By: Paul Farrell
April 9, 2014
SAN LUIS OBISPO, Calif. (MarketWatch) — Rigged? Yes, the stock market’s rigged. No surprise. Everyone knows it. Always has been rigged. Always will be rigged. Started when 24 stock traders met under Wall Street’s Buttonwood Tree in 1792. Called their new auction system NYSE. Part contract, part monopoly, part conspiracy.
Wake up. Wall Street was rigged from Day 1 when those 24 stock traders agreed they would jointly control all buying and selling of your stocks.
Lewis is all over the media promoting his new book tour — the Financial Times, the Wall Street Journal, Boston Globe, CNN, New York Times, CBS, BusinessWeek, Bloomberg, Vanity Fair — a media version of carpet bombing. In fact, he’s so intense, you start believing it must be true, that the bad guys will lose this time.
But “Flash Boys” is actually “magical thinking,” fueling the illusion that not only “this time” we know Wall Street really is rigged, “this time” we’ll get some real reform. Freud warned us: This kind of thinking is tied to hard-line narcissism, an eternal optimism and belief that if we wish really hard for something, it will magically appear.
Warning, stopping high-speed traders is a fantasy: Believing that maybe this time Congress, the SEC and some magical Washington hero will rise up to fight for the masses? Will “un-rig” the latest bad guys of “Flash Boys?” Will enlightened our clueless public? And then Wall Street’s historically rigged stock market will finally be safe for all of America’s 95 million defenseless Main Street investors?
Don’t fall for the gag. Michael Lewis’s book tour will be over soon. The media will move to the next big thing. Time will fade. And Wall Street lobbyists will dampen any enthusiasm for reform.
Plus big data, Google, Twitter will just keep overwhelming us. You’re hypnotized. Soon you’ll even forget why you thought high-frequency trading was such a big deal, especially if you read Fortune’s latest lead piece: “Five Reasons the Market Must Fail.” Yes, fail: Aging bull, rising P/Es, sluggish economy, fewer stocks hitting new highs, overoptimism.
And their spoiler alert “now that you’re depressed,” the volatility/fear index is rising. “Flash Boys” wasn’t even one of Fortune’s five reasons stocks will crash.
Admit it: Wall Street’s NYSE conspiracy was rigged back in 1792. And it will still be rigged in 2192. Insiders own the casino, they set the rules, they operate the games. You lose.
Yes, this all just basic psychology. There’s a capitalist gene in the DNA of all Americans, neuroscience research warns. “Flash Boys” behaviors that will never disappear. Can’t. Human nature. Think Whack-a-Mole, those endless, futile efforts to knock them down. You fix one, a new, often bigger one, pops up.
Yes, Michael Lewis is selling books and the media’s “magical thinking” machine loves it. But it’s just a magical “Willie Wonka” fantasy. All those bad, con artist “Flash Boys” will just invent new algorithms, new scams, new tricks, new ways to beat the system. Remember Gordon Gekko? New characters pop up. The next “Wolf of Wall Street.” New Madoff. Milken. Minkow. Enron. New, bigger, more sophisticated Ponzi schemes.
Besides, Main Street’s gullible. As P.T. Barnum put it: “There’s a sucker born every minute.” The real sucker is us. We buy the bull. High-speed traders know it.
Wall Street gets rich keeping Main Street irrational, uninformed
Here’s why: Remember Princeton psychology Prof. Daniel Kahneman? He won the Nobel Prize in economics for proving investors have always been irrational. And always will be irrational. Always. That’s how Wall Street traders can control our brains, by using their high-tech neuroeconomic data, strategies and algorithms that model our irrational behavior.
And also why one of Kahneman’s leading disciples, University of Chicago Prof. Richard Thaler, could write in his “Advances in Behavioral Finance II” that Wall Street “needs investors who are irrational, woefully uninformed, endowed with strange preferences.”
Why? Wall Street is a money machine generating hundreds of billions in fees, commissions, bonuses and options annually. They do not want the kind of “Intelligent Investor” Warren Buffett’s mentor Benjamin Graham wrote about. Wall Street’s casinos will always be one step ahead of you, monitoring your action, mapping, manipulating your behavior with algorithms that guarantee you can never, never beat the market with your irrational brain.
So the blind really are leading the blind: Traders have no public conscience, are total narcissists. As Kahneman put it in “Thinking Fast and Slow:”:The stock-picking skills of Wall Street money managers are “more like rolling dice than like playing poker.” Their picks are no more “accurate than blind guesses,” says Kahneman. And “this is true for nearly all stock pickers … whether they know it or not … and most do not.”
Get it? They don’t know how incompetent they are. Bur they can easily con us.
Yes, not only has the stock market been rigged since Wall Street’s 1792 Buttonwood Conspiracy, but the U.S. government is the biggest rigger of stocks. Think of the power and blunders of Fed Chairmen Alan Greenspan, Ben Bernanke and now Janet Yellen. Estimates tell us that our government insiders saw the 2008 crash coming, failed to act, and since the Fed has piled on more than $20 trillion in new debt to prop up our incompetent too-greedy-to-fail banks.
And they get away with it because the financial community spends billions on buying huge favors from hundreds of lobbyists, senators and representatives that help them all rig the stock markets by convincing the Fed, the White House and Washington’s regulators to favor them.
Here’s some classic examples of Washington rigging, manipulation: In the runup to the 2008 bank credit crash, even as the impending doom became obvious with the collapse of major financial institutions like Bear Stearns, Treasury Secretary Henry Paulson misled Fortune magazine: “This is far and away the strongest global economy I’ve seen in my business lifetime.” Bernanke also misled us: “I don’t anticipate any serious failures among large internationally active banks.”
Go back further to late 2000: While America was sinking deep into a recession, while Wall Street was losing $8 trillion of market cap, an optimistic Greenspan hyped stocks with this misleading cheer: “The three- to five-year earnings projections of more than a thousand analysts … bode well for continued capital deepening and sustained growth.” After the crash, he admitted publicly to a Senate committee that he was clueless: “I really didn’t get it until very late.”
Yes, the Fed and the rest of Washington are America’s biggest riggers. Remember Yale economist Irving Fisher’s famous prediction days before the 1929 Crash: “Stock prices have reached what looks like a permanently high plateau. … I expect to see the stock market a good deal higher within a few months.” … two months later Treasury Secretary Andrew Mellon added: “I see nothing in the present situation that is either menacing or warrants pessimism” and “during this coming year the country will make steady progress.” … the following summer President Herbert Hoover predicted: “The depression is over.”
Bad calls? Incompetence? Clueless? Political bull? Certainly misleading. And costly for America’s 95 million investors, adding soaring federal debt. But will they ever stop? Never.
Tell Michael Lewis he’s a wishful thinker. Maybe he can stop “Flash Boys” from rigging … maybe slow down the clever rigging minds of the next Madoff or Ponzi … but we will never, never stop the perennial rigging by the Federal Reserve, Congress and the White House. Rigging is the American way of life!
Gold Goliath is not your typical gold dealer.