The idea that serious money is not at stake is preposterously naïve. Former SEC Chair Mary Schapiro estimated that individual investors lost more than $200 million in improperly triggered stop loss orders on May 6, 2010 during the Flash Crash – an event fueled by high frequency trading.
Before the approval rating of Congress slips further, Republican obstructionists need to put down the Farmers’ Almanac and pick up a copy of The Financial Times.
. . . The aw-shucks questioning of Senators Johanns and Johnson in dead serious hearings last week is an embarrassment to the Senate and this nation. “Sinister” is exactly what we’re talking about. The very same mega Wall Street banks that crashed the U.S. economy in 2008, were charged with colluding and rigging the Libor interest rate market, and any day now will be charged with rigging the foreign exchange currency markets in chat rooms dubbed “The Mafia” and “The Bandits’ Club,” are not unjustly maligned actors.
So, the Senate has no idea why the Congress is only being awarded single digits in integrity and honorable intentions from the voting public?
From our reporters on duty at Wall Street On Parade, we are alerted that:
. . . while the Senate debated why the American public has lost confidence in Wall Street, which is experiencing the lowest individual stock participation rate in 16 years, it has never occurred to most Senators that the public’s loss of confidence in Congress to properly regulate Wall Street might factor into that equation.
The comments of two Senators in particular stood out at these hearings as tone-deaf to the reality that Wall Street has never been this corrupt in its entire history, including the period leading to the 1929 crash. That era resulted in the passage of the Securities Act of 1933, the Securities Exchange Act of 1934, the Glass-Steagall Act (Banking Act of 1933), the creation of the FDIC and SEC and two solid years of Pecora Senate hearings to root out the corruption and bring it into the sunshine. Today we have a room of empty chairs and empty promises of reform.
During Wednesday’s hearing before the Senate Banking’s Subcommittee on Securities, Insurance and Investment, Senator Mike Johanns from Nebraska said he could relate to the debate about high frequency trading because he had grown up on a dairy farm in northern Iowa in the 1950s. “The combines are so far advanced” from what they were when he was growing up, said Johanns, adding that the consumer has benefitted from that by having a supply of food that’s “unparalleled in the world.”
According to the thinking of Johanns, it naturally follows that the consumer must also benefit from Wall Street’s super computers and super data feeds and artificial intelligence algorithms written by six-figure programmers to trade for the house against the interests of the little guy who has been intentionally stuck with a horse and buggy data feed while his “dumb money” trades are secretly routed to the fleecing herd in exchange for a cash kickback.
From the combines of the dairy farmers, Senator Johanns made the galactic leap that “it seems that technology developments over the last several years have benefitted retail investors by making the equity markets more accessible and affordable for the moms and the pops in Nebraska.”
Senator Ron Johnson Doesn't Like the Words "Dark Pool"
The same brand of illogic was on display on Tuesday during the Senate Permanent Subcommittee on Investigations’ hearing when Senator Ron Johnson of Wisconsin downplayed the problem of payment for order flow by dark pools and warned against government intervention in the markets.
Johnson used the word “sinister” — not to describe the conduct of high frequency traders, mind you, but about the charges being made by the truth-telling witnesses called to testify before the subcommittee. Johnson said: “What I’m concerned about is creating this sinister atmosphere with words like dark pool and conflict of interest and what we’re talking about, literally, I think, is 30 or 40 cents on a $2,000 trade…we’re really talking about miniscule amounts.”
Senator Johnson was so ill-prepared for this hearing that he apparently didn’t realize that “dark pool” is an industry term, not a phrase conjured up by witnesses testifying before the Senate panels.
Stock exchanges, which show the public the bids and offers on stocks are called “lit” markets. Alternative Trading Systems, which are owned and operated by the largest Wall Street banks as well as others, are called dark pools because they are “unlit” markets. They do not show the public the bids and offers on the stocks before they trade, leaving massive opportunity for front-running and stock price manipulation.
As we reported earlier this month, the Wall Street mega banks are even trading in the stocks of their own corporate parents in their own dark pools. (We asked the SEC how this is legal and received the response: “No comment.”)
The idea that serious money is not at stake is preposterously naïve.
Former SEC Chair Mary Schapiro estimated that individual investors lost more than $200 million in improperly triggered stop loss orders on May 6, 2010 during the Flash Crash – an event fueled by high frequency trading.
Senator Johnson’s fixation on his 100-share order at $20 insults the intelligence of Americans who understand that the bulk of the money they have in the stock market is managed by their pension portfolio manager or mutual fund manager who trades in 50,000 or 100,000 share lots, not 100-share lots. The public understands that they are being taken to the cleaners by high frequency trading, eroding the retirement savings of tens of millions of Americans.
They further understand that their 401(k) plan is losing its heft because the same actors have outsized fees and costs embedded in the mutual funds. (See PBS Drops Another Bombshell: Wall Street Is Eating Up Two-Thirds of Your 401(k))Read the whole essay here.
Andrew Brooks of mutual fund manager, T. Rowe Price, testified before the Senate last week, saying that “disruptive HFT strategies are akin to a tax loophole that has been exploited and needs to be closed. Market participants utilizing such strategies are essentially making a riskless bet on the market, like a gambler who places a bet on a race that’s already been run and for which he knows the outcome.”
There is now unassailable evidence that the stock exchanges are charging obscene fees of upwards of $144,000 a year plus tens of thousands more in infrastructure charges to co-locate Wall Street’s super computers next to the exchange’s computers to facilitate front-running slower orders.
Michael Lewis writes in Flash Boys that “both Nasdaq and the New York Stock Exchange announced that they had widened the pipe that carried information between the HFT [high frequency trading] computers and each exchange’s matching engine. The price for the new pipe was $40,000 a month, up from the $25,000 a month the HFT firms had been paying for the old, smaller pipe.”
There is unassailable evidence that the exchanges are selling faster and more comprehensive data feeds to the Wall Street elite while sticking the public with a slower data feed with outdated prices.
There is unassailable evidence that Wall Street mega banks are paying retail brokers for mom and pop order flow. This is the dumb money these firms want to trade against in their own dark pools.
There is unassailable evidence that the U.S. stock exchanges which previously functioned as self-regulators to police their own members have turned into brothels (as the New York Post put it) with a pay-to-play business model.
Oh, and do read about how things have not changed since 2012 when all hell had broken loose and it seemed like the banking industry actually thought then that it must clean up its act or go to jail (directly to jail, do not pass GO, do not collect $200).
It has only taken twelve years of unending Wall Street scandals and scoundrels, the greatest financial collapse since the Great Depression, a wrecked national economy, 46 million fellow Americans living below the poverty level – including one in every five children — but, finally, the pigs are flying over Wall Street. Yes, the unthinkable has happened. The New York Times has admitted it was wrong about repealing the Glass-Steagall Act while Sandy Weill calls for taking a wrecking ball to the big banks.
In an editorial published in the print edition of the New York Times yesterday, “The Big Banker’s Change of Heart,” the paper of record at last fessed up to its role in America’s nightmare decade.
The editorial page editors wrote:
“While we are on this subject, add The New York Times editorial page to the list of the converted. We forcefully advocated the repeal of the Glass-Steagall Act. ‘Few economic historians now find the logic behind Glass-Steagall persuasive,’ one editorial said in 1988. Another, in 1990, said that the notion that ‘banks and stocks were a dangerous mixture’ ‘makes little sense now.’
“That year, we also said that the Glass-Steagall Act was one of two laws that ‘stifle commercial banks.’ The other was the McFadden-Douglas Act, which prevented banks from opening branches across the nation.
“Having seen the results of this sweeping deregulation, we now think we were wrong to have supported it.”
Making his call for breaking up the Wall Street banks into insured deposit institutions separated from investment banks on CNBC’s business network on July 25, Weill did not go as far, saying the big bank model was right back when he deployed it but not now. He offered not a shred of substance to support that position.
Weill did not apologize to the Nation for the misery he had helped to cause and he preposterously lied about having anything to do with the repeal of Glass-Steagall, saying it had gone away in the 1980s.
The repeal of the Glass-Steagall Act occurred on November 12, 1999 with the passage of the Gramm-Leach-Bliley Act, officially known as the Financial Services Modernization Act of 1999. That legislation repealed the portion of the Glass-Steagall Act which barred banks holding insured deposits from merging with Wall Street securities firms.
It also removed the barrier located in the Bank Holding Company Act of 1956 which prevented insured deposit banks from merging with insurance companies.
In making his absurd claim on CNBC, Weill was attempting to rewrite his own autobiography, The Real Deal. Published in 2006, the same year Weill stepped down as Chairman of Citigroup, the Frankenbank he had created in 1998 in violation of existing law, Weill writes on page 269: “Around this time, we had been discussing strategic options with Marty Lipton and his team of banking lawyers at Wachtell Lipton. The firm’s lawyers captured my attention by claiming they could help us circumvent the legal issues involved with merging with a bank. Two powerful federal laws, the Bank Holding Company Act of the 1950s and the Depression-era Glass-Steagall Act, stood in our way – these laws prohibited commercial banks from diversifying and specifically ruled out affiliation with securities firms and insurance companies.”
And the New York Times was not completely candid either. It did not just forcefully advocate the repeal of the Glass-Steagall Act as it now confesses. It waved pompoms, on its editorial page, for Sandy Weill and his unwieldy behemoth that would collapse into the arms of the taxpayers in 2008. On April 8, 1998, the following appeared on the Times editorial page:
“Congress dithers, so John Reed of Citicorp and Sanford Weill of Travelers Group grandly propose to modernize financial markets on their own. They have announced a $70 billion merger — the biggest in history — that would create the largest financial services company in the world, worth more than $140 billion…
In one stroke, Mr. Reed and Mr. Weill will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.”
The inherent problem with restoring Glass-Steagall is not writing the legislation. It takes but one sentence to restore sanity to the financial underpinning of America: “No bank holding insured deposits can own or be affiliated with an investment bank, broker-dealer, futures commission merchant, insurance company or engage in the underwriting of stocks and bonds.”
The problem is that Congress will succumb to the inevitable lobbying demand that Wall Street be given a phase-in period of, minimally, two years.
Frankly, under the current financial structure, America doesn’t have that long before the next great collapse.
And that was 2012, folks, can you feel that breeze of newly-inspired banking integrity yet?
By Pam Martens: July 30, 2012
The word paywall is typically used to describe web sites which make you pay to gain access. But viewed with the added perspective of the image below, that’s what representative government in the U.S. has become – a paywall to access.
The following chart is provided through the courtesy of the Center for Responsive Politics. The Center calls it the list of Goldman Sachs heavy hitters from 1989 to 2012 — those employees of Goldman Sachs making the largest political contributions. (It should be noted that not all individuals listed on the chart continue to work for Goldman Sachs.)The first entry on the list is Todd J. Christie – brother to the current Governor of New Jersey, Chris Christie, who said last week he plans to run for President in 2016. Todd J. Christie is the former CEO of Spear, Leeds & Kellogg, the New York Stock Exchange specialist firm which Goldman Sachs purchased in 2000 for $6 billion. Todd Christie received $60 million in the deal.The SEC brought an action against Todd Christie in 2005 for cheating customers out of thousands of dollars in the trading of IBM and AOL Time Warner. In 2008, Christie settled the charges without admitting or denying the findings (the despicable curse of the SEC in this lost decade of America). The SEC took separate actions against other traders at the firm.One remarkable aspect of the chart below is that if you click on the individual names, such as Christie, then click on “Itemized Contributions,” you find a really dirty little secret about which few Americans are aware — the sums that can be contributed to committees by the individual, above and beyond candidate contributions.On April 22, 2002, for example, Todd Christie made a $225,000 lump sum contribution to the Republican National State Elections Committee.Over years of using data at the Center for Responsive Politics, I have never found an error. But I couldn’t believe the size of this contribution from a single individual so I checked it out myself at the Federal Election Commission. The dollar amount was memorialized in a receipt at the commission.Obscene contributions such as these were only somewhat curtailed under the McCain-Feingold legislation (Bipartisan Campaign Reform Act of 2002) with new legal limits becoming effective on January 1, 2003.So here’s what Todd Christie was able to give to a committee of the co-author of that bill in 2008:McCain Victory 2008 — 5/15/2008 $25,000 29933553532; 5/16/2008 $50,100 29933553533; correction entered 6/09/2008 -$5,000 29933553533Last year, the National Bureau of Economic Research released a study showing that 50 percent of the population would not be able to come up with $2,000 within 30 days for an unexpected expense.The Census Bureau reports that 46.2 million people in America, the highest number in the 52 years the bureau has been publishing figures on poverty, are living at or below the poverty line, which in 2010 was $22,314 for a family of four.Now you get a proper perspective on America’s paywall to representative government.Refer to those figures here.Below are the current Political Campaign Contribution Limits provided by the Federal Election Commission.
Below is the list of Goldman Sachs Top Political Donors, 1989 to 2012, Center for Responsive Politics:
By Pam Martens: July 31, 2012
They’re everywhere – on 60 Minutes, peeping out of the display window at Barnes and Noble, going out on internet news feeds. I’m talking about insiders who want to fill in the cracks and voids of Wall Street’s criminal wealth transfer system that has had an iron grip around our country’s throat since at least 1996.
Neil Barofsky, the former Special Inspector General of the Troubled Asset Relief Program (SIG-TARP), has penned a humdinger. Titled Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, it confirms what we’ve suspected since U.S. Treasury Secretary Tim Geithner appointed Mark Patterson, a Goldman Sachs lobbyist, to be his Chief of Staff – that the U.S. Treasury Department has become Wall Street West.
Barofsky was minding his own business dealing with drug cartels and mortgage fraud (a cakewalk compared to Wall Street) as an Assistant U.S. Attorney for the Southern District of New York when the George W. Bush administration picked him to oversee the outflow of what would become trillions of dollars in taxpayer bailouts to Wall Street.
Barofsky has meet and greets with his fellow colleagues at the Treasury Department and other Inspector Generals in their lavish and expansive offices – then he’s led to his new quarters in the Treasury building: a literal stink hole next to the cafeteria.
Next Barofsky is delivered a crystal clear message from Herb Allison, a Wall Street retread from Merrill Lynch who was plucked by Geithner to be Assistant Treasury Secretary. Allison warns: “Out there in the market, there are consequences for some of the things that you’re saying and the way that you’re saying them.” Then Allison invokes the Wall Street code: “Well, is it an appointment you might be looking for? Something else in government? A judgeship?” [An office that’s not a stink hole?]I’ve always suspected that Goldman Sachs and Morgan Stanley were miraculously anointed as bank holding companies during the height of the crisis because they were about to fail. Barofsky weighs in on that. Then Treasury Secretary Hank Paulson told Barofsky “that he believed that Morgan Stanley was just days away from collapse, and Ben Bernanke, the chairman of the Federal Reserve, similarly confided that he believed that Goldman Sachs would have been the next to go. After that, all bets on the country’s financial system would have been off.”Barofsky was a Democrat. George W. Bush knew that and yet appointed him anyway. And the irony is that even after the Obama administration took over, to deal with Geithner’s obstructionist efforts to thwart oversight of the outflow of the taxpayers’ purse into obscene bonuses and backdoor deals on Wall Street, Barofsky time and again had to turn to Republican members of Congress in order to move forward. That’s not really the message the Obama team needs on the airwaves three months before the Presidential election. (Of course, the other option is for the American people to elect Mitt Romney, a man who wants to gut all significant restraints on Wall Street.)Unfortunately, the truth has a way of seeping into the public consciousness at inconvenient times. Wall Street has never been held in lower regard by the public, and yet, more insider truth telling of its dirty underbelly spills out almost daily.Omer Rosen is the latest to deal the dirt on Citigroup. Writing yesterday at Boston Review, Rosen, who previously worked in a derivatives department at Citigroup, says he structured what he was told were illegal tax-evading schemes, simultaneously screwing both his client and the American taxpayer. Rosen writes: “In so doing, they would hope to save millions of dollars (and so cost the U.S. government millions of dollars). We at Citigroup just hoped to net a seven-figure fee…”Rosen had filled in more details in February of last year, writing as follows:“Our clients were non-financial corporations, the Deltas and Verizons of the world, which relied on us for advice and education. Our directive was ‘to help companies decrease and manage their risks.’ Often we did just that. And often we advised clients to execute trades solely because they presented opportunities for us to profit. In either case, whenever possible we used our superior knowledge to manipulate the pricing of the trade in our favor …Other sources of profit lay in details that clients thought were merely procedural but in actuality affected pricing as well. Once, a client called after his interest-rate swap was completed and asked to change a method of counting days. Unbeknownst to him, this change should have lowered his rate. I made the requested change but kept his rate the same, allowing us to realize unwarranted profit. This was standard practice. My coworkers knew what I had done, as did the traders, as did the people who booked trades. I even tallied the ‘restructuring’ as an achievement in a letter angling for a higher bonus.”Wall Street’s cancer has metastasized into every nook and cranny of our financial infrastructure. It should be clear to any thinking member of Congress that pruning around the edges of financial reform cannot deal with this entrenched criminal syndicate. The heads of top management must roll, including government regulators and overseers, and the big banks must be broken up.
Each day that passes without serious reform poses a risk to the safety and soundness of the United States’ financial system.
How long will we stand it?