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I'm not so much addressing the illegality of the practice (interesting enough, in itself) as the implications for the overall cost (overhead) of the financial system.
To go into more speculation, I don't know what Goldman Sachs charges for executing program trades. I guess it ends up as pennies. These are costs of doing transactions. People who trade through Goldman Sachs should know that the costs don't end there. There's tailgating, possible front-loading, a range of practices to steer or manipulate the market (the difference may be hard to tell). These are hidden transaction costs of doing business through Goldman Sachs. They may not affect your individual trade negatively, but they extract rents from the market that would not exist if there were no dominant firm.
Galbraith has (as usual) a couple of pithy quotes about that, but my copy of The Great Crash of 1929 is at a friend's house right now...
Friends come and go. Enemies accumulate.
How can we tell the difference between profits from market-making and front-loading?
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