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July 6, 2009

Stock Pools Again?

-- by Dave Johnson

In the 1920s the big money organized "stock pools" with which they could force stock prices up and down, bringing them immense profits. Part of the stock market crash was the result of these manipulations coming apart.

Something similar may be going on today involving computer "program trading." I recommend taking a look at: Is A Case Of Quant Trading Sabotage About To Destroy Goldman Sachs? You may be hearing more about this.

Here's the thing. Last week "program trading hit 48.6% of all NYSE trading". Let me repeat that, half of all trades on the NY Stock Exchange were "program trades."

This is not about humans deciding a stock is worth owning. This is about financial manipulation by computer. And now the NYSE is going to end their requirement that the companies report their program trading!

The new rule means the public will no longer be able to tell if large investment banks are manipulating the stock market for their own gain, says Matt Taibbi, the journalist whose Rolling Stone article on Goldman Sachs’ role in asset bubbles over the past century has rocked the financial world.

According to previous NYSE rules, any company that carried out program trading -- essentially, large computer-automated trades worth more than $1 million -- had to report the trades to the NYSE, which then made the information publicly available.

But, under new regulations (PDF) published last week, that requirement has been removed.

. . . Taibbi argues that the move is designed to protect investment banks from bloggers who are exposing the companies’ stock market manipulations. Goldman Sachs is singled out because the investment bank’s share of principal NYSE trading has gone from 27 percent at the end of 2008 to fully 50 percent of trades in recent months.

This is an important, developing story and it could mean that were are nowhere near getting this financial crisis under control.

Posted by Dave Johnson at July 6, 2009 10:03 AM


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