The diary author offers a lot of links - so follow them too. Anyone have insights to offer on this?

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

Front running - Wikipedia, the free encyclopedia

Front running is the illegal practice of a stock broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage, since it can expect to close out its position at a profit based on the new price level. Front running may involve either buying (where the broker buys for their account, before filling customer buy orders that drive up the price) or selling (where the broker sells for its own account, before filling customer sell orders that drive down the price).

...

A practice similar to front running is called "tailgating". Tailgating means the action of a broker or adviser purchasing or selling a security for his or her client(s) and then immediately making the same transaction in his or her own account. This is not illegal like front running, but it is not looked upon favorably because the broker is most likely placing a trade for his or her own account based on what the client knows (like inside information).

The question is whether higher speed of execution can turn tailgating into frontrunning.

Daily Kos: Daily Kos
DKos Diary Reverberates Throughout Wall St. (w/update)

Interestingly, it is also possible that, simply due to the enhanced speed (as mentioned in numerous pieces about this story) with which one would be enabled to follow/mimic another trade at Goldman-Sachs (with the assumption being that the tailgating trade was executed on a faster "channel" or system, or modulated with a higher-priority tag on it, than the original trade), after it commenced, one could then conclude their "tailgating" trade in a more timely manner than the original trade, if it was facilitated on a slower system and/or modulated on a "lower-priority channel." (For instance, routing instructions for the tailgating trade might be made via a "priority path" to the New York Stock Exchange, while the original trade might be tagged to be executed on a "standard" and/or "normal path.")

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

More on Goldman Sachs from today's Greenwald article:

http://www.salon.com/opinion/greenwald/2009/07/13/goldman/index.html

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

It has been noted that one of the factors favoring the speed of the GS operation is that they "co-locate" their hardware on the floors of the exchanges.  Others also do the same, but GS seems to do it better.  By integrating their proprietary, or prop trading with their market monitoring and their market making capability it has been claimed that GS has been making $100 million per day since March.  They are being paid by the exchange and the government to "provide liquidity" both as electronic market makers by the exchange and as "Supplementary Liquidity Providers" by the government.  Providing half or more of the trades on any given day is quite a supplement.  $100 million per day at a penny or so per trade has certainly provided GS with excellent liquidity.

There were those, possibly including Tyler Durden, who complained loudly last September that Paulson was proposing a scheme in which the Fed and Treasury would pick winners and losers in the market.  Paulson was the former CEO of GS.  Surprise!  GS is a BIG winner.  Given that, it hardly would be surprising that the Fed and Treasury knew that this is what GS would do with the SLP provision and thought it was a good thing.

  From their point of view strengthening GS IS strengthening the economy.  THAT POINT OF VIEW IS THE REAL PROBLEM.  They just didn't think that this whole arrangement would be exposed so publicly.  And it is still not too bad.  Most of the MSM is still ignoring it.  This could be related to the fact that only GS has taken advantage of the incredibly lucrative opportunity provided by the SLP program, through intimidation, IMO.  Only one SLP provider at a time would be readily able to combine the fraction of a penny incentive for "market making" with the monitoring and proprietary desk trading as GS has done and GS has the mojo with Treasury.

As the saying goes "THERE CAN BE ONLY ONE!"  The others don't want to volunteer to have their heads cut off in a failed challenge.  Neither do the heads of most financially troubled MSM organizations.

"It is not necessary to have hope in order to persevere."

There's a new bobswern article today:

Greenwald: Mass Outrage Over Goldman's "Blowout Profits"

One quote from the article (via Bill Moyers):

BLACK: The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.

Where Congress said, "We will not give you a single penny more unless we know who received the money." And, you know, when he was Treasury Secretary, Paulson created a recommendation group to tell Treasury what they ought to do with AIG. And he put Goldman Sachs on it.
MOYERS: Even though Goldman Sachs had a big vested stake.
BLACK: Massive stake. And even though he had just been CEO of Goldman Sachs before becoming Treasury Secretary. Now, in most stages in American history, that would be a scandal of such proportions that he wouldn't be allowed in civilized society.
MOYERS: Yeah, like a conflict of interest, it seems.
BLACK: Massive conflict of interests.
MOYERS: So, how did he get away with it?
BLACK: I don't know whether we've lost our capability of outrage. Or whether the cover up has been so successful that people just don't have the facts to react to it.

But...no scandal...so far...


"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

Economist's View

The NY Times Room for Debate is discussing how we should interpret Goldman Sach's compensation pool, which will be an $11.36 billion set aside for the first half of 2009. Here's the unedited version of my entry (you may like the shorter, edited version better):  

What does the size of Goldman's compensation pool tell us? It signals several things. First, it gives some indication that the financial sector is improving, and that is good news. There's no guarantee, however, that the overall economy will follow anytime soon. Even with improvements in the financial sector, the recovery of the broader economy is likely to be a slow process.

One of the reasons I expect the recovery to be slow despite improvements in the financial sector is that the economy cannot go back to where it was before the crisis hit. The financial and housing sectors need to shrink, too many economic resources were used unproductively in support of these activities, and the automobile sector is also in transition.

And it's not just that the financial sector needs to get smaller so that resources can be used productively elsewhere, the financial sector also needs to change its ways so that risk accumulations do not threaten the financial system and the broader economy. As Robert Reich notes today, Goldman's chief financial officer tells Bloomberg News that "Our model really never changed, we've said very consistently that our business model remained the same." Thus, a second signal from Goldman's unexpectedly large earnings is that firms such as Goldman Sachs are returning to the same high-risk strategies backed by too big to fail government guarantees that got us into trouble in the first place, and that aspect of Goldman's success is worrisome. It's a signal that the excesses that led to the high incomes of financial executives have not ended.

...

Other entries from William K. Black, Yves Smith, Charles Geisst, David Merkel, and Jeffrey Miron.

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

It's scary that about 70% of the stock market buisness is run by computers automatically, so it seems everything is about who's having a system which is a millionth seconds faster to make more millions of dollars to make it a millionth second faster to make more millions of dollars to make it a millionth second faster to make more...when they reach zero, what will happen, is there a minus millionth second...?

From Mike Lux over at Open Left (Jul 14th)

Okay, Goldman. So as long as you're paying record bonuses to many of the same employees that engaged in these wildly speculative trading ventures, how about paying back the $13 billion you got from AIG by way of the U.S.Treasury? Or the unrevealed billions (likely many tens of billions) from the Federal Reserve?

THAT'S the scandal - being bailed out by the taxpayers and not paying back ALL of it (and giving bonuses instead...)


"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia