Its funny, isn’t
it, that as the capitalist system tries to reinvent itself, the
so called ‘market leaders’, who caused the problem in the first
place, have now been put in charge of designing the ‘fix’.
Although not unlike putting the foxes in charge of the chicken
coop, the main difference is, this time, the farmers are
shooting, cleaning and serving up the chooks for the foxes.
One of the main
characters in this story is a rather large and influential firm
called Goldman Sachs. They aren’t the only one but serve as a
model for what the others aspire to. Here’s a few starters.
Dozens of former Goldman Sachs’ senior staff have gone on to
influential positions in government.
Current head of
the US treasury, Hank Paulson, is a former CEO as was previous
treasury secretary, Bob Rubin. Former Goldman executive, Steve
Friedman, was head of the National Economic Council. Josh
Bolton, White House Chief of Staff, is a former Goldman
executive and World Bank chief, Robert Zoellick, likewise.
Former Goldman CEO, John Whitehead, heads up the US Treasury
Department and former US Export Bank head, Ken Brody, knew them
all from his time at the company.
The Global Power Elite and the World they are Making, David
Rothkopf writes of Goldman Sachs, “Goldman’s influence extends
beyond the ability of its analysts and traders to drive stock or
bond prices up and down … The firm shapes new views of the
world. …it creates new financial instruments that shape the
global marketplace, it can make or break the CEOs and government
ministers who regularly pass through its doors … and it serves
as the hub of an international network of deal makers.” One has
to wonder just how much of our interests Goldman Sachs’ former
executives have in mind when doing their billion dollar deals?
While the focus
of the last couple of weeks has been on ‘the markets’ very
little attention has been paid to the so called ‘dark pools’
that companies like Goldman and others have established. These
‘dark pools’ are named as such because of their “nebulous and
Writing over 18
months ago, Market Watch columnist, David Weidner, notes
that these off book share trading mechanisms account for ten
percent of all share trades. He writes that rules put in place
over a decade ago and which were meant to control these types of
trading schemes, are now outdated and unable to effectively
police or regulate them.
At the same time
that Weidner was writing his article, Goldman Sachs were
announcing to the world that their own ‘dark pool’, SIGMA X,
was able to “allow customers to take liquidity from
non-displayed sources” because, “accessing liquidity in an
anonymous and systematic way is essential to reducing impact
In other words,
the so called ‘leaders’ of the investment and banking world
believe that the system they have created for the rest of us
(the ‘real market’ and its exchanges) is not up to the task of
getting more and more cash to them efficiently.
So while the
main act in the centre ring of the Washington circus is at
present the threats to our retirement funds, superannuation and
property values, I would argue that treasury secretary Paulson
and the media’s main aim is to keep our attention away from the
real action taking place in these ‘dark pools’.
When you think
about it, the first rule of thermodynamics states that matter
cannot be destroyed, it can only be transformed. When you think
of money, even the non-existent type that forms the basis of
most trading these days, and apply this rule, you realise that
something other than ‘huge losses’ is taking place. In other
words, the money is not being ‘lost’, that is destroyed, it is
being transformed into something else or transported elsewhere.
The question is, “into what or off to where?”
newsletter AutomatedTrader included a very bold claim in
its September 22nd update. The newsletter quotes C.
Thomas Richardson. He carries the lofty title of “Global Head of
Transaction Services” of NYFIX. He told the AutomatedTrader
that their ‘dark pool’ system, “Millennium” had set an “all
time, single day record’ in off the book trades. He effused,
“What we’ve seen over the past couple of days marks a compelling
shift, dispelling the previous notion that traders shy away from
executing in dark pools during times of high volatility.” He
goes on to say that “regardless of market conditions” traders
using his company’s system can save money on their share
transactions. Remember, this is just one company running a
scheme that subverts the ‘real’ market the rest of us have to
put up with.
The money in the
‘real’ market hasn’t been lost, misplaced, destroyed or
devalued. It has been sucked into these ‘dark pools’ simply
because they are so efficient in transferring real wealth to
ever smaller concentrations of owners. In other words, the
circus that is going on in Washington is a smoke screen to keep
our attention off these unregulated and unaccountable trading
current, ineffective rules, companies, like Goldman Sachs, argue
that so long as the seller and buyer don’t ‘know’ each other,
then there is no problem. Of course, companies like Goldman
Sachs are usually the ones who advise sellers and buyers and
often ‘lend’ them the funds to trade with. This means the
executives of these companies get to play both farmer and fox.
In short, they can’t lose, particularly when their former CEOs
and other executives are fiddling with the ‘policy levers’ and
telling us its all for the best. Don’t believe them.
The only ones
that lose out every time are the chooks. And we were never any
good at laying golden eggs anyway. Even if we were they would be
sucked down the vortex of the ‘dark pools’ and deposited in
someone else’s nest ensuring the next generation of chickens
don’t need to come home to roost.