08/06/2012 07:54 am ET

Now Who Will Rescue Us From The Knights? Seven And A Half Things To Know

Thing One: Who Will Save Us From The Robots? So, hooray, Knight Capital has been rescued from its own stupidity. Now who will rescue the stock market from things like Knight Capital?

Knight is the brokerage firm whose high-speed-trading computers went haywire last week because the firm rushed out new software, causing wild fluctuations in dozens of stocks and blowing a $440 million hole in the firm's balance sheet. Over the weekend, a bunch of competitors and customers pooled their money together to buy a big chunk of Knight, The New York Times writes. The deal keeps Knight in business but will be excruciatingly painful for Knight shareholders, including CEO Thomas Joyce. But that is as it should be -- live by the high-speed trading robots, die by the high-speed trading robots.

The still-open question is what we're going to do about these robots, which have made the stock market their plaything. Knight's new software was part of a plan to attract more retail investors, according to the Wall Street Journal. Retail investors are understandably running screaming from the stock market because of bizarre blowups like Knight's, and like the Facebook IPO, and like the Flash Crash of 2010, and will continue to do so for the foreseeable future. Our crack market regulators, meanwhile, are only now leaping into action to see what can be done to make markets safer. What sort of action are they taking? Calling for hearings, of course.

Thing Two: Congress Hates Working, America: Today is the first day of the first week of a five-week vacation for our hard-working Congress. And boy have they earned it. It has got to tax the nerves, this thing they do of not lifting a finger to help millions of unemployed people, as the Huffington Post's Bonnie Kavoussi wrote on Friday. And it has got to be especially stressful to watch the economy start to suffer noticeably, according to The New York Times, from the "fiscal cliff" of spending cuts and tax increases looming at the end of the year, about which you are also doing absolutely nothing. So don't hurry back or anything, Congress.

Thing Three: Greece Rescued, Again: The European Central Bank saved Greece over the weekend, apparently, by figuring out a way for it to get some short-term financing to fend off bankruptcy, according to German newspaper Die Welt. Meanwhile, talks between the Greek government and its European lenders have gone well, apparently, with Greece agreeing that it needs to get its act a little more together in order to get more sweet, sweet cash. But Italian Prime Minister Mario Monti warned in an interview with Der Spiegel yesterday that the euro is in danger of breaking up if European policy makers don't move more quickly.

Thing Four: Silver Manipulation? Nothing To See Here: In a move that is sure to be a relief to JPMorgan Chase and an annoyance to everybody else, U.S. regulators are probably going to just drop a four-year probe into charges that JPMorgan and other investment banks manipulated the silver market for fun and profit, the Financial Times writes. After four years, 100,000 documents and dozens of interviews, the Commodity Futures Trading Commission just doesn't think it has enough evidence.

Thing Five: China's Shadow Banking System: So China has a massive shadow banking system, just like the U.S. ahead of the financial crisis, that is investing in even shadier junk than subprime mortgages, if that is possible. What could possibly go wrong? Reuters writes: "Like the subprime-debt lending spree in the United States that helped spark the 2008 financial crisis, the products are often opaque, and usually dependent on high-risk underlying assets."

Thing Six: America's Shadow Insurance System: Meanwhile, back in the U.S., in another echo of crisis-era shenanigans, New York's financial regulator is looking into whether insurance companies are using off-balance-sheet vehicles to hide their true financial condition, the Wall Street Journal reports. These practices could mean that insurance companies won't have enough money to pay claims in the event of a crisis.

Thing Seven: China Invests In Japan: While it waits for its shadow banking system to blow up, China is taking much of its spare cash and pumping it into neighbor/hated rival Japan, the Wall Street Journal writes. Hilarity is not ensuing: "Many Japanese appreciate that China's growing economic clout could help Japan in its struggle to regain economic vigor. But at the same time, animosity is growing."

Thing Seven And One Half: Is There Life On Mars? After "seven minutes of terror," NASA managed to land the rover Curiosity on the surface of Mars, beginning a two-year mission to look for evidence of life.

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Calendar Du Jour:

Economic Data:


Corporate Earnings:

Not much.

Heard On The Tweets:

@zerohedge: Even Moody's gets it finally: The size and speed of Knight's losses highlight the operational risks in electronic market-making: Moody’s

@CatherineQ: The Olympics is cool and all but today NASA is lowering a car sized rover onto Mars using nylon strings attached to a rocket powered shelf.

@EricFehrn: I thought the White House reaction to jobs report was 100% spin. Turned out it was even worse - 100.254% spin

@bill_easterly: Investors so desperate for good news, they celebrate positive report on the second derivative of jobs.

@JustinWolfers: The jobs report is our monthly reminder that millions remains jobless, and Congress and the Fed aren't doing anything to help them.

-- Calendar and tweets rounded up by Khadeeja Safdar.

And you can follow us on Twitter, too: @markgongloff and @byKhadeeja