In Monday’s Wall Street Insights & Indictments column “What Happens When There’s Nowhere Left to Run,” I detailed the dangers posed by the scary move the U.S. Treasury bond market made back on Oct. 15.
My cautionary tale was totally justified.
Indeed, in yesterday’s Wall Street Journal, the lead article in the Global Finance portion of the “Money & Investing” section was “Watchdog Warns of Risk in Markets.”
Apparently the Office of Financial Research, the watchdog team created out of Dodd-Frank legislation under the “watchful” eye of the U.S. Treasury Department, observed the same move that I did – and found it just as rattling.
According to The Journal, the OFR warned that “the system is vulnerable to repeats of what occurred in October when tumult in the trading of U.S. Treasury securities spread broadly to futures, swaps and options markets.”
The watchdog group’s just-released third annual report soberly noted that “although the dislocation that peaked in mid-October was fleeting, we believe there is a risk of a repeat occurrence,” and further warned that resulting volatility “raises a host of financial stability questions.”
That’s not what you want to hear. Let me tell you why…
A Sickening Lack of Resolve
What’s worrying the Office of Financial Research is its finding that “swings could be exacerbated by computerized trading and algorithms, as high volumes of transactions are executed automatically, deepening instability.”
Figured that out all by yourselves, did you?
I’m not annoyed by this…
And with good reason: It angers me to no end that everything that’s been allowed to infiltrate our capital markets that’s problematic – but egregiously enriches greedy banks and their trading lackeys – undermines transparency, and safety, of those markets.
It’s really touching that the new watchdog research group is worried that their research (which amounts to observing after-the-fact market swings) leads them to be worried.
Please, somebody pass me an airsick bag.
Where’s the real research?
Where’s the research, analysis and truth about the May 2010 “Flash Crash?”
Where’s the research on why we’re still seeing mini-flash crashes all the time (like the mini-Flash Crash in Apple Inc. (Nasdaq: AAPL) we had on Monday)?
Where’s the research on why stock options move up and down before earnings announcements are made or before mergers-and-acquisitions announcement are made public?
Where’s the research on the real impact on liquidity posed by high-frequency traders?
Where’s the research on how high-frequency trading (HFT) was aided and abetted by the exchanges to benefit the people who pay massive fees for those HFT trades to the exchanges that pick off profits from the public and ignorant institutional investment houses like the mutual funds that shepherd most of the “little peoples'” money?
Where’s the research on how the Securities and Exchange Commission – which knows exactly what the HFT shops are up to – benefits by the additional profits companies and exchanges it’s supposed to be making sure are fair and transparent donate to lobbyists and legislators who control the SEC commissioners, and their pay and their budgets?
Where’s the research on the revolving door that spins compliant regulators out into the waiting arms of the banks, private-equity companies, hedge funds and trading shops that hire them to coddle the friends that remain back at the regulatory ranch (and who are merely biding their time before getting their own private sector interviews)?
Indeed, where’s the real research on how and why our capital markets got to be so manipulated by so few to the detriment of so many?
The Office of Financial Research has a right to be worried. If those supposed watchdogs ever overstep their boundaries and maybe actually research something from within the bowels of the machine and pronounce it as stinking to high heaven, they’ll be worried because the Treasury Department will hear it from its bosses, the lobbyists and legislators getting fat making sure the skids are greased for their bank constituents and masters to make money.
And that will be the end of their “research.”
It’s already happening. The new watchdog is already being choked back.
And the capital markets? Don’t worry, they’re safe. After all, how could they not be with all these regulatory bodies and watchdogs and all the Dodd-Frank legislation that lets us all sleep well at night.
It’s all good.
That is, until it isn’t.