Friday, November 06, 2009

Goldman Sachs Has One Losing Trading Day In The Third Quarter - Markets Are Rigged Courtesy Of Washington Politicians

"Sometimes the law defends plunder and participates in it. Thus the beneficiaries are spared the shame and danger that their acts would otherwise involve. But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them and gives it to the other persons to whom it doesn't belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime." -- Frederic Bastiat

Now, I'm going to tell you right now, it doesn't get any better than this. 98.4% winning trades? Anyone that has built trading systems, traded professionally or understands probabilities will tell you this type of win-loss ratio is impossible unless the market is rigged. A good trading system will have 60-70% winning trades over the long term. No transparent, open market with millions of participants - all with equal access to information - can ever produce the kinds of returns Goldman is making.

This is clearly not sustainable. Either transparency and legitimate competition for capital will be restored, Goldman will trade the liquidity out of counterparty participants thus causing markets or returns or both to implode, markets will blow up, other market participants will adopt the same strategies or some unforeseen dynamic will develop. That means the perceived brilliance of Goldman Sachs will again come crashing down. Because it never was brilliant. It was the fact that they had asymmetric access to information.

We have talked about this before but I want to lay this out in street terms a lay person will understand because it is important average Americans get this scam.

Wall Street's brilliance in financial markets is all a feint. A deception. It's part of the con. This is no different that a street con artist setting up a victim for the take. These financial firms create an aura of brilliance by hiring mathematicians, physicists and hard-charging MBAs. So, the mystic builds that they are brilliant masters of finance and that science has now been harnessed to create a new industry. To create new profits. A Brave New World. The age of quantitative finance. Our society will now trade our way to prosperity. This is utter bullshit. We are in fact trading ourselves into collapse.

The really dirty secret is that none of the cited sources of brilliance are primary drivers of profit or success. They are thrown out to feign the public. To justify paying Wall Street executives hundreds of billions of dollars to steal from society. And the public knows no better because these firms use a lot of fancy jargon to describe what they do. Wall Street doesn't want anyone to know what they are doing and baffling people with bullshit is part of the art of the con. It's not science that drives profits. It's not hiring Harvard MBAs. It's not hiring physicists who can't spell economics, complex systems or risk management.

What drives profits is making sure you set the rules to the game. Rules you can manipulate. And that means Wall Street lobbyists bribing, albeit legally (loosely termed "legal" as Bastiat told us in the above quote), our politicians to set the rules are really the secret brilliance behind Frankenstein finance and Wall Street's unsustainable profits. If you had billions of dollars to throw at Washington, you too could be brilliant.

It is nothing more than corruption that drives Wall Street's profits.

The art of the con game.
posted by TimingLogic at 8:58 AM