Monday, April 7, 2014

Wall Street's Omerta: Greed's Code of Silence

The Flash Boyz
Everyone on Wall Street knows they are being front-run by HFT bots, but no one says anything, undoubtedly because that's the least of the corruption going on - If someone won't call the police when they are being fucked over, it means that they too are a criminal...

Like the Mafia, Wall Street has its own code of silence. Half of the book "Flash Boys" is this guy (Brad Katsuyama) running around trying to get anyone to talk about why the markets had suddenly become so messed up and why he was getting screwed on every trade. Everyone knew about it, but no one would talk about it.

Like the Mafia, people on Wall Street don't like to draw ANY attention to their "business", because who knows what could come from that? One minute they're investigating front-running bots skimming pennies in front of E-traders, the next minute they're trying to figure out why every stock in the known universe sells off AFTER good news is released. Or maybe they start looking into the "chinese wall" (aka. paper wall) between the "buy side" and "sell side" at the major brokerages. Or maybe they look into "soft dollar" kickbacks from brokerages back to hedge funds so hedge funds can keep their entire 2% management fee while taking expenses out of the fund's profit, thereby disproportionately screwing the customer and benefiting the fund's management. Of course, the SEC already knows all of this is going on in broad daylight.

In hedge fund SAC Capital's own words...

"The types of “research” SAC may acquire include, but are not limited to, the following:"

"advice from brokers-dealers on order execution, including advice on execution strategies, market color and the availability of buyers and sellers (and software that provides such market research);"

Broken Markets, Broken Regulators, Broken Moral Code
The book "Flash Boys" is late to the party. This was all well-documented years ago on ZH and in the book "Broken Markets". "Flash Boys" will be the made-for-TV version of events. Regardless, the main point is that for YEARS NOW, the SEC has known that the major exchanges were allowing HFT bots to front-run small investors and they just let it happen. Ameritrade, Schwab etc. they were all in on the dirty little secret AND the kickbacks aka. "payment for order flow". And when Katsuyama tried to get these large retail investment firms to send orders to the new "fair exchange" (IEX) that didn't allow front-running, there was very little interest, because they didn't want to give up the kickbacks they were getting from HFT and because no one wanted to piss off the big Wall Street brokers i.e. a critical source of "information". No surprise, no one had an interest in doing honest business. 

Other types of broadly accepted corruption occurring in broad daylight
"Carried Interest": Wall Street's special perk from Congress
Republican candidate Mitt Romney who bragged "I like to fire people", famously complained that 47% of Americans are dependent upon the U.S. government in one way or another. How many of those people did he lay off while he was at Bain Capital? Thousands. According to the WSJ, 22% of the companies he took over went bankrupt, many "with significant jobs losses". Still, for all that "hard work", he only pays 15% taxes annually, because like other types of hedge funds on Wall Street, the tax rate even for short-term investments is far lower than for regular income. Hedge funds flipping first day IPOs bought the day before at half price, pay 15% fucking tax!

The Idiocracy's Code of Silence
So as we see this decayed society has an extremely high tolerance for greed and corruption. And it has its own code of silence. Because like the Mafia and Wall Street, more than likely that's the least of the corruption going on...

P.S. (you can't make this shit up)
Russians Programmed HFT for Collapse (Because they're good at that)...
Russians immigrants were hired to program HFT, because the morons who "invented" HFT were not smart enough to actually program it. The most famous HFT programmer is Sergey Aleynikov who was jailed for "stealing" Goldman Sachs' proprietary code. The FBI charge against him was that "somebody who knew how to use this program could use it to manipulate markets in unfair ways" - that privilege of course is reserved for Goldman Sachs. One of the Russians interviewed in "Flash Boys" said that Russians were adept at programming HFT because they had been trained under Communism to "work the system" and systematically exploit loopholes. Meanwhile, no surprise, the number of "flash crashes" that have occurred since the rise of HFT has gone parabolic, as the amount of underlying complexity has exploded beyond anyone's control. By some estimates there are now upwards of three single stock flash crashes a day ("Every Day Another Flash Crash"). Ponzi capitalism first cannibalized the economy, and now it cannibalized the stock market itself. These greedy Wall Street dumbfucks systematically weakened kapitalism's holy casino, using the same techniques that imploded Communism. The irony is biblical.