Are Our Financial Markets Being Manipulated?

Are our markets being manipulated by "rogues" or firms? There's New Evidence to Suggest that Crime In The Financial Markets is Rife

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." (Source: 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."

I spoke with Christian Angelich, the founder of GamingtheMarket.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 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 [e-mail]

Comments

[gamingthemarket]

Thank you to Danny Schechter for his continued work on exposing financial crime. Let's address the issue of the market being bigger than a single entity. Consider how wounded and illiquid the market is today. The collapse has caused a new banking monopoly.

There are fewer predators in the lagoon competing with each other, which used to be good for you and me. Today, program trading (computers shooting at other computers) is now 50% of NYSE volume. So instead of your pension having a chance to organically grow, your retirement is being shot down for short-term profits by Goldman Sachs and a few other big banks.

Let’s also become aware of what is really going on when it comes time to raise taxes on the public.
A five-story office building called Ugland House, in the Cayman Islands, is the official address for 18,857 corporations. About half these companies have billing addresses in the U.S. and pay little to no tax. The Caymans Islands provides near-total financial secrecy for companies, banks and accounts.

“They are shortchanging our country even as they profit from it,” says Senator Byron Dorgan.

There are many stories at GamingtheMarket which explain how this works.

[Sinick]

Why am I not surprised that greed continues to rule in the good 'ol (soon to go the way of the British/Roman Empire) US of A? Nothing will get done to rectify this situation until our pols become unhooked from the special interest money machine and bring back some regulation to this insanity.

Unfortunately, nothing timely is going to happen. It's high time for we citizens to emulate the venerable French and roll the guillotines out onto Wall and K Streets.

[Sundialsvc4]

More than anything else, criminals (and HIGH criminals...) crave legitimacy, for themselves and for what they have done.

Above all, banks want you to believe that they were (and that you should be) "surprised" when trillions of dollars' worth of securities were sold that were utterly worthless. They want you to blame Bernie, or simply to envy his Manhattan apartment, so that you will not pause to contemplate the idea of a deliberate swindle to the tune of hundreds of TRILLIONS of dollars ... supported by the Congress, and by the SEC, and by the Treasury and by the Fed. No one wants to ponder whether those "AAA ratings" that were merrily attached to this garbage represented deliberate collusion.

There is, after all, nothing to "ponder." Nothing to "debate." It's simply true.

This, to me, is the ultimate proof of the failure of the "free market" system: given the opportunity, crime will always flourish first, and given no restraints (let alone encouragement) it will grow to unlimited size and rapaciousness. This we know, and this we see.

No one in Washington, having blood-soaked hands, wants the "C"-word (or "High-C") to be attached to what has victimized literally hundreds of millions of American citizens, and millions more throughout the world. But it IS only a matter of time: it will happen.

[Oldtimer]

To a large degree capitalism has devolved the way Marxists predicted.
It has rotted from within. Nothing short of an FDR presidency can save us.
The powers of finance manipulate commodities for profit and hurt the country
and the average citizen in the process. Banks, corporations and politicians
finance the export of American jobs and whole industries. Wall Street
develops financial instruments designed to fool investors.
The list is as long as the practices are pervasive. The cumulative effect
will be that this all ends very badly.....so badly that there could be war.
I can't say for sure if American finance will use it's last trick - war - to fix
it's own mess but I do know one thing for certain. The power of
money has ruined our Democracy beyond repair and it probably
has killed the Middle Class - the backbone of Democracy.
Only an FDR presidency can save us now and sadly I don't see
Obama's advisers in the FDR light.

[WorkingClass]

To a large degree capitalism has devolved the way Marxists predicted

Good work Oldtimer. Your remarks are right on the money - so to speak.

[DHubbard]

GOOD NEWS!!! SEC requested a copy of STOCK SHOCK--new movie about market manipulation. www.stockshockmovie.com

[Henry]

It's a long forgotten fact or rule of the free enterprise market that we all learn as undergraduates and that is: No player in the market is large enough to affect or effect the price of a commodity(or other) in the market.
It's out there on utube with this Kramer bragging about how when he was a trader, he himself, could manipulate a stocks price. Well, this doe s not really sound like complicated math.