Thursday, July 30, 2009
This article won't talk about how Uncle Sam has taken majority ownership in a number of financial giants and car companies. Everyone knows about that.
There are a lot of other reasons the market is not free.
For example, Two new quotes show that Uncle Sam has replaced individual investors. As bond king Bill Gross says:
Investment conclusions? A 3% nominal GDP "new normal"means lower profit growth, permanently higher unemployment, capped consumer spending growth rates and an increasing involvement of the government sector, which substantially changes the character of the American capitalistic model.And David Rosenberg says:
The government has its hands in 40% of the economy and when public sector officials can influence how banks can value their assets, how mortgage servicers should be doing their business, who shall fail in the financial industry and who shall not; and when we have a central bank that is not just the lender but the market of last resort, even for RVs, and a government willing to run up its deficit to levels that would have made FDR blush, then perhaps we can end up seeing a recovery occur sooner than we had thought.(As I wrote last September, the government's involvement in the economy has become a lot like the movie "Weekend at Bernie's").
Then, of course, you have high-frequency program tradings which not only distort the markets, making up more than 70% of stock trades, but which also let Goldman and the other program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See this, this, this and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).
Remember, one of the assumptions of economics is that everyone has the same instant and total knowledge of prices, supply and demand as everyone else. Program trading destroys that assumption, because it gives the handful of financial giants with high-frequency trading programs insight into prices, supply and demand that no one else has.
Indeed, to the extent that banks carry out tasks for the Federal Reserve, they get insider knowledge of what the fed is doing, and which way trends will go. I'm not even talking about the Plunge Protection Team (see this and this). I'm talking about the Fed's "normal" open market operations.
And then there's Goldman admitting that its proprietary trading program can "manipulate the markets in unfair ways".
And don't forget that at least one of Matt Taibbi's claims that Goldman has manipulated every major bubble since the Great Depression has been confirmed. Specifically, the Commodity Futures Trading Commission confirms that speculators caused the oil boom last year.
The Fed's . . . plans to intervene surreptitiously in the currency and gold markets to support the dollar and to conceal, obscure, and falsify U.S. government records so that the intervention would not be discovered.In the same article, Kirby also argues that bond interest rates have also been manipulated.
Given the above manipulations, I don't know if there is anything "free" about the market whatsoever.
The above list is just what comes to mind off the bat. There are a lot of other forms of manipulation. Indeed, I am not even an insider in the financial industry. Just imagine what those guys know.