Are Our Markets Being Manipulated By "Rogues" Or Firms?

By Danny Schechter

Wednesday, July 15, 2009

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There's New Evidence to Suggest that Crime In The Financial Markets is Rife

New York, New York: Everyone has heard of the Wikipedia but not everyone knows about the Investopedia, a Forbes website, that monitors finance for market players. One of the issues it is concerned about is market manipulation, actions by rogue and not so rogue players who, working alone or together, unduly influence the way our supposed "free" markets function.

It is a fascinating source of information for the uninitiated who hear the daily reports on the ups and downs of the Dow and believe that somehow it is all part of the natural order of the universe.

It isn't

Thanks to an even more informative web site, Gamingthemarket.com, we learn that in fact markets are subject to, prone to, and characterized by all sorts of manipulative practices. Here's one you may not have heard of.

"Ghosting: An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. Ghosting is used by corrupt companies to affect stock prices so they can profit from the price movement.

This practice is illegal because market makers are required by law to act in competition with each other. It is known as "ghosting" because, like a spectral image or a ghost, this collusion among market makers is difficult to detect. In developed markets, the consequences of ghosting can be severe." -Investopedia

It looks like we have gone from the age of the trustbuster to the era of the ghost buster as fiction once again turns into "faction."

Last week, the price of oil mysteriously shot up. There were reports of yet another "rogue" trader. The New York Times later reported:

"Reacting to recent swings in oil prices, federal regulators said they were considering limits on "speculative" traders in markets for oil and other energy products." Of course, the big banks and Wall Street firms are expected to zealously oppose more oversight.

Some things don't change. Anyone remember Nicholas Leeson, a one man engine of speculation who lost over a billion dollars and brought down his own bank before going to jail? He later gloated on his website; "How could one trader bring down the banking empire that had funded the Napoleonic Wars?"

On July 4th, Bloomberg News reported:

"Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, 39, who has dual American and Russian citizenship, is charged in a criminal complaint with stealing the trading software. At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov's alleged theft poses a risk to U.S. markets. Aleynikov transferred the code, which is worth millions of dollars, to a computer server in Germany, and others may have had access to it, Facciponti said, adding that New York-based Goldman Sachs may be harmed if the software is disseminated."

The next sentence is particularly eye-opening: "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways," Facciponti said."

J.S. Kim who runs an independent investment research and wealth consultancy firm commented on the financial site, Seeking Alpha:

"It's curious to note that Goldman Sachs has admitted that it has developed trading software that could be used to, in their own words, "manipulate markets in unfair ways", yet nobody in the mainstream media has questioned whether Goldman Sachs was / and is using its proprietary trading platform to manipulate markets in unfair ways. Only extremely naive investors with zero understanding of how global stock markets operate would deny that there has been continual and excessive intervention into US stock markets to prop them up over the past several months."
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I spoke with Christian Angelich, the founder or Gaming the Market.com, a former airline pilot turned trader, who told me that in recent years efforts to manipulate markets have become pervasive and, yet, are mostly illegal.

He too cited Goldman when I asked how it often works.
Without prodding, he came up with one possible scenario involving a firm like Goldman Sachs that had 00 millions of shares of Intel it wanted to offload. So they issue a report predicting it will sell for $50 a share. As a major player at the New York exchange where they do l out of ever ten shares, and have become even more powerful now that competitors like Bear, Lehman and others are out of business, their recommendations are given lots of weight even though in this case they really want to just dump the shares.
"None of this is new," he told me, "its been going on for years. Even the founding Fathers warned about it, but is more egregious today in part because of all the technology these firms have." He says it is illegal and has been winked at, citing one example: former Senator Phil Gramm attaching a plan to kill the Glass Steagall act as an amendment to a bill that then sailed through the Congress while his wife was on the Commodity Futures Trading Commission."
"We will only have a real bottom," he believes' when the masses are out in the streets like they are in parts of Europe. For change, pressure from below is needed."
Sometimes unexpected events can take over markets too, as Michael Jackson's untimely demise's meteoric impact on the music market shows. His sales went from nowhere to everywhere confirming one jaded pundit's cynical comment that "he was more valuable dead than alive."
In making a new film on the financial crisis as a crime story, I spoke with Moe Saceriby, a former lawyer and VP of Standard and Poors who went on to become a UN Ambassador. I knew him as a credible analyst of current affairs, an experienced professional. We spoke on Wall Street.
He told me:
'I think we had a transition from what truly was a free-market system to something now that is out of control and probably what I would define as a predatory system where we are not so much dealing anymore about the notion of fair prices, and the notion of markets that -- that work transparently an open late but in fact frequently markets that are manipulated for the end of maybe a few out there -- a few investors, mega-investors. It's even -- even that's very difficult to tell. "

This was new to me---the whole system being described as predatory which smacks of criminal.

He went on:

"And these market movements may not be necessarily reflective of the underlying value of that real asset whether it be a commodity or whether it be in equity. What I mean by that is frequently you see prices wildly fluctuating. As an example: how could oil be at $147 in July of 2008 and all of a sudden fall to below $40 a barrel at the end of that same year? We all knew that in fact the whole economic system was in trouble over a year ago. But the price of oil kept rising sharply. The price of foods kept rising sharply.

Question: "Manipulated?"

Answer: "I think it was manipulated. There is a lot of debate whether it's about speculation or manipulation but there is an old expression among traders which is 'the trend is your friend.' What that means is that in fact a few people can use significant resources, financial resources, freely as a weapon."

Umm, weapons on Wall Street? Already credit default swaps have been compared to financial hydrogen bombs as financial terms merge with military language. Does anyone doubt that these Wall Street manipulations have become form of warfare and that, until now, the wrong side has been ahead.

Surely, all this demands a serious investigation and serious regulation. Will it happen?

Mediachannel.org's News Dissector Danny Schechter is producing a film on "the Crime of Our Time" as a follow-up to his book PLUNDER; Investigating Our Economic Calamity (Cosimo Book, Amazon.com) Comments to dissector@mediachannel.org

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The Biggest Financial Scam in the History of the World; and Manu

By Roth, Robert at Jul 15, 2009 10:29 AM

and as yet we don't even have investigations of anybody but pikers like Bernie Madoff. Danny says there's new evidence that crime in the markets is rife, and presents a compelling case. Not to detract from that analysis, I would add to it some further suggestions about the crimes behind the current crisis, and for improving and restructuring our economy in the wake -- or perhaps the middle -- of it. I propose some maneuvers -- including a second federal stimulus -- to buy time in the hope we can take remedial actions to head off what may otherwise be a descent into much worse times. I've shortened these thoughts into an as yet unpublished letter to the Financial Times, the world's pre-eminent financial newspaper and one Obama says he's been reading for twenty years:

Progressive Democrats of America went on record in support of a second stimulus with its May 18, 2009 publication of my assessment of the financial and economic crisis and a plan to address it. The idea was not original -- I got it from Robert Reich, and Paul Krugman and James K. Galbraith also supported it -- but it was hardly part of mainstream discussion, despite Reich’s calculation that a projected $350bn in State budget cuts and tax hikes would predictably negate nearly half the impact of the $787bn first federal stimulus.

In less than two months, that snowball has become at least a small avalanche: on June 29^th, the FT reported that Christina Romer, chair of the White House Council of Economic Advisers, had said the administration would be open to further stimulus if needed, acknowledging that cutbacks by states facing budget crises would push in the opposite direction. Laura Tyson of the president’s Economic Recovery Advisory Board came out in favor the following week. But my jaw actually slackened a bit when I realized the July 11-12, 2009 FT editorial I was reading called for a second stimulus, specifically targeting the states on condition the money be spent quickly.

A second stimulus is critical as a holding action, to keep us from going over the cliff. As Aline van Duyn notes (also July 11-12, 2009), alluding to Nouriel Roubini’s recent analysis, "green shoots" have been replaced in the discussion by talk of weeds that may, in the case of the US economy, turn to manure. Obama should recognize and level with the public about the dimensions and severity of the problem, and return to Congress for a second stimulus to help the states maintain vital services and avoid tax increases, and Congress should heed the request.

But if we are to pull back any substantial distance from that cliff and begin to grow our economy, it must be done sustainably, and here I think the metaphor of manure in its positive meaning, as a fertilizing substance that replenishes and nourishes the soil, is useful. The US economy isn’t a car in running condition that just needs a jump start to resume operations, it’s a field of depleted soil that needs a whole range of remedial measures, so that when we're done with stimuli the debt we’ve incurred has not just ameliorated the effects of the crisis but encouraged the emergence and growth of real green shoots with a future.

Of course we need the capacity to generate and sustain sufficient aggregate demand. Since wages have stagnated for roughly thirty years, the demand that sustained the world economy till recently came from US consumer debt. That source cannot be revived both for arithmetic and psychological reasons: People can’t afford to borrow more, and they’re understandably afraid to. So we need debt relief as well as more and better jobs at higher wages. Hence the roots of the problem must be addressed, including the obscene concentration of wealth that has left US households without money to spend, and the so-called trade agreements that have offshored and outsourced much of the US manufacturing sector. We should facilitate rather than hamper labor organizing, through such measures as the Employee Free Choice Act, and revisit the trade agreements, through such legislation as the Trade Reform, Accountability, Development and Employment (TRADE) Act, to be introduced in this session of Congress by Senator Sherrod Brown (D-OH) and Rep. Mike Michaud (D-ME).

We of course also need repaired and improved infrastructure, with the emphasis on energy conservation, mass transit and renewable sources, as well as education to prepare workers for the jobs of the future, and a universal healthcare system to enable U.S. firms to be viable and compete.

However, when the U.S. and Western economies have recovered from past recessions, as well as the Great Depression, they had at their disposal – and have now substantially disposed of – the resources of the natural world – including not only cheap oil but also abundant land, air and water – to resume operations. With natural resources now considerably more expensive and the continued operation of the Old Economy threatening the means of life (e.g., overfishing the oceans) and the biosphere itself (e.g., arable land, breathable air, drinkable water), the creation of more jobs at higher wages will require a complex process of reconstructing an economy as if people and the Earth mattered. We need something – indeed many things – to be substantially different, including, for example, the means of producing food by sustainable agricultural practices, with less chemically dependent agribusiness and much more locally based, smaller-scale and sustainable farming.

How to pay for all this, and save the dollar to boot? We might start by recovering the ill-gotten gains of those who apparently caused or contributed to the crisis through fraud. In the wake of what appears to have been far and away the biggest financial scam in the history of the world, nobody but pikers like Bernie Madoff has even been investigated. A tax on financial transactions would also help. So would cessation of our foreign military adventures deceptively marketed as the “war on terror,” or whatever our current wars come to be called, now shifting from Iraq to Afghanistan and Pakistan. These have been an enormous waste of resources as well as human lives, as a substantial consensus among knowledgeable analysts finds – as was predicted – that the result has been an increase in terrorism. Another increasingly glaring fact about these wars is that we just can’t afford them anymore. We’re waging them on credit, and increasingly on credit from foreigners. And – besides the appalling and immoral loss of human life, an immeasurable cost – the resources wasted on these destructive activities are wholly unproductive economically, as well as needed elsewhere.

Much or all of this is of course anathema to US elites. But these civilizing measures are essential if the US is to avoid becoming a Third World country beset by disillusionment with public institutions, social unrest, and possibly violence on a grand scale, and instead emerge from the present crisis in substantially different but still [comparatively -- that is, compared to the alternatives] civilized form.

These and related suggestions are developed in greater detail at http://pdamerica.org/articles/news/2009-05-18-10-29-00-news.php and on my own blog at http://healingjustice.wordpress.com/. Another useful summation of much of the foregoing is E. F. Schumacher’s Small Is Beautiful (recommended in the FT by Harry Eyres, January 31 and in Mr Don Cropper’s letter, July 11-12, 2009).