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June 9, 2011 U r g e n t!!
Re: A very Sick S.E.C. needs E.R. – Markets' Poisoning by an HFT Squid
Author: Uri Praiss, Attorney at law (Israel, since 1990)
law & Economics lecturer
On 4th June morning I've started feeling sick myself already in the morning, when I saw on T.V. former S.E.C. Chairman, Arthur Levitt, now "Policy adviser for Goldman" (and, I guess, Hill's traveler like their new "International Advisor", Ex-Sen. JSD Att. Judd Gregg. Fly together? Private?)
Levitt discussed the reports Goldman has been subpoenaed by Manhattan District Attorney's office , 2nd last American White Knight, Cyrus Vance Jr., opening a fresh legal front, after GS subpoenaed recently by N.Y. A.G., Eric Schneiderman, as well. Levitt Said "These Subpoenas Mean Nothing for Goldman."
Is that legal? He should be indicted too, for allowing this crisis, these bombs' "securities" trade, that cost $ Trillions, including millions of families losing homes, jobs and hope. I guess if Mary Schapiro or N.Y.A.G asked Levitt, just theoretically, how much Goldman pays for his services, he shall be permitted by Goldman to answer.
S.E.C. was founded as one of the most important lessons of The Great Depression .We forgot the other most important lesson - Total Separation between Banks, Trade so called "Investment", Consultancy, IPOs, etc. Even basic New York Martin Act, 1921 was almost forgotten.
The S.E.C. was created, as a rearmed special force, to defend us against the Robber Barons, or Huns, after they caused, stretched for 6 years and used that horrible national disaster, caused by financial crisis (and Manipulative panic / pessimist Short Selling, but not advanced like nowadays' Algorithmic "Nuclear" HFTs)
But sooner than later they found out the handsome Huns' generous attitude (like the wolf after swallowing Red Riding Hood's Granny) as Mr. Levitt, not to mention the Exchanges, orthodox and modern biased scholars, "experts", bankers, conservative politicians and officials, research budgets, presentations, conservative parties and rich contributors.
So the Exchanges and S.E.C. went to sleep many years before 2007, allowing the Huns to create and traffic those bombs or drugs "securities", "Big Short", "Regular daily shorts", you name it. Look the other way. Tell the S.E.C. and Exchanges "Liquidity, bigger trade volume, market diversification", count the fees, etc.
So the S.E.C.'s Investigations focus mostly on "Fishing under the Lamppost", that gossipy piping Insider Trade Offences, by big billionare Rajaratnam or even this miserable Nelson Obus, hunted for 10 years (and 2 obsessive appeals) because of that "Investi-Mad-Dog".
Then they can harass him with all kinda tickets, to avoid fair expenses and punitive damages' compensation. Remind me Kafka's "Trial" of poor Joseph K.
By the way, did you know that "Insider Trading" offences were pushed and demonized by Wall Street's Traders and Analysts' Lobbyist Cartels? That is not even theft. Just populist over -reacting. There is no victim except some righteous vague envy.
In most civilized Securities (Non U.S.) Laws, Manipulations, Fraud, Attempt of Affecting Rates by Short and /or concerted / HFT "Selling Efforts" are much "heavier" offences than famous and juicy "Insider Trade". The Anti - social and economic damages as well as risks (!!) are much heavier. So is the "Mens Rea" and the punishment is more severe.
Meanwhile, S.E.C. and Exchanges try, maybe they can't refuse, to rescue Goldman Trading "Bank", by $ 550 Million's S.E.C. selective "plea – bargain" fine. That appears Ex - Post as a gift - their "Gold Mine Windfall" – approximately 1 day's total income, and let's pretend It's over. Nothing happened (!!) GS report $100 Million daily net trade profits easily (how exactly?!) They were just tickled to laugh by those twisted secret highly – organized, 15 or so, $1 Million State – fines. "Partial-but-final rehabilitation-immunity-bargains'" ridiculous fines (as lately urged in New Jersey and Massachusetts) which N.Y.A.G. Schneiderman refused to accept, as was reported here.
S.E.C. and GS would help also Moody's and S&P. Remember classic "Prisoners' Dilemma", maybe most popular Economics' Game Theory? Let's invent 500 pages of new Rating Rules' wasteful cover up, so maybe they won't face Criminal and Civil Fraud and Conspiracy charges plus (Gross) Negligence huge law suits.
."One for all and all for one" Musketeers meet at "Robin Hood"'s Lady Gaga's Charity Tax Deductable evening. Till N.Y.A.G. and N.Y.D.A. shall come between you.
Pardon April 13th Senators' Carl Levin - Tom Coburn Committee 635 pages comprehensive final report and thousands of attached documents, Testimonies etc., of 2007 Financial disaster, where GS and Mr. B. are leading actors. The respectable Committee recommends many examinations (and investigations) of events and conclusions, as follows:
"The Report concludes that the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed to be as safe as Treasury bills. The result was a collapse in the value of mortgage related securities that devastated investors. Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.” Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities, and helped investment banks rush risky investments to market before tougher rating criteria took effect. They also continued to pull in lucrative fees of up to $135,000 to rate a mortgage backed security and up to $750,000 to rate a collateralized debt obligation (CDO) – fees that might have been lost if they angered issuers by providing lower ratings. The mass rating downgrades they finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value. In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006. When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees."
Sorry, but the very bad news and the unhappy end (for now) is that neither S.E.C. nor Robber Barons haven't learned anything yet. Vice Versa, the Huns have already found, use (on a daily basis) and develop their new "nuclear" arms, at least a year. Almost all financial and real markets, firms and households suffer daily doldrums, stagnation, waste and loss of potential growth and employment.
These are caused mainly by manipulative advanced Hi-Tech and Algorithmic HFT daily trade (by whatever "machines"?!), including Short selling, combined with endless fearful, false and as if professional daily negative economic excuses (Greece's Debts? Portugal?) Not to mention serial scary "Flash Crashes" S.E.C. and Exchanges don't want to see.
How they do it? As any illegal anti-trust cartel, the leaders are the most technologically advanced and biggest HFT's Algorithmic traders (guess who). They are followed by many smaller traders, as Hedge Funds and other big brokers (remember "Huddles"?) that try their best to follow the leaders as fast as they can on real time trade.
Of course the leaders sell highest, and buy later at the lowest rates. That is trivial, because they have a constant "First mover Advantage" and they are much faster technologically. That is why GS, JPM, and sometime others, can make easily $ 100 Million net trade daily profit each. It is reported by financial media. The followers can have some nice profit too. Paulson, for example, as much smaller traders. Just follow and be alert.
The leaders hit down, to the closest 50 or 100 points line of Dow Jones, as 11,950 and so on and Nasdaq as well - 2,650, etc.
They try to cause fastest down drop, adapting to real time volume. It is almost like driving or skiing. The computer calculates easily which are the stocks, on real time, depend by their specific volume and $ price, that manipulate the whole Dow Jones or Nasdaq (sometimes S&P, to drop or maintain the drop to 1,300, 1,250 etc.)
The regular technical ("natural") rules of resistance and support do not work anymore. Only the Huns' HFT Manipulation counts.
So check which stocks can be used most effectively for this daily Dow and Nasdaq Manipulation: GOOG, AAPL, INTC, CSCO, BIDU, etc. Even the trading banks' shares themselves might be manipulated, depends on volumes and rates. Baidu is preferred – a "Market Mover" - influence all Chinese Internet giants – SOHU, SINA, DANG, YOKU, RENN, etc.
Europe has already decided to start limiting Short trade and other advanced manipulations. Goldman's and others' "agents" try to stop these important suggestions there. But here, S.E.C. and Exchanges, as before, left the doors open, let the Robbers in and went to sleep on the beach. Send Mary to be some Judge, fast as you can. Good night.
Uri Praiss, Attorney at law
Law & Economics Lecturer
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.