Wednesday, August 5, 2009

high speed trading or how to cheat at cards

Buried deep in its quarterly report to the Securities and Exchange Commission, the too big to fail parasite Goldman Sachs revealed that it "has received inquiries from various governmental agencies". Seems they have some explaining to do about the billions in executive compensation that they were handing out while at the same time holding out the begging bowl to Uncle Sam. They also need to answer some questions about buying and selling trillions in credit derivatives.

The reason these instruments are called derivatives is that they are not tied to anything of real wealth or even paper wealth. The derivative is simply a bet; it resembles the credit default swap but that requires that you hold at least a securitized piece of a mortgage or other debt instrument making it similar to an insurance policy. With a derivative it’s like the town fire bug buying insurance on your house or the "ex" taking out life insurance on you.

Goldman Sachs owned a lot of these "policies" issued by AIG. The same AIG that got a huge government bailout and then the Bushies basically made the check out to Goldman. Goldman is now making 100 million plus per day trading securities. Seems they’ve figured out that if they run their computers "fast" they can get ahead of trades. Really what that means is they look at the huge volume of trades they handle and graph the price swings. Before they've even processed the trades for clients they do their own trading based on that "market trend" information. Sort of like the dealer keeping track of everybody’s hole card and then playing his own hand on the side. We’re all drawing to an inside straight.

4 comments:

Anonymous said...

Sir, You are so on the (no pun intended) money.

Anonymous said...

It is about time we take up arms and do away with these people i can barely afford to eat reading this only fuels my rage

Anonymous said...

For the free market to work it assumes that everyone has about the same level of information. The market these days is being worked by people that work hard at making sure they either know more or making sure you know less than they do. It isn't a "Free Market" and they work hard to rig it and make sure it isn't free in any way except to keep government out of the way until they need to be bailed out.

The pity is that as a country we value this money game playing more than actually making things or providing real services.

Kind of like people thinking that money paid for shares trading on the stock market somehow finds it's way into the company's checking account and when the price goes down that same hand takes it away from the company's bank account. Pity is that a company could be profitable and have a share price of zero just as we have seen companies that have never made any money and have little chance of making money have share prices that are stratospheric. No sense at all.

Anonymous said...

Does not surprise me at all that companies like Goldman Sachs run their trades before their clients, ripping off their clients as they rip off the country. No honor at all but of course they make enough money to buy (or at least rent) the government.