL Time Warner, Arthur Anderson, Bristol-Meyers, Squibb, Freddie Mac, ImClone, Citigroup, General Electric, JP Morgan, Tyco, Worldcom, Dynergy, Enron, General Motors, AIG and Hyundai.  Many of the company names on this list are the same companies that have been exposed as withholding material information from their investors about their financial health either in this year or in recent years. And let us not forget that in the early 2000’s, JP Morgan, Morgan Stanley, Goldman Sachs, Credit Suisse First Boston, Lehman Brothers, UBS Warburg,  and US Bankcorp Piper Jaffray all paid fines between $32,5000,000 and $400,000,000 for engaging in deceptive and unethical behavior (Source: PBS Frontline, “The Global Settlement, an Overview”, 28 April 2003).

In regard to such systemic fraud, unfortunately, little has changed today.  With the blessings of FASB and our current administration, almost every major bank in the US is cooking their books today (i.e. consider that, of $4.2 billion of Bank of America’s declared earnings during one quarter last year, $1.9 billion was attributable to a non-recurring event, the sale of China Construction Bank shares, and $2.2 billion was attributable to a fantasy-land valuation of Merrill Lynch structured notes).  As I previously stated, though the Enronization of America did not start with the Enron scandal, the consequences of systemic duplicity have finally caught up to its perpetrators and have now reached its tipping point today. If we take a moment to dwell on what aspects of our financial system have been infiltrated by fraud, it would include our financial ratings system led by Standard & Poors and Moodys, our mortgage system, our banking system, our equities analysts and financial analysts, our accounting system, our regulatory agencies including FASB, the SEC and the CFTC, our media, our politicians, our corporate executives, and lastly and most significantly, our monetary system. In fact, though the current media focus seems to be on morally bankrupt financial executives and institutions, the fact is that this scenario could not have proliferated over the past several decades if the problem did not run much deeper than just our financial infrastructure.  If other integral aspects of our society were uncompromised, they would have flushed out the dishonesty so prevalent in our financial industry many years ago. So the real question that needs to be examined is  the following – How exactly did fraud in America become so systemic?


The Fraud of our Legal System

The first phase of the Enronization of America occurred through our legal system. Most of us make the grave mistake of equating our legal system with morality, but law and morality are creatures that often reside at opposite ends of the spectrum under our current legal system.  Since those that make our laws are also the same immoral people that control our financial system, often our laws have very little concern with governing morality and much more focus on ensuring that the very elements that hold power maintain or expand their power.  Most Americans automatically equate a behavior as right or wrong depending on whether a law defines such behavior as legal or illegal without any critical thought, and this is a mistake. The fact is that today, many laws have nothing to do with morality.  In fact, our legal system is laden with such hypocrisy at times that it allows for the very same behavior to be defined as legal if a financial elite is engaging in the behavior but illegal if a  “regular Joe” is engaging in it.

Consider that Richard Strong, CEO of the former Strong Mutual Funds, admitted to skimming $1.8 million from his clients’ accounts that essentially was the equivalent of stealing, yet under the auspices of our current legal system, Mr. Strong was not sentenced to spend a single day in jail (Source: Washington Post, 23 June 2004). Yet there is little question that if a hungry, unemployed man steals food equivalent to a fraction of the money Richard Strong stole, he will go to jail if caught. How is this possible? It is possible because very little honor is left in our legal system. Stealing $1.8 million may be legal under our current legal system, but it certainly is not moral. In 2005 and 2006, CEOs from the 11 largest firms in America paid themselves $865,000,000 in salary even though their “leadership” caused a loss of $64,000,000,000 of market capitalization in their firms during the same equivalent time period (Source: BBC News, 22 June 2006).  Yet, if an employee of this firm performed as miserably as did their CEOs, their reward would almost certainly be a pink slip, not millions upon millions in bonuses, salaries and perks. Paying oneself hundreds of millions in salaries and hundreds of millions more in bonuses despite contributing to unemployment and the substantial loss of shareholder wealth is certainly unethical, yet it will always remain 100% legal. All you have to do is review the financial payouts from last year to know that not a single iota of decency has been injected into our financial system. When firms like Merrill Lynch went bankrupt and then took money from US taxpayers to pay their executives more than $4 billion of bonuses, this only added insult to the injury their bankruptcy inflicted upon many American families.

Were our legal system truly to regulate morality, the executive suites of America’s largest financial corporations would transform into ghost towns as a great percentage of these executives would be jailed. There are numerous actions that are considered “legal” today that would be illegal if moral and righteous men were making our laws, and even a handful of “illegal” behaviors that would be re-categorized as legal. Suffice it to say, if our legal system has been Enronized, our regulatory agencies by default, have also been Enronized. The Enronization of our Securities and Exchange Commission (SEC) was never more apparent in their failure to shut down Bernard Madoff and protect American families even though hedge fund manager Harry Markopoulos informed the SEC both in writing and by phone of the fraudulent nature of Madoff’s fund for nine years. During Congressional testimony regarding this matter, Mr. Markopoulos testified that when the SEC repeatedly ignored his warnings about the fraudulent nature of Madoff’s practices, that he feared for his, as well as his family’s safety, a damning indictment of not only the SEC’s abject failure to regulate, but also of their propensity to protect powerful men in the financial industry whether they are breaking the law or not. The continuing failure of other regulatory agencies such as the CFTC to act in the interests of American people is also apparent in their recent approval of financial products such as the E-mini Gold and Silver futures contracts introduced on April 19th, 2009 that settle strictly in cash. Futures contracts that specifically prohibit the delivery of the underlying commodity explicitly allow its participants to naked short a commodity with zero intention of every purchasing or holding the underlying physical asset in their possession and thus establishing a fraudulent market for a commodity that can never resemble the free market dynamics of its physical market.  The lesson here is this – if you are a small player, the regulatory agencies will still prosecute criminal activity, but if your rank is among the financial elites, they will do nothing.


The Fraud of our Media

The second phase of America’s Enronization has occurred through the mass media.  Ben Bagdikian, the author of the seminal work on media mergers and consolidation titled The Media Monopoly, has noted that almost all major media in the US is now under the control of five major conglomerates – Time Warner, Disney, Murdoch’s News Corporation, Bertelsmann of Germany, and Viacom.  To be fair and objective in this matter, there are a handful of major news organizations not controlled by the “big five”, including The New York Times, The Washington Post, The Chicago Tribune and Los Angeles Times. However, Badgikian’s basic premise that the problem with our media is “not one of universal evil among the corporations or their leaders” nor one of “a general practice of constant suppression and close monitoring of the content of their media companies”, but one of a contradiction between the values of free enterprise and the interests of giant conglomerates, is still valid. Today, many important news stories are reported on the internet by bloggers well before they attract the necessary viral proliferation to draw the attention of major media outlets.  Today, a strong case can be made for the argument that one will find a greater level of truth and integrity in internet reporting than through major information distribution channels such as CNBC.

The Destruction of Our Critical Thinking Skills

The fraud of our media has evolved into the fraud of our educational system. Though this is a topic that commands the devotion of an entirely separate article, the financial elites have heavily influenced the curriculum taught at leading American educational institutions for decades now. For example, over the last century, the Rockefeller family has donated millions upon millions of dollars to leading economic schools such as the University of Chicago and Harvard Business School. Perhaps it is the monetary influence of financial elites such as the Rockefellers that is largely responsible for erroneous economic beliefs about inflation and our monetary system that persist today. To squelch much of the skepticism that may arise around the suggestion that the financial elites would utilize their money to alter the educational curriculum of leading educational institutions in America, recall that in 2002, David Rockefeller stated in his own autobiographical memoirs the following:

“For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as “internationalists” and of conspiring with others around the world to build a more integrated global political and economic structure – one world, if you will. If that’s the charge, I stand guilty, and I am proud of it.”

The only difference today is that the cabal working against the best interests of the US and all American families is no longer secret, but well documented and well known.  Since the above statement is sure to stir up cries of conspiracy regardless of the fact that it is directly attributable to a member of the financial oligarchy, let us take a minute to consider the disappearance of our critical thinking skills. Why do those with a keen interest in suppressing the truth about the origins and nature of our current global financial crisis have great success in doing so merely by simply using the word “conspiracy” to marginalize the well-constructed arguments of others? Why do the people that attempt to discredit these truthful revelations never offer more than flimsy verbal accusations devoid of any evidence to validate their accusations?  And why do we rarely, if ever, challenge the fact that the vast preponderance of people that provide the strongest opposition to the dissemination of truth are those whose personal wealth depend upon delusional beliefs about the health of our stock markets and the soundness of our financial institutions and monetary system? Today, the fraud of our institutional education system has dulled our aptitude of critical thinking to such a degree that we now look to others to do our thinking for us. Instead of challenging the propaganda that makes zero sense, we are all too willing to be duped into believing erroneous concepts just because they are written in a textbook or a newspaper.

As a prime example of this, consider over the past decade, the propensity of Central Banks and the IMF to pre-announce massive gold sales that they rarely execute. From a purely logical standpoint, can anyone well versed in logic truly argue one beneficial reason for doing so?  In 1999, when now UK Prime Minister pre-announced the sale of 400 tonnes, or more than half of the Bank of England’s gold reserves, his announcement promptly caused gold to plummet to $250 an ounce, the lowest price in the last decade. For an institution interested in making profits, it is a foregone conclusion that pre-announced large sales of gold reserves will significantly depress prices; thus what is the reason behind such an announcement other than to purposefully depress prices? Yet, when skeptics are presented with such evidence and can offer no valid counter-argument, instead of intelligently considering the validity of another’s viewpoint, too often they shut off their brains and repeat beliefs that have been repeatedly rammed down their throats.

In the seminal book about warfare, The Book of Five Rings, legendary samurai Miyamoto Musashi wrote, “true enlightenment can be seen by what a person has done, not by what he says. Those who have missed the mark may chatter all day long about this and that, but they have never done anything. Anyone can make a good argument, but few can show good results.”  If we as Americans wish to prevent the death of capitalism and to reinstitute our rights of self-determination and our Constitutional rights to a sound monetary system that are paramount to a free society, we must judge people not by what they say but by what they do. We must listen not to those that present hollow arguments and that can demonstrate no positive track record of results, but rather focus on the thoughtful arguments of the few that have been able to illustrate the intelligence and validity of their views because their predictions have been vetted over time.

As a nation, we have become Enronized because we too often focus on the false arguments of those that are well versed in the art of persuasion yet persistently demonstrate a poor track record when it comes to results.  As a prime example, consider this Congressional testimony where former US Treasury Secretary Hank Paulson disingenuously claims that he advocates greater transparency in US markets when in fact, Goldman Sachs, under his direct leadership, aggressively lobbied to repeal laws that granted financial markets transparency. We are much too apt to accept the words of people rather than to take the more intelligent approach of analyzing their actions to judge the validity of their words.


The Fraud of Our Leaders


The final phase of the Enronization of America has occurred through our power structure and politics. The financial oligarchs that wish to suppress the truth about their role in this crisis have been very opportunistic in forming close relationships with the highest echelons of government and then using this inordinate power to polarize the masses and further consolidate their power.  The revolving door among Central Banks (i.e the Bank of Italy, the Bank of England, the US Federal Reserve), Goldman Sachs, the US Treasury, JP Morgan, and Citigroup has been well documented so I won’t  repeat the prolific work of others here. However, using politics or nationalism as a divisive maneuver is often a favored tactic of the financial elites, so we must remain vigilant against immoral attempts to deflect our attention away from the true causes of this crisis, such as the scapegoating of immigrants or other shameless tactics. In a recent outlook for 2010 that I sent to my paying subscribers, I stated:

“Though bankers and politicians tried to sell 2009 as a year of recovery, this is nothing more than massive deception of the worst kind and hot air. What they delivered to you was not recovery but a big deception.”

I further stated:

If the S&P 500 breaks the support level [of 1126-1128] and remains below it for several days or heavily breaks below it on a single day [on higher volume], then look for a downtrend reversal pattern to follow.”

The above indeed happened and triggered a two-day, 4%+ slide in the S&P 500 last week. I’ve informed my subscribers of the other indicators they must follow to know if this is just a correction or the beginning of a long-term slide.  However, with such rampant fraud in all major stock markets last year perpetrated by politicians and bankers, a big crash is inevitable in the world’s major stock markets and is a matter of “when” and not “if”.  It’s a little early to determine if what happened at the end of last week is the beginning of a long-term slide though initial appearances seem to project that right now. A long-term slide will manifest in time, whether now or later. When obfuscation of fact and misinformation systemically replace transparency and integrity as they have in our modern society, we have little chance of producing a favorable outcome to this current crisis. More than 140 US banks failed in 2009, and every single bank failure announcement occurred on a Friday afternoon after market close so that the revelations of these bank failures could not adversely affect markets while they were still open. Additionally, such announcements were timed to grant investors two weekend days to forget about these failures. America has been Enronized over the past several decades not because of Democrats and not because of Republicans, but because of the financial oligarchs that have ruled and continue to rule our country. The Enronization of America has happened under President Clinton’s watch, under President Bush’s watch and it is now progressing under President Obama’s watch.  If you think there has been a marked difference in monetary and fiscal policy in America during the last 20 years, then you do not truly understund our monetary and fiscal policy.

It amazes me that people still foolishly follow the words of this administration and not its actions. It amazes me that I still hear people praising Obama’s proposed plan (proposed being the key word here) to impose limits on the size and trading activities of the nation’s largest banks without awaiting the resultant actions from such talk. I read one financial journalist that stated high praise for this proposal as he inferred that banks have become too big and that a freeze on mergers and acquisitions in the US banking industry would be welcomed. Did this journalist even consider that the biggest consolidation of power on Wall Street in the last couple of decades just happened within the past two years when Goldman Sachs and JP Morgan virtually eliminated all of their competition and the US Federal Reserve utilized the very crisis they created to seize even more power? Did this journalist even pause to consider that this administration’s cabinet and advisory boards consist of more Wall Street executives than any administration in the last several decades? Did this journalist consider that the greatest theft of American taxpayer money occurred under this adminstration’s watch with the $850 billion bailout plan that is now morphing into trillions of dollars? Did this journalist bother to note that the Senate Finance Committee is now seeking to increase the debt ceiling by a radical $1.9 trillion after just approving a $290 billion increase at the end of last year that was necessary to avoid an unprecedented default on US Treasury bonds? And did this journalist miss the CFTC hearings regarding the imposition of position limits on energy commodities and somehow miss that the true nature of discourse during these hearings was not to ban speculators from creating and bursting bubbles in the commodity markets but only to ensure, in a round-about-manner, that Wall Street can continue this speculation?

And after all this, if this journalist still believes Obama’s comical statement that “the financial system is far stronger today than it was one year ago”, this is exactly what is wrong with our media today.  Because the deceit, lies and the shady accounting practices that cover up the true health of all banks in the Western hemisphere are far stronger today than they were a year ago, the people’s confidence in the US financial industry may be much stronger today than it was a year ago. But confidence and reality are two different animals, especially in today’s chaotic world. If true Glass-Steagall like reforms are indeed implemented, then I will be the first to commend this administration for acting differently than any administration in recent history when it comes to reining in financial greed and fraud. Furthermore, I am much too familiar with the political game of very public tough talk that often is granted the greatest media publicity that eventually morphs into a greatly watered down, very different-looking piece of legislation that somehow escapes the critical lens of the media. So forgive me if I always reserve my judgment regarding such tough talk until I see the final iteration of the legislation that passes into law. My skepticism of this process originates from the fact that administrations have spoken the same tough game in public for decades while continuing to sleep with the enemy behind closed doors.

Until we wake up and correct many of the flaws in our thinking and in our justice system, capitalism has zero chance of survival and any discussion of reviving free markets is moot. Arthur Shopenhauer, a noted German philosopher, once stated,

“All truth passes through three stages.  First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

We have already passed through the first stage where truth has been ridiculed. For several decades, those that attempted to reveal the price suppressions schemes executed by governments and Central Bankers against gold and silver were ridiculed as conspiracy loonies. Today, the evidence of this manipulation is so overwhelming that men that dwell firmly inside the confines of the mainstream, men that previously would never have dared to publicly state such sentiments just 10 years ago, are now stepping forward and publicly acknowledging the existence of price suppression schemes that interfere with free markets (i.e., Donald Coxe, chairman of Harris Investment Management in Chicago).

Today we have progressed to the second stage of truth, when truth is violently opposed. Former US Treasury Secretary Hank Paulson testified multiple times in Congress that it is not reality that is important to stock markets, but only what people think they know, even if what they think is wrong. Paulson regularly emphasized the vital importance of consumer confidence to the performance of capital markets.  In the end, confidence levels measure consensus belief and often have very little correlation to the reality of underlying economic fundamentals. In a bear market, such as the one in which we are currently engaged, it is safe to say that rising stock markets serve as a barometer of deceit. The greater the deceit by our leaders, the more likely stock markets will act irrationally and rise when there is no foundation to support the rise, including the most recent rally that we have witnessed in US markets throughout the latter half of 2009 into the very beginning of 2010. But when reality overcomes deceit, watch out below, because we will not see a correction, but a crash.

As long as markets react positively to lies that prevent the masses from understanding the grave situations of our faltering economy and monetary system, our government and financial leaders will continue to prevent people from knowing or understanding the truth. One merely has to acknowledge that last year, FASB conveniently altered mark to market regulations immediately prior to first quarter 2009 earnings season and immediately prior to stress tests that were to be conducted on financial institutions to realize that our current administration is not any more interested in disclosing the truth or increasing transparency than previous administrations. Again, we would be wise to remember Miyamoto’s sage advice to judge someone not by his or her words, but by his or her actions.

The fragility of America’s emotional state regarding the dire economic situations that existed during the last US Presidential campaign left America vulnerable to blindly accepting anybody that promised change, but again we must consider the actions, not the words, of this current administration.  We must look at the men appointed to “solve” this crisis and understand that almost all of these men were handpicked from the same institutions (Citigroup, Goldman Sachs, and JP Morgan) that were largely responsible for creating this crisis. The most efficient way to solve a crisis caused by lack of ethics and morals is not to put the most morally bankrupt people in the nation in charge. It should disturb us all that our current President appointed a man like Paul Volcker to lead a Presidential advisory board when Volcker once stated in reference to rising gold prices in the 1980’s the following:

“That day, the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.”(Source: Volcker’s memoirs printed in the Nikkei Weekly, November 15, 2004).

Men that clearly state their opposition to free market mechanisms and the reliance on collusion as preferable to transparency and integrity should never be appointed to any position of leadership in our country. Despite the lack of leadership from the financial elites during this crisis, they have made it clear that their agenda of concealing the truth from us will not prevent them from shamelessly pinning us with the blame for their errors by increasing our taxes and devaluing the purchasing power of our dollars. And remember, devaluing major currencies, which no sane person can deny is happening all around the world, is the quickest way to destroy capitalism. It is for this reason that bankers are currently digging capitalism a shallow grave right now.

Though our governments have aided and abetted our global financial crisis which will soon enter its second phase, they have not been the root cause or the prime perpetrators. This honor belongs to the financial oligarchs and the fraudulent monetary system they have instituted. Today, governments have devolved into nothing more than an instrument of execution for the financial oligarchs. The late great John F. Kennedy was the last US President to understand and recognize the massive flaws and immorality of our modern day monetary system. Were the honorable President Kennedy still alive today, but a regular citizen, voicing the exact same displeasures against our current monetary system as he did half-a-century ago, I have little doubt that those in power would have already marginalized his arguments and labeled him as a “conspiracy buff” with a lack of sensibilities.

Can We Save Capitalism?

The lack of transparency and the veil of secrecy that has existed in our financial world for a very long time now have enabled the imminent death of capitalism. Just think about some of the parlance that now is commonplace in our global marketplaces like “dark pools”, where discovery of market prices has become opaque and difficult, yet grotesquely accepted as normal. Furthermore, the misinformation campaigns that the financial elite have engaged upon for decades have further supported and maintained the ignorance of the masses. If one merely focuses on gold and silver markets, one can uncover a mountain of deceit.  Consider that when Central Banks lease gold, they still claim it as an asset on their balance sheets, an obviously fraudulent practice.

In the end, let us not look to the words of our financial and government leaders for truth, but to their actions. If there has ever been another institution in the history of America with a persistently worse track record of accomplishing their stated mission than the US Federal Reserve (that of maintaining price stability), I cannot think of one. Thus, we should permanently shutter institutions that have a track record of utter failure and that have consistently failed to act in the interests of their citizens although they may repeatedly insist that they always act in the nation’s best interest.  We should all want results and supporting actions, not unfulfilled pledges and promises year after year, and decade after decade. Enough is enough. We should also permanently shutter those financial institutions led by corrupt executives that have cumulatively made billions from the purposeful deception and bankrupting of American families.  Finally, if you are a shareholder with voting rights, it is incumbent upon you to exercise your rights at general meetings to oust all corrupt directors and executives at corrupt firms. Because it is near impossible to regulate morality, the only sustainable solution to prevent the death of capitalism is to remove the very institutions and people responsible for this process. As current administrations of major governments all around the world have demonstrated an unwillingness to do so, it is patently clear that this movement must originate from the people.

If we all desire the freedom of self-determination that is impossible with a corrupt monetary system, this change will have to come from the people. If there is one thing about the monetary system that I believe with all my heart, it is this. The monetary system today, as it has been structured by Central Bankers, is immoral. The current monetary system stifles, not encourages free markets. If a free market system facilitated capitalism in the world’s major markets today, the middle class would be healthy and robust, the poor would be transitioning into the middle class, and the rich, while still a healthy component of society, would not increase their proportion of wealth relative to everyone else every year. Instead, in the absence of free markets and capitalism, the rich seize more and more resources every year, the middle class shrinks every year, and the poor become poorer. If every person in this world truly understood how the monetary system operates, whether a Muslim, a Christian, a Hindu, Buddhist, a Catholic, or of any other faith, I am 100% sure that that person would be opposed to our current monetary system based upon his sense of morality provided by the most important tenets of his or her religion. In The Economic Consequences of the Peace, John Maynard Keynes stated the following:

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

If you don’t understand the above statement, then I urge you to research Central Banks and how they operate until you do. And when you do, you will understand why I claim that no man or woman that calls himself a good Christian, a good Muslim, a good Catholic, or a good Hindu could support our monetary system or work for a bank today in good conscience. If you are skeptical of this comment, as you should be, then I urge you to investigate and understand how the monetary system truly operates before you declare your opposition to this statement. Try to explain in words, to another friend, the complete process of how money comes into existence from the first step of being printed by Central Banks until it ends up in your wallet, along with every party that is charged interest or taxed  along the way during this process (through multiple mechanisms) including the government and the government’s transfer of this “interest tax” to the people.  Until you can verbalize every step of this entire process, one should not claim that he or she understands our monetary system.  But when you can verbalize this entire process, it will become very clear to you why Lenin stated that the best way to destroy Capitalism is to destroy the purchasing power of money. You will understand the extreme hypocrisy of Goldman Sach’s CEO Lloyd Blankfein’s statement that bankers were doing “God’s work” when you realize that our modern monetary system breaks the 8th commandment of “Thou shall not steal.” Furthermore, you will understand that while Goldman Sachs undoubtedly deserved the bulk of criticism levied against it last year,  private banking families that established Central Banks, not Goldman Sachs, have created our fraudulent monetary system. As is the case with other large commercial banks, Goldman Sachs is just an enabler, participant and beneficiary of the corrupt system.

If we all desire free gold and silver markets that are not persistently rigged by the US Treasury, the US Federal Reserve, the Bank of England and the likely usual suspects Goldman Sachs, HSBC, and JP Morgan, then this change will have to come from the people. If we desire free markets of any kind, in any form, this change will have to come from the people. Too many times in the past decade, politicians have promised change only in word but no real change has ever resulted from their actions. This clearly demonstrates that the financial oligarchs are the real power backing all major governments today.  The alternative consequence of our inaction will be the manifestation of Shopenhauer’s third stage of “truth as self-evident” at a not-so-distant time in the future. Unfortunately, however, if truth becomes self-evident, this will undoubtedly mean that the bankers will have succeeded in transforming the middle class of many Western nations into the poor. In reality, if we enter the third stage of monetary truth when truth becomes self-evident, it will be too late for most to take any action that will have any consequence in assisting their families.  The time for action clearly is now – when we are still in Shopenhauer’s second stage of truth  – the stage when all truth is violently opposed. Two movements that provide actionable ideas to implement right now that will help reinstate capitalism and revive capitalism from its deathbed can be found at Move Your Money and Sound Money Now! Instead of just complaining that our lives are being ruined by bankers, all of us would do well to take countermeasures today in an attempt to save capitalism.

JS Kim is the Managing Director and Chief Investment Strategist for SmartKnowledgeU, LLC, a fiercely independent investment education, research, and consulting firm that provides visionary guidance and profitable strategies to deal with the ongoing systemic crisis of our monetary system and capital markets.

Related by The Swapper:

Espen G. Haug: Algorithms Should Be Monitored On A Daily Basis

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 30.09.10 at 01:36

Leading derivative expert, author and regular contributor at the Econotwist’s, Espen Gaarder Haug, says algorithms have many weaknesses and should be monitored on a daily basis by people with extensive market knowledge and experience. The former Norwegian Wall Street trader  have a thing or two to say in relation to the ongoing circus at Oslo District Court – also known as the “robot case.”

“Should the major players be allowed to carry on trading algorithm with no monitoring, without people with broad market experience monitoring them?”

Espen Gaarder Haug


The day traders in the so-called “robot case”  – now appearing before the Oslo District Court accused of market manipulation – run their scheme undisturbed for nearly six months. First, when the Oslo Stock Exchange contacted the brokerage and investment firm that owned the shares that the robot was trading, the alarm was raised and  the possibility to manipulate the trading program was removed.


“A rational investor would have plugged these holes quickly,” Dr. Espen Gaarder Haug comments.

“If you choose to outsource market making to a computer and you lose money.. I mean, you just have to accept it,” he adds.

Espen Gaarder Haug holds a  Ph.D. from NTNU and is regarded as one of the worlds leading experts on derivatives and option pricing models.

His book “The Complete Guide To Option Pricing Formulas” is seen as “The Bible” by many fund managers and derivative traders.

He has worked almost 17 years as a trader on Wall Street, among others, at JP Morgan and Chase Manhattan Bank.

He has also worked as an active manager of multi-billion dollar hedge funds, like Amaranth and Paloma.

Dr. Haug underlines that he don’t know anything about robot manipulation other than what’s been written in media, but says he recognize similar issues from his experience in the international financial industry.

He believes that the trading algorithm requires good internal monitoring y individuals with broad market experience.

“I know many who run algorithm trading, and they’re always following the trades with several well-qualified employees – and often by the one who created the algorithm,” he says.

There’s Always A Risk

“Robot trading always involves a risk of weakness in the algorithm,” Haug points out.

“It is therefore important to monitor whether such risks pops up, so that these algorithms can be adjusted, or turn off. If you choose to let the robot run without supervision, you take an unnecessary, additional risk,” says Haug.

The ongoing court case in Oslo have revealed that the two charged day traders was able to exploit the same weakness over and over again.

Timber Hill (who is a part of the Interactive Broker Group) was not aware of this before the Oslo Stock Exchange contacted them on March 14th this year.

Testifying before the court on Tuesday, Thomas Borchgrevink, manager of market surveillance at the Oslo Stock Exchange, said:  “I felt that they were not aware of this. They were not on the ball.”

Timber Hill closed down, temporarily,  the robot in question when the Oslo Stock Exchange made them aware of the error, and has since modified the algorithms.

Chill, Timber Hill

Espen Gaarder Haug assumes that the Timber Hills algorithm was not only used to make trading in stock (so-called market making) in the  Hafslund (B shares), Wilh. Wilhelmsen and Odfjell (B shares), which is relevant for this trial.

“In a way, Timber Hill, should be glad that someone intervened in these low liquidity stocks, and that no other big caps suffered even greater losses,” Haug points out.

There may be several reasons why a brokerage firm choose to let a robot trade without supervision, he says.

“They can, for example, have too much faith in their algorithm, so they do not fear failure. It may also be that they trade many shares in as many markets as possible, so that each share has little importance. And they choose to take a risk that in some cases leads to losses”.

“Around-the-clock monitoring is costly, but the algorithms have many weaknesses and should be monitored on a daily basis by people with extensive market knowledge and experience,” he notes.

Mandatory Monitoring?

Haug believes it is reason to ask whether monitoring should be mandatory:

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“Should the major players be allowed to carry on trading algorithm with no monitoring, without people with broad market experience monitoring them?” Dr. Haug asks.

He believes naive algorithm trading, could not only harm itself, but at worst, damage the entire economy by reinforce large price movements.

Espen Gaarder Haug predicted in detail the financial crisis by the end of 2006, beginning of 2007, in a series of interviews and articles published by the Norwegian-The-Economist-peer – Økonomisk Rapport in 2007 and 2008.

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“Although it is difficult to prove, there are good indications that the US stock market crash in 1987 was reinforced by the naive algorithm trading. The algorithms were based on a number of imaginative assumptions that broke completely with the crash. Some major players followed their naive algorithms slavic and sold more and more the more as the market dropped based on signals from the algorithms they slavishly followed,” Dr. Haug says.

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www.espenhaug.com

Related by the Econotwist’s:

In Defence Of A Robot

Update: Day Traders Crack The Timber Hill Trading System

Oslo Stock Exchange Comments On Market Manipulation

Illegal To Outsmart A Trading Robot, Expert Says

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Ex-Physicist Leads Flash Crash Inquiry

In Financial Markets, International Econnomic Politics, National Economic Politics on 21.09.10 at 14:37

As a doctoral candidate in physics two decades ago, Gregg E. Berman spent most of his time in a laboratory searching through subatomic data for an elusive particle called the heavy neutrino. Today, from his office at the Securities and Exchange Commission, the former physicist is supervising a team of more than 20 investigators who have spent the last five months scrutinizing stock-trading data interview transcripts in an effort to figure out why stock prices went into free fall for 20 terrifying minutes on May 6th.                       

“What everybody would love to hear from the SEC is that XYZ trader blew up the market and made a gazillion dollars and is now in jail.”                       

Larry Tabb                 

Gregg E. Berman, head of an inquiry into the crash, said he will show how conditions and events led to an abrupt drop. (Photo: The New York Times).

 

Their long-awaited report on the so-called flash crash, in partnership with the Commodity Futures Trading Commission, is due to be published in the next two weeks, the New York Times reports.                

Mr. Berman (44) will not say exactly what will be in the report, but he says that it will not simply restate what regulators have already said — that markets were volatile because of worries over the debt crisis in Europe, causing some computerized trading programs to stop trading, and finally causing computers on other exchanges to misread the pullback as a rapid bidding down of stock prices.                       

Instead, he says, the report will focus on a specific sequence of events that preceded the crash.                       

He says it will tell a clear story about what happened in the markets on that stomach-churning day, beyond simply pointing a finger at the perils of the kind of high-speed computer trading that dominates today’s markets.                       

“The report will clearly demonstrate how  market conditions and events prior to the flash crash led to the extreme price moves.”                       

Some blame the high frequency trading for the so-called "flash crash" on May 6th.

 

When pressed, he adds, notably, that he had found no evidence of a deliberate attempt by anybody to disrupt markets.                   

The implications of the report are not merely academic.                       

Ordinary investors, shaken by the brief stock plunge and the lack of an official explanation, have withdrawn money from stock mutual funds every week since the crash.                       

The Berman report will not be the final word on the matter. Its findings will be used by a group of advisers to the S.E.C. and the commodity futures commission, which will make policy recommendations.                       

Still, some analysts question whether the report can deliver a simple answer that will satisfy everyone eager for reassurance.                       

“What everybody would love to hear from the S.E.C. is XYZ trader blew up the market and made a gazillion dollars and is now in jail,” says Larry Tabb, chief executive of the Tabb Group, a specialist on the markets.                       

“The answer, I think, is much more complicated and nuanced and has to do with a lot of different things. I am not sure that everybody outside the industry is going to have the patience to understand that.”                       

Market analysts say investors want to be reassured about the integrity of the nation’s markets so they can be confident that a nose dive will not happen again.                       

Visit The Swapper to read the rest of this story.                       

Related by the Econotwist.                       

May 6. 2010: “The Black Thursday”                       

SEC Expand Single Stock Circuit Breakers for Russell 1000 Index And Others                       

Wall Street Collapse: Did Somebody See It Coming?                       

David Rosenberg: “The Weirdest 20 Minutes Of My Life”                       

U.S. Stock Crash Compels Further Investigation of Wall Street Scam                       

Testimony Of A High Frequency Trader                       

The Ultimate Trading Weapon                       

The Rise Of The New Market Makers                       

US Stock Markets Infected By Malicious Software?                       

Update: Day Traders Crack The Timber Hill Trading System                       

Living In A Derivative World                    

“Artificial Intelligence” To Be Implemented In HFT

In Financial Markets, International Econnomic Politics, National Economic Politics on 20.09.10 at 17:41

The increasingly fast electronic trading systems have become too fast for humans to handle. We are now seeing a wave of  investment firms turning to the science of artificial intelligence to make investment decisions. Unlike most Wall Street actors, the trading robots are capable of learning from their mistakes.

“No human could do this. Your head would blow off.”

Michael Kearns

With artificial intelligence, programmers don’t just set up computers to make decisions in response to certain inputs. They attempt to enable the systems to learn from decisions, and adapt. Investors using the approach are implementing “machine learning”  – a branch of artificial intelligence in which a computers analyzes huge chunks of data to make predictions about the future.

The following post is based on an article by Scott Patterson, journalist with The Wall Street Journal, one of the few mainstream reporters who really understand the HFT business.

Scott Patterson

The original article was published in July this year, but have until recently only been available to WSJ’s subscribers.

According to Patterson, there’s a new wave of firms using machine learning to trade.

With artificial intelligence, programmers don’t just set up computers to make decisions in response to certain inputs. They attempt to enable the systems to learn from decisions, and adapt.

Most investors trying the approach are using “machine learning,” a branch of artificial intelligence in which a computer program analyzes huge chunks of data and makes predictions about the future.

It is used by tech companies such as Google to match Web searches with results and NetFlix to predict which movies users are likely to rent.

Young Geeks In Action

Rebellion Research

One of the new upstart in the AI race on Wall Street is Rebellion Research, a tiny New York hedge fund with about $7 million in capital that has been using a machine-learning program it developed to invest in stocks.

Run by a small team of twenty-something math and computer whizzes, Rebellion has a solid track record, topping the Standard & Poor’s 500 stock index by an average of 10% a year, after fees, since its 2007 launch through June, according to people familiar with the fund.

Like many hedge funds, its goal is to beat the broader market year after year.

“It’s pretty clear that human beings aren’t improving,” says Spencer Greenberg, 27 years old and the brains behind Rebellion’s AI system. Adding:  “But computers and algorithms are only getting faster and more robust.”

Some sophisticated hedge funds such as New York based Renaissance Technologies LLC are said to already have deployed AI to their investing programs.

For years, these firms were the exceptions. But not anymore.

The Rise of The Machines

Rebellion is part of a new wave of firms using machine learning to trade. Cerebellum Capital, a San Francisco hedge fund with $10 million in assets, started using machine learning to invest in 2009, according to Patterson and The Wall Street Journal.

A number of high-frequency trading firms, such as RGM Advisors LLC in Austin, Texas, and Getco LLC in Chicago, are using machine learning to help their computer systems trade in and out of stocks efficiently, says people familiar with the firms.

The programs are effective, advocates say, because they can crunch huge amounts of data in short periods, “learn” what works, and adjust their strategies on the fly.

In contrast, the typical quantitative approach may employ a single strategy or even a combination of strategies at once, but may not move between them or modify them based on what the program determines works best.

Will Blow Your Head Off

“No human could do this,” says computer scientist, Professor Michael Kearns, at the University of Pennsylvania who has used AI to invest at firms such as Lehman Brothers Holdings Inc. “Your head would blow off.”

Rebellion has struggled to raise money, in part because investors since the credit crisis are dubious of opaque math-based strategies.

The firm has attracted at least one long-time “quant” skeptic: famed value investor Jean-Marie Eveillard, who recently invested several hundred thousand dollars of his own money into Rebellion.

“My cup of tea is not quantitative investing,” he says. “But I think they are serious investors, and I’m impressed by the fact that they don’t have a high turnover…and don’t use leverage.”

Read the full post at The Swapper:

Related by the Econotwist:

The Ultimate Trading Weapon

Survey: Market Surprised By Negative Derivative Perception

Testimony Of A High Frequency Trader

The Rise Of The New Market Makers

Flight to Mystery

May 6. 2010: “The Black Thursday”

Wall Street Collapse: Did Somebody See It Coming?

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“Artificial Intelligence” To Be Implemented In HFT

In Financial Engeneering, High Frequency Trading, Learning, Natural science, Quantitative Finance, Technology, Trading software on 20.09.10 at 17:11

The increasingly fast electronic trading systems have become too fast for humans to handle. We are now seeing a wave of  investment firms turning to the science of artificial intelligence to make investment decisions. Unlike most Wall Street actors, the trading robots are capable of learning from their mistakes.

“No human could do this. Your head would blow off.”

Michael Kearns


With artificial intelligence, programmers don’t just set up computers to make decisions in response to certain inputs. They attempt to enable the systems to learn from decisions, and adapt. Investors using the approach are implementing “machine learning”  – a branch of artificial intelligence in which a computers analyzes huge chunks of data to make predictions about the future.

The following post is based on an article by Scott Patterson, journalist with The Wall Street Journal, one of the few mainstream reporters who really understand the HFT business.

Scott Patterson

The original article was published in July this year, but have until recently only been available to WSJ’s subscribers.

According to Patterson, there’s a new wave of firms using machine learning to trade.

With artificial intelligence, programmers don’t just set up computers to make decisions in response to certain inputs. They attempt to enable the systems to learn from decisions, and adapt.

Most investors trying the approach are using “machine learning,” a branch of artificial intelligence in which a computer program analyzes huge chunks of data and makes predictions about the future.

It is used by tech companies such as Google to match Web searches with results and NetFlix to predict which movies users are likely to rent.

Young Geeks In Action

Rebellion Research

One of the new upstart in the AI race on Wall Street is Rebellion Research, a tiny New York hedge fund with about $7 million in capital that has been using a machine-learning program it developed to invest in stocks.

Run by a small team of twenty-something math and computer whizzes, Rebellion has a solid track record, topping the Standard & Poor’s 500 stock index by an average of 10% a year, after fees, since its 2007 launch through June, according to people familiar with the fund.

Like many hedge funds, its goal is to beat the broader market year after year.

“It’s pretty clear that human beings aren’t improving,” says Spencer Greenberg, 27 years old and the brains behind Rebellion’s AI system. Adding:  “But computers and algorithms are only getting faster and more robust.”

Some sophisticated hedge funds such as New York based Renaissance Technologies LLC are said to already have deployed AI to their investing programs.

For years, these firms were the exceptions. But not anymore.

The Rise of The Machines

Rebellion is part of a new wave of firms using machine learning to trade. Cerebellum Capital, a San Francisco hedge fund with $10 million in assets, started using machine learning to invest in 2009, according to Patterson and The Wall Street Journal.

A number of high-frequency trading firms, such as RGM Advisors LLC in Austin, Texas, and Getco LLC in Chicago, are using machine learning to help their computer systems trade in and out of stocks efficiently, says people familiar with the firms.

The programs are effective, advocates say, because they can crunch huge amounts of data in short periods, “learn” what works, and adjust their strategies on the fly.

In contrast, the typical quantitative approach may employ a single strategy or even a combination of strategies at once, but may not move between them or modify them based on what the program determines works best.

Will Blow Your Head Off

“No human could do this,” says computer scientist, Professor Michael Kearns, at the University of Pennsylvania who has used AI to invest at firms such as Lehman Brothers Holdings Inc. “Your head would blow off.”

Rebellion has struggled to raise money, in part because investors since the credit crisis are dubious of opaque math-based strategies.

The firm has attracted at least one long-time “quant” skeptic: famed value investor Jean-Marie Eveillard, who recently invested several hundred thousand dollars of his own money into Rebellion.

“My cup of tea is not quantitative investing,” he says. “But I think they are serious investors, and I’m impressed by the fact that they don’t have a high turnover…and don’t use leverage.”

TradingSolutions is one of the systems using AI. Click the pic if you want to try it, or some of the others platforms available.

Rebel With Tradition

Rebellion’s Spencer Greenberg is no stranger to the investing world.

His father, Glenn Greenberg, is an iconoclastic value investor and manager of Brave Warrior Advisors, who recently split from his partners at Chieftain Capital Management Inc.

Spencer Greenberg

His grandfather, legendary baseball slugger “Hammerin’ Hank” Greenberg, played for the Detroit Tigers in the 1930s and ’40s.

But past success doesn’t mean Rebellion will continue to beat the market. As with many quantitative strategies, its system could stop working if market fundamentals change in ways that trip up its computer program, known as “Star.”

What makes Star intelligent, says Mr. Greenberg, is its ability to adjust its strategy based on shifting dynamics in the market and broader economy.

The program isn’t wed to any single investing approach. Under certain conditions, the fund will buy cheap stocks, in others it will favor stocks with swiftly rising prices—or both at the same time.

Long Term – No Leverage

Unlike the high-frequency funds that use artificial intelligence to aid rapid trading, Rebellion tends to hold stocks for long periods—on average four months but in some instances more than two years.

It also doesn’t short stocks or use leverage, or borrowed money, which can amplify returns but also boost risks.

The program monitors about 30 factors that can affect a stock’s performance, such as price-to-earnings ratios or interest rates.

The program regularly crunches more than a decade of historical market data and the latest market action to size up whether to buy or sell a stock.

When certain strategies stop working, the program automatically incorporates that information, “learns,” and adjusts the portfolio.

For instance, it may detect data indicating stocks with low price-to-earning ratios are likely to rise and load up on those stocks. Then, if the program later finds that the strategy is likely to lose steam, based on shifts in the factors it tracks, it will dump those stocks and buy stocks it deems more favorable.

A  Star Is Born

Every morning, Star recommends a list of stocks to buy or sell—often it offers no changes at all. A human trader implements the moves.

The firm says it never overrules the computer program, which is largely the same system they started with in 2007, with a few nips and tucks.

Rebellion typically holds about 60 to 70 stocks at any time.

Mr. Greenberg started designing Star in mid-2005, soon after he graduated from Columbia University with an engineering degree. He was joined by Alexander Fleiss, a high-school friend with a background in finance and math, as well as Jonathan Sturges, who has a master’s degree in music composition, and Jeremy Newton, a mathematician who helped design the AI program.

In January 2007, with $2 million in capital, the program started picking stocks. That spring, it started moving into defensive positions such as utilities. Rebellion gained 17% in 2007, compared with the 6.4% gain by the Dow Jones Industrial Average, according to people familiar with the fund.

It stayed defensive throughout most of 2008, holding gold, oil and utility stocks. Still, it lost money like most investors, sliding 26% but topping the 34% decline by the Dow industrials.

In early 2009, Star started to buy beaten-down stocks such as banks and insurers, which would benefit from a recovery.

“He just loaded up on value stocks,” says Mr. Fleiss, referring to the AI program. The fund gained 41% in 2009, more than doubling the Dow’s 19% gain.

The firm’s current portfolio is largely defensive. One of its biggest positions is in gold stocks, according to people familiar with the fund.

The defensive move at first worried Mr. Fleiss, who had grown bullish. But it has proven a smart move so far. “I’ve learned not to question the AI,” he says.

“Wall Street is notorious for not learning from its mistakes. Maybe machines can do better,” Scott Patterson writes.

However, personally, I’d like to point out that even the highest level of artificial intelligence is no match for natural human stupidity…

Related by The Swapper:

The Ultimate Trading Weapon

Survey: Market Surprised By Negative Derivative Perception

Testimony Of A High Frequency Trader

The Rise Of The New Market Makers

Flight to Mystery

May 6. 2010: “The Black Thursday”

Wall Street Collapse: Did Somebody See It Coming?

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