Yes, the Financial System Is Rigged. Why Shouldn't You Profit From That?


By Patrick   Follow   Sun, 10 Mar 2013, 3:13pm   351 views   3 comments
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http://www.businessweek.com/articles/2013-03-08/yes-the-financial-system-is-rigged-dot-why-shouldnt-you-profit-from-that-knowledge

Who pumped more than $2 trillion into suppressing interest rates to record lows? This is the lesson we should all be taking as the Dow Jones Industrial average closes at yet another record. Its the lesson of how Wall Street traversed the Great Recession, after it survived (and thrived) past Washington-ameliorated crises such as the collapse of Long Term Capital Management and the Savings & Loan imbroglio.

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  1. Davide


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    1   7:29am Mon 11 Mar 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Hmmm, I'm having a hard time answering that question as to why NOT profit off a 'fixed' system.... Of course, it's not like it is EASY to do that, eg I fully anticipated the housing market crash, and tried to short the big name players, but got in too early and remember wondering why the markets denied the obvious for so long (I ended up breaking even, not profiting; it's all about knowing not just the direction, but the timing of the move).

    But the bigger question is, why shouldn't people just cut out the middle man (Wall St) and directly profit from their willingness to engage in amoral "i'm getting mine/its every man for themselves" activities? If failing bank CEOs can pilfer (rob) the firms they should protect with the stroke of their pen for fun and profit (Angelo Mozilo), then why cannot the little guy try do so, as well?

    That's hard to answer, when lawlessness is rampant.

  2. zzyzzx


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    2   7:37am Mon 11 Mar 2013   Share   Quote   Permalink   Like   Dislike  

    Davide says

    Hmmm, I'm having a hard time answering that question as to why NOT profit off a 'fixed' system.... Of course, it's not like it is EASY to do that, eg I fully anticipated the housing market crash, and tried to short the big name players, but got in too early and remember wondering why the markets denied the obvious for so long (I ended up breaking even, not profiting; it's all about knowing not just the direction, but the timing of the move).

    You forgot the old adage about bubbles capable of lasting much longer than you could ever expect. We could probably start a whole new thread on that, but the housing bubble lasted at least 3 years longer than I expected.

  3. Davide


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    3   9:44am Mon 11 Mar 2013   Share   Quote   Permalink   Like   Dislike  

    Hmmm, I didn't "forget" it; anyone remotely aware that we live in a Ponzinomic system of serial bubbles knows that.

    However, it's one thing to know it, and another to live it when your $ is on the line. There were absolutely no guarantees that the market WOULD collapse (as the lesson of the current fed debt has shown, denial can span many generations: politicians have been decrying for decades how we'd be leaving a bill for our kids to pay, and that was when I was a kid, LOL).

    The big players (WF, CW, GS, etc) were obviously aware of their own scheme, but they and the Gov't denied any problems (remember Hank Paulson's words of denial in 2008, saying "the financial markets are fundamentally sound"?). The economy obviously was buoyed up by the Fed Gov't (Plunge Protection Team watching Wall St, TARP, etc).

    There's an old trader saying, "Don't fight the Fed!" which is true; shorting the market is definitely going against the artificial buoyancy of a balloon held under water, waiting to see if it pops or rises to the surface first.

    And that's my point: the individual investor who tries to "profit from the rigged financial system" Ias the head-line of the article states) is getting into a water fight with the "too big to fail" players backed by the gov't, so he's going up against combatants armed only with a squint gun against those using water cannons.

    Go with them, go against them: it doesn't matter, as the insiders WILL liquidate THEIR own holdings (based on insider information) LONG before the individual investor figures out what is going on. There's a reason investment firms (like GS) go to extreme lengths to hide their market-moving trades.

    Goldman Sachs (GS) pushing dangerous product (CDO's) out the front door to their retail investors, while their own traders were shorting it in the back office. Their penalty? Who went to prison at GS? Oh, that's right: no one.

    Since there's massive interference with the "free market", conventional methods (like technical analysis of price/volume action) come up lacking compared to those who are cheating (trading on "insider" information was still illegal, last I checked).

    My point is, the entire premise of the article is flawed, since the reality is that an outsider cannot consistently profit from a rigged game (and even aside from insider trading, the big firms use high-speed trading algorithms, servers are co-located at the exchange to reduce delays in placing trades and obtaining price/volume information, etc).

    So my question becomes this:

    Since the social contract of abiding by the rules of fair play seem not to be in play any longer (and "too big to fail" firms have unquestionably confirmed that moral hazard is just not a risk anymore), then what's to keep all of us from simply robbing each other at gun-point?

    At least a mugger can claim some moral high ground by not trying to obfuscate what he's doing to his victims, and he runs off afterwards acknowledging that what he's done is wrong and he WILL be arrested, if caught. A lack of enforcement on Wall Street has proven there is no risk of getting caught there; Wall St firms don't even scamper off, but instead bask in bonuses.

    So the article actually becomes a question: "if they can do it and get away from it, why can't I do it, too?"

    The answer is that, outside of Garrison Keillor's imaginary Lake Woebegon (where all the citizens are "taller, better-looking, and smarter than the others") we ALL cannot be winners: a winner implies others MUST lose.

    And it's precisely because the big players WIN that outsiders must LOSE: that's exactly WHAT it MEANS for a market to be fixed or rigged.

    So even thinking YOU CAN be the exception to the rule is simply encouraging others to play a rigged game, where facilitating is morally-questionable, in itself.

    It's also the oldest appeal to the victim's ego, a dynamic which explains why people return to Vegas after repeatedly losing, or they buy lottery tickets despite the odds, etc, thinking THEY'LL be special, the long-shot.

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