May 20, 2010

Trading, Drilling, Technology, and Kleptocracy


The other day Barry Ritholz had a brief post expressing his skepticism about some Tradebot self-hype:
The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.
True, exaggerated, or bullshit, any way it’s another example of the unproductive, parasitic nature of these outfits, and of how they operate in a totally rigged market which is the opposite of a “free” market.
Using the word “risk” as part of the English language, how is it possible to profit every day and yet still be running “risks”? It’s statistically impossible. If you win every time, by definition you’re not running risks. By definition you’re playing a game rigged in your favor.
How is HFT not insider trading and market manipulation? It is obviously those things. If the system is rigged so that it’s possible for computers to do this, and this method then becomes the monopoly of those who can afford the hardware and the quant “talent” to perform these manipulations, by any objective measure it’s a rigged insider-trading market. The fact that the “law” has failed to adequately criminalize it doesn’t change its criminality. (And meanwhile the neoclassical ideologues will still prate on about the “information” of the “free market”.)
What value does this activity create for the economy and society? Obviously none. I doubt that much of the alleged well-planned, constructive capital investment which is supposed to justify the existence of the stock market occurs at 11 second intervals. I’m pretty sure the vaunted “market making” and “liquidity provision” will always be likely to disappear exactly when it’s called upon, as we saw on May 6.
That’s the state of affairs when we look at just the “shadow banking” side of it. When we look at this kind of market manipulation from the TBTFs Goldman, JPM, Citi, and BofA (all also perfect last quarter; by contrast Morgan Stanley was downright pathetic with four losing days), and we see how they’re not only playing the same rigged market games but doing it with free money from the Fed, the only question to ask is, How can they lose? On the contrary, if anything they should be far more “profitable” than they actually are, if they’re really as “talented” and smart as they’re cracked up to be, and not just a bunch of thugs leveraging an entrenched monopoly position. For example, according to this Zero Hedge analysis, Goldman’s performance is actually mediocre given its advantages. (And MS must be really incompetent, to have lost at all under these circumstances.)
As for whether it’s really possible to be perfect, to rig the market to the point of total domination, I wish they could and would. That would simply be the end of this rotten currency, since if one man sits on an infinite pile of paper dollars while everyone else has none, then the dollars are worthless. That’s simply the core contradiction of capitalism at work once again. The core logic of all these crimes. The only real issue is to what extent they use the ephemeral fake wealth to buy and try to hold real assets like farmland, watersheds, the means of production for post-oil craftwork, toolmaking, etc. From that point of view I suppose it’s good news when we see the banksters still using the looted “bonuses” to buy mansions and yachts and Ferraris and such, the way all the media reports say. While the bank rackets as a whole are positioning themselves for the return to feudalism, apparently most of the individual cadres still consciously think it’s business as usual.
Meanwhile, the HFT issue is a distillation of the absurd power we’re giving these criminals and their machines. We see how technocracy in action will always be the tool of corporatism. What could these computers and the “talent” which programs them do if put to socially productive purposes? I suppose the propaganda tracts are full of highfalutin visions, but in real life we’ll never know. All those high-flying promises were nothing but lies.
An even more tremendous example of prostituted technology run amok is currently injecting poison into our ocean at an unfathomable rate. It looks like my post which I whimsically named after a volcano erupting forever was more prescient more quickly than I thought. I just mistook which volcano it would be (though ominous Katla’s been rumbling).
I just used the word “unfathomable” to describe the rate of the oil’s eruption from the wound, because that’s literally true. Not because the technology to gauge the flow with considerable precision doesn’t exist, but because the government is allowing BP to veto such measurements. (Is anybody still going to say something about this technology existing for the public good, and not purely as a racketeering tool?)
Finally, under extreme duress, BP enabled an improved view of the hemorrhage, and what does it show? Although the lying MSM continues to parrot the 5000 barrels/210,000 gallons fraud, which the NOAA itself at first contradicted weeks ago before falling into line, the new view proves that it’s bleeding out at least 20K barrels a day, as independent commentators have been saying, and probably far more. Some estimate the current flood at 70K per day. And it can get a lot worse. BP itself estimates the maximum likely flow at 163 thousand barrels per day.
So having triggered an absolute economic and environmental catastrophe, what do BP and Obama do? Do they want to fix it at all costs? Do they feel remorse? No, they have one overriding priority – lies and secrecy. Just as the purpose of the MMS was never to regulate Big Oil but to facilitate its looting, so Obama sees the government’s purpose as to run propaganda interference for BP. He apes its lies, supports its spin, accedes to its information blackout, and even lets BP deputize the Coast Guard as a private thug to smack down any would-be accurate media coverage.
The fact is that just as corporatized technology could financialize and loot the economy, but can never repair any of the damage it’s caused, indeed can only complete the destruction on a one-way track (the Bailout), so BP’s technology could tear this hole in the bottom of the sea causing energy concentrated to the point of poison to hemorrhage out into the lifeblood of the earth itself, its allegedly infinitely renewable seas. But the same technology cannot fix it, and can’t even accurately look at it. (Physical and political impossibilities are the same thing if we refuse to change the latter.) Once Humpty Dumpty falls off the wall, all the kings horses and men wouldn’t be able to put him together again even if they wanted to.
But of course they don’t want to. They want to lie and say he’s fine, that they’ve restored him to his perch, that he never even fell off the wall in the first place. In Lewis Carroll’s great parable, Alice isn’t actually talking to Humpty Dumpty at all when he tells her “When I say a word, it means whatever I want it to mean, nothing more and nothing less. The question is who is to be Master.” She’s talking to a hologram, with the words being thrown to the image by the spinmasters. The real Humpty is on the ground, dead and in pieces, on the other side of the wall where she can’t see.
So it is today with our politics and our economy. And now with the sea itself.
Obama’s and the system’s lies for BP and Drill Baby Drill are typical. They’re the only response the system has available as each new disaster hits. It’s just like the Bailout secrecy: How much public money has the Fed allowed the big banks to steal via its “facilities” and MBS buys and QE? Who were the robbers and to what extent? They know their actions constitute history’s greatest robbery, and they have no defense other than secrecy and stonewalling. They even wanted to declare the details of the AIG money laundering scam a matter of “national security”, that’s how hysterical Geithner was about trying to cover his criminal tracks. It’s the same instinct of gangsters everywhere. As Jimmy says in Goodfellas, “Never rat on your friends, and always keep your mouth shut.”
Let’s get it straight once and for all. Nothing works anymore. Corporations, government, system technology – it all exists for no purpose other than to steal, and in the process it can do nothing but destroy. It can never again create, never distribute, never fix or heal. It can steal and destroy and then lie and cover up. That’s kleptocracy. It can never be “reformed”. Anyone who doesn’t want to live forever as its slave has to do all he can to break free of it. We have to go “off-grid” as completely as possible – economically, socially, and politically. We have to work to strengthen relocalized ties, and to defend what we build from the system’s inevitable attempts to crush us in the cataclysm of its own collapse.


  1. Perfect post for today, Russ. The bloodbath on Wall Street is reflected here somewhere. Sure, it ain’t over yet (meaning I’d bet it’ll recover again), but the boom-bust cycles are coming ever quicker as FEDZILLA shakes itself to death. It’s a gigantic government and it is propped up with so much trickery and the sheer will-power of the very wealthy, so it will die a hard and terrible death. Hopefully, following the advice you’ve given here, we can minimize the impact of the death upon our personal lives.

    Comment by Bloodgroove — May 20, 2010 @ 7:23 pm

    • Volatility in all markets is an expected symptom of the monster’s death throes.

      You’re right, the thing has such tremendous inertia that it might stagger onward for longer than one might expect, and in the end cannot do anything but fall hard, since lying down to die with some grace and dignity is impossible to its nature.

      So it’s true, all we can do is try to weather the storm and defend what we can.

      Comment by Russ — May 21, 2010 @ 3:15 am

  2. I think you are wrong about the financial markets. They are not rigged but rather overwhelmed by a tidal wave of worthless money endlessly seeking tiny returns because although every asset has a price, no asset has enduring value. Never having a losing day is not the same thing as never having a losing trade.

    In many ways we should be grateful for the existence of these markets, which divert so many predators from real criminal activity. Anyone can avoid being a casualty simply by not playing, and anyone can learn to play with relative safety and eek out a living too, which is a plus in a world of diminishing economic opportunity. Of course, what people cannot do is what they are endlessly told to do by experts: purchase stocks and bonds as an investment for the long run.

    The truth is that our nitwit banking system created all this limitless money over a period of 39 years, from the day Nixon closed the gold window and destroyed the Bretton Woods system that had worked pretty well for 25 and might have worked for 50 more if the country had heeded Eisenhower’s warning about the military industrial complex.

    Of course, the ultimate problem is oil, the failure to see it as a blessing wrapped in a curse. This again is a political problem. We have a short sighted ignorant population on the one hand, and a corrupt and clueless leadership on the other, and nature gave us just enough rope to get us to the brink of destroying the planet. Will we go over the brink? Inevitably. There is more than enough oil left to accomplish that.

    Comment by jake chase — May 21, 2010 @ 8:21 am

  3. Jake wrote:

    “In many ways we should be grateful for the existence of these markets, which divert so many predators from real criminal activity. Anyone can avoid being a casualty simply by not playing.”

    That may be the most errant assertion you’ve made around here. The collateral damage- and I don’t have the time or the inclination to list it all, from rigged markets, and they are rigged, and their inevitable wild gyrations, is vast.

    Comment by Edwardo — May 21, 2010 @ 9:04 am

    • The collateral damage is not the result of markets. It results from toxic structured products, regulatory ineptitude and political corruption. Try to imagine a world without these markets. How exactly would it work?

      Comment by jake chase — May 21, 2010 @ 11:18 am

      • I don’t know if the markets divert those who would otherwise be more formidable criminals. My impression is that the vast majority of them are cowards who would never have the guts to do anything if their rigged law wasn’t protecting them.

        I’m surprised as well to see you suddenly flogging the fraudulent “uses vs. abuses” line.

        A world without these markets? That would be 99% of mankind’s timeline, and 99% of the world today as well (including in the West), except to the extent that we’re the victims of these criminals and the gangland system they force upon us.

        With a rational distribution of land and skills no one would need anything but the most rudimentary “finance sector”.

        Comment by Russ — May 21, 2010 @ 3:23 pm

  4. Jake wrote:

    “The collateral damage is not the result of markets. It results from toxic structured products, regulatory ineptitude and political corruption. Try to imagine a world without these markets. How exactly would it work?”

    The regulatory capture-not ineptitude- political corruption, and toxic structured products are inextricable from what is left of our so called markets, which can barely be called markets because they don’t allow for anything like reasonable price discovery. And I second Russ’ comments.

    Comment by Edwardo — May 21, 2010 @ 9:45 pm

    • “Price discovery” – that may be the one that cracks me up the most.

      Is the most flagrant contradiction between proclaimed “free market” ideology and corporatist practice the manipulation and artificial opacity of market information (not to mention the corporate/government secrecy regime in general)?

      (I know it’s quite a competition where it comes to ranking the Big Lies.)

      Comment by Russ — May 22, 2010 @ 6:29 am

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