Their operation was in jeopardy, their ‘business model’ at risk. Their reaction was typical for the brazen barons of finance, writes Michael Brenner.
Surer than Three Card Monte, from the Tricks with Cards series (N138) Duke, Sons & Co. to promote Honest Long Cut Tobacco, 1887. (Metropolitan Museum of Art/Jefferson R. Burdick Collection)
This week witnessed an historic event – one that deserves to be memorialized. A band of financial speculators were beaten at their own game, losing $3 billion. A bunch of clever young guys used the hedge fund’s own methods to turn the tables on them.
For years, those white-collar cheats have been dealing 3-card monte on Wall Street with impunity. Now, their operation was in jeopardy, their ‘business model’ at risk. Their reaction was typical for the brazen barons of finance.
They rushed to Washington to complain to their retainers, demanding protection of their constitutional right to pillage the American economy.
What they are demanding is a police escort to secure their 3-card monte scam by screening out anyone who might know their tricks. So, what happens?
Nearly everyone in power from Nancy Pelosi to the head of the SEC quickly pledges to investigate this affront to the country’s financial markets – evidently having no other affronts to tend to.
“Guilty is a word unspoken except where innocence dares to plead.”
The electronic trading services went so far as to bar the mavericks from using their facilities; only marks welcome. All agree that it is a national emergency.
I am shocked! Shocked to hear reports of an attempt to manipulate the financial markets – the most transparent, fairest in the world. Some of my best friends are hedge fund directors; they’re the finest, most honest people you’d ever want to know!
In the Old West, ‘bunko-steerers’ like the hedge fund crooks were given one-time invitations to a ‘necktie party.’ Today, they are appointed to powerful cabinet positions and run for president on a major party ticket (Romney).
Welcome to 21st Century America!
(Fletcher6/Wikimedia Commons)
P.S. Janet Yellen, the Secretary of Treasury and former head of the Fed, who infamously received $7 million in speaking fees during her time “away” from government, received $800,000 from Citadel (one of the hedge funds involved) for a single speaking engagement.
That’s double what Hillary got from Goldman Sachs in 2016. That is what they call going ‘long’ on the Yellen investment. Cynics are awaiting Yellen derivatives and Credit Default Swaps (CDS) to be marketed by Goldman – coming soon to a pension fund near you (?)
Michael Brenner is a professor of international affairs at the University of Pittsburgh. mbren@pitt.edu
The views expressed are solely those of the author and may or may not reflect those of Consortium News.
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While it feels good to see these “masters of the financial universe” bite the big one, it troubles me that such a huge financial institution can be so easily manipulated.
in the digital year of 2021, all these sophisticated market manipulations could be easily spotted by those financial professionals, and there must be some decent ones among them to speak out and inform and educate the general public. If they don’t, then some hackers will probably release the related email exchanges or documents to the public, and if hackers don’t, some of the listening-in NSA agents probably will
Evelyn…nicely explained. The world was so taken in by Obama and it turned out he was just a talking head beholden to Wall Street. The big question is what will happen when Covid ends. My guess is that we will have a 1921 situation and the world will go on a bender. But it is all being held up like a house of cards. Unlike 1929 the Fed will allow asset inflation to continue…it masks QE. Those who cash in early will make fortunes but eventualljy the scheme will collapse when too many people try to unload at once. Any number of things could bring a crisis of confidence. Distraction is the usual political remedy.
Yes, Obama was a great disappointment, like Rhodes Scholar Clinton and of course Reagan (but no surprise there….).
I have wondered and will always wonder what could have been done if Obama had decided to put his foot down and stabilize Main Street. Would that have neutered Wall Streets’ bets against the subprime loans vs counterparts AIG?
What if those subprime mortgage loans could have – by executive order or some other mechanism – been reset back to affordable terms? And to a 15 or 30 year fixed rate?
After all the loans were, as I understand it, affordable to the homeowners during the initial two year period.
Would that have turned the subprime mortgages into credit worthy mortgages?
Would the highly leveraged bets against them have been “neutered”?
As I understand it, bailout money for the insurance pay off to the banks who bet against it was funneled through AIG on to the banks who cleaned up on a bet that they had had a hand in engineering the catastrophic position homeowners found themselves in….
Um, a big, in fact THE BIG reason for all these troubles in the financial markets if you want to cut to the chase and oversimplify things is what I refer to as “derivative financial instruments” made viable by virtue of fiat currency. Even the old fart in Omaha said these things were like weapons of mass destruction and he was correct when he said that……they make little things exponential and it happens in a heartbeat.
~
As we should all know, once a weapon is created those who made it can’t control their curiosity and they want it to be used to see what they made. Japan felt that firsthand.
~
The problem with derivative financial instruments is that they are based upon calculus and at the most extreme edges (when you get close to zero and/or infinity) the mathematical tool of calculus has some very serious flaws – not to mention the flaws of the humans trying to use the tool. I advise anyone against trying to approach zero or infinity mathematically or otherwise. If you do, get ready for some unexpected consequences. I think we are in the midst of that or fixing to be in a serious way very soon.
~
I like watching the hedge funds sweat and I hope all the fake billionaires go downs in flames! Flames of their own making in the Cave of Wealth and Death where they have been residing and stealing from the proletariat. If you go in there, into that cave, get ready it won’t be what you were expecting………..and there is a reason why the word “death” is in the name. Don’t go in there and expect things to be honky-dorey. Your momma probably told you never to go into a cave like that, so you should have know better.
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2021 – The year of reckoning!
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BK
I have seen a few stories on that, but not a single one commented with numbers what are assets and profits per share, so one could make an opinion what is “fundamental” value of shares of Gamestop, plus what was the size of short positions and how many of them were “naked”. Looks like throwing card-counters out from a casino.
Wasn’t this the way George Soros made his living, only he took whole countries down, or crippled them at the least? It wasn’t stocks, as I recall, but currencies. I remember him testifying before Congress when the market collapsed in 2008 when he or someone else claimed Soros raked in a few billion on the “downside”. Great British movie about Rothschild where other investors ganged up on him by selling off bonds. Instead of capitulating Rothschild continued to buy until he had cornered the market and made “another killing.” Course it was a movie.
The rules must be uniform. What is good for the goose is good for the gander.
As for the Former Federal Reserve chair Janet Yellen (the current Treasury Secretary) and her indecent relationships with the WS (and her incestuous relationships with Congress), this is a National Scandal.
As I understand it, Robinhood, the online stock trading service used by many of the insurgent investors, was forced to meet deposit requirements put up by the clearinghouses through which all stock trades flow. Such requirements are normal but had been raised by tenfold in one week, which made it necessary for Robinhood to come up with $1 billion in order to continue its Gamestop buying activity. Is this an example of the system working as it should to protect small individual investors or to protect big Wall Street investors?
Robinhood shut down buying of the stocks in question but allowed selling to continue, to drive down the price and help the hedge funds.
Robinhood is a creature of the hedge funds itself. It offers free trading, because it sells the trading info to hedge funds. The traders are the “product”, and hedge funds are their clients.
“The Silicon Valley-based trading platform makes a large amount of revenue from Citadel Securities, a Chicago-based financial-services giant. Robinhood’s regulatory filings show the company charges large investment firms called “market makers” fees to access real-time information about which stocks its users are buying and selling, a practice some regulators and industry watchers have seen as a potential conflict of interest.”
quoted from this Washington Post article,
hXXps://www.washingtonpost.com/business/2021/01/29/robinhood-citadel-gamestop-reddit/
Yup! Squealing like the scalded, gravy sucking pigs they are, poor babies.
What happens on Wall Street is too opaque for a naif like me to comment on, but to the extent that I do understand what happened, that some of the big boys got taken at their own game, I can only say: Poetic justice gentlemen, a condign punishment.
WallStreetOnParade DOT com is run by a husband wife team – him a journalist; her a retired WallStreet broker/trader – Russ and Pam Martens.
Yesterday in this article, the Martens documented that the scuttlebutt floating around about GameStop is incorrect and/or incomplete:
For example, one of the people involved in the pumping of the stock scheme seems to have been a registered financial officer of a financial company who was well informed on the market. And knew or should have known that he was breaking rules – like the “know Your Customer Rule” – advising investors NOT to take risks above what they could reasonably afford.
Please see the article titled: “GameStop Promoter Keith Gill Was No “Amateur” Trader; He Held
Sophisticated Trading Licenses and Worked in the Finance Industry”
As a start to clearing away the opacity of why our financial markets have turned into casino style gambling using taxpayer insured deposits I think it helps to consider the history, I was a registered broker and watched the dismantling of the regulations put in place
when wiser heads in Congress took action to regulate the financial markets after the Great Depression so we’d never again have another financial collapse: The Security and Exchange ACTS of 1933-34 including Glass Steagall.
In the late 1970’s I studied harder for the Series 7 and other exams to become a broker than I did in college…..many of those rules involved the responsibility of brokers to protect their customers instead of preying on their vulnerability and unfamiliarity with how things work.
In the 1980’s and 1990’s I saw it all start to unravel under Reagan – deregulating the S&L’s and Clinton- deregulating the banks.
Under the banking regs of Glass Steagall 1933-34 Commercial Banks were given the opportunity to offer their depositors “tax payer insured deposits” up to $100,000 (I think) per account to bring trust back into the banking system. In return for that privilege the banks were required by law to use those insured deposits to make “safe” loans. They were not permitted to use taxpayer guaranteed depositor funds to gamble on schemes and highly leveraged bets as goes on today.
Under the Reagan and Clinton administrations the government guaranty backing customer deposits stayed in place but the lending side was deregulated; no longer restricted to making safe neighborhood loans to homeowners, businesses, etc.
Commercial Banks which had had to operate under restrictions were bought by Investment banks which exploded in size and complexity to include insurance companies hedge funds and so on.
It’s ok, IMO, as you may agree for Investment Banks to use their own capital and depositor money to take on whatever risk their depositors and investors can stomach but it’s not ok to do that with taxpayer insured deposits since it becomes a culture of “Heads we (banks) win; tails you (taxpayers) lose.
So there should be strictly regulated Commercial Banks who can offer taxpayer insured deposits and Investment Banks who are on their own.
The gambling with taxpayer insured deposits has gotten so bad that there are $trillions of dollars of bets outstanding that are not regulated and threaten to destabilize the financial system.
e.g. Credit Default Swaps are simply insurance bets against a third party that they will go into default.
Prior to the 2008-2009 Great Recession, big banks bought insurance policies against the debt of companies that they knew were likely to fail. And they weren’t even required to own what they were insuring so, say, AIG accepted monthly payments of $10,000 per contract by several Wall Street firms that insured many times over the amount of debt outstanding on the company that was shaky. And when we “bailed out” Wall Street, we the taxpayer were paying off those bets because AIG couldn’t make those huge payments and would have gone under.
Also, for example, banks were allowed to issue mortgages to first time homebuyers and were not required to keep 20% of those mortgages on their books to make sure they scrutinized carefully whether the homeowner could afford the loans. The banks sold them off to Wall Street which repackaged them into tranches that nobody could untangle or understood what they were worth. The goal was to make huge profits and they did. They then bet against those mortgage packages because the homeowners didn’t understand that the teaser rates they were getting would be reset 2 years later to something they couldn’t afford given that to offset the below market teaser rates the reset would be to a higher rate and the remaining balance on the mortgage would be higher to offset the teaser rate.
For someone who knows next to nothing on the real operations of the financial and stock markets like me, your elaborations on these issues, especially exposing its nasty sides, is indeed an eye opener. Thank you so much for your helpful nuggets offered on the basis of personal professional experience and true competence !
Pam and Russ Martens have another article today, disclosing the names of the large holders/traders of this stock, on their website, WallStreetOnParade DOT Com
Their source of information is the Security and Exchange Commission (SEC) which by law requires large share holders (5% I think of the outstanding stock) to report their purchases and sales of stock which are then released to the public on their website:
U.S. SECURITIES AND
EXCHANGE COMMISSION
FILINGS (Edgar Company Filings)
One of the things they monitor is insider trading.
It’s illegal for insiders to use inside information to trade their stocks before the public is informed of any news that would move the stock price.
Wikipedia, as you know, is a great source of info and I think very helpful with the historical background and regulatory function of the SEC and other regulators.
evelync: thanks for the informative comment
If what happens on Wall St and in stock markets everywhere were really all that complicated, there’d be hardly anyone operating these constant scams. It’s secretive, not difficult to grasp.