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Yet Another Washington “Watchdog” Is Nothing But a Beltway Pussycat

9 | By Shah Gilani

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…

I’m angry.

Really angry.

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.

9 Responses to Yet Another Washington “Watchdog” Is Nothing But a Beltway Pussycat

  1. Alice Maxwell says:

    hah, you get it but no one in Washington gives a damn. The boys who do “research” do not have to and still they get “bonus” to stash in “safe havens”, as if there are any these days.

    We are all about to take a deep dip. the worst in a millenium just to “ice the cake” for these millenium idiots!

  2. Edouard D'Orange says:

    When will we, and anybody who has power to do something about this situation, take notice and do something about all of the crooked dealings, the rigged trading, the revolving doors and the whole market instability? Like Mr. Gilani says: when it blows up in our faces.

  3. Peter J. Taylor says:

    Great article Shah, As an outside investor domiciled in NZ active in the US bourse your comments are most alarming albeit for non US investors hardly surprising. Indeed the rest of the world (R.O.T.W) have since the GFC continued to complete trades and transactions on the US bourses in the full knowledge that the much vaunted American markets despite the plethora of the myriad security watchdogs, congressional oversight shams so called to protect the “mum & dad” or main street investor is completely and shamelessly amongst the most corrupt markets on the Planet. Indeed to have the US take the moral high ground and use the corrupt tag for markets in the R.O.T.W is considered an obscenity. However not as obscene as observing a once great and proud bastion of free market capitalism being the United States sell so cheaply the very tenet that underpinned itself as the annointed gate keeper of free market capitalism being its very own democracy and the enshrined principals and confidences to its people that the democratic institutions structured specifically to ensure transparency and the righteousness in the application of democratic

  4. Peter J. Taylor says:

    conventional wisdoms demand. So the real issues highlighted so well by Shah in his warning has the overtone of a well qualified caring individual who it seems is frustrated beyond despair who in despair is crying out for America to right itself and to lift the veil finally on the financial malpractice that is all so pervasive within a financial system so gargantuan that the real system of democracy and all of the foundations democracy provides and allows to build can once again rule and in so doing control the capitalist free markets and not as we have at present .. whereby it is the capitalist free market that is no longer free and which has come to represent the real United States democracy as we witness it presently and that is the real travesty. The R.O.T.W hear you Shah and know and believe you to be at least a light consistently shining to highlight the darkness that presently exists within what was once and could again be the greatest financial system the world has witnessed but for the cancer of corruption that agencies appointed to root out have allowed to mestastasize ….. Keep it up.

  5. HYMN says:

    Corruption is rampant, we know it’s the American way. What to do about it and when it folds in on itself we don’t know.

  6. jerrycollie says:

    These flash crashes you write about are just an extreme example of what traders call spikes. To see what causes spikes one has to ask, who profits? Well the brokers profit. If most traders have bought the market, they have probably set “stop losses” to limit their loss, if the market falls. So the brokers are sitting there looking at all these stop losses. A quick spike down will hit all of these stop losses, closing the trades at a loss to each trader who has bought the market. So the price drop closes all these trades at a loss to the traders; and then the price pops back up where it was, and maybe goes even higher. Everyone gives a sigh of relief, thinking they have dodged a bullet because the market popped back up; but the brokers have just made a killing.
    Of course the same thing happens in reverse when the market spikes up and wipes out the traders who are short the market.
    Admission: I am a foreign currency trader.

  7. LIA VASSALLO says:

    Is the opportunism that motivates the little investor any different from that of the big banks? Is there such a thing as socially responsible gambling/”speculating”?

  8. tom bissett says:

    It is all a gamble until people using influence and money make the rules in their interest and do everything to relieve the little guys of all their money. I think that is the point of discussion. Congress selling out the average guy so they can pocket millions and the money men billions picked from the pockets of people with no legislation to protect them. and where there is protection the protectors are to busy pocketing millions to make time to enforce what legislation there might be.

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