With this more generally applicable opening:
A rule we can rely on to be unfailingly applied is this: No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains. This of course is evidence of a rigged game. The government can’t possibly monitor and regulate absolutely every transaction that takes place in a country. Stalin and Hitler couldn’t do it by a long shot. So anything that displeases the ruling regime can easily be laid at the doorstep of freedom and be used as an excuse for stamping out whatever traces of liberty still exist.
The other part of the rigged game is to have so many laws that it is almost impossible to get through a day without violating one or another, making every citizen a subject of the state, vulnerable at all times to prosecution on unrelated issues if she doesn’t toe the state line.
The stock market has always been a rigged game and the SEC by ignoring the obvious has institutionalized the fraud. Here’s why…
Market makers originally came into being for the fluidity of the market I’m told. They’re not needed today if some simple rules are implemented that would make investment fair to everyone. Instead they get an advantage over other investors that insures them to be first to profit and to limited extend control a stock. They make more in a day because of the profit between bid and ask than the average investor makes in a year. Instead what the SEC should be doing is insure that the limit and market orders are transacted based on the same rules for all (earliest at the inside price first regardless of order size.)
I haven’t been in the market since they made the transition from fractions to pennies but market makers were always allowed to put in bids that were half the fraction of the general public. Why? The only reason I can think of is to give them an unfair advantage, but they already have another unfair advantage that negates the need for that. They choose which transactions go and which don’t. If you’ve ever put in a limit order with the highest bid or lowest ask and watched it sit there while others go through you’ve seen an example. Some of this can be explained by the different networks giving preference to their own internal trades but some can not. This is a huge unfairness that the SEC not only ignores, but has agreed with the false argument that it’s required for the market to operate which hasn’t been true since computers entered the scene to handle all transactions. Market makers today simply represent an institutionalized unfairness in the market. They pay the rent for those skyscrapers in all the financial districts of the world. They’ve done it by making an unfair advantage seem right and proper with the governments endorsement.
Listening to the news it seems the game is over and liberty lost.
Caveat Emptor itself has become some kind of evil in their eyes.
But most ominous is that Citizens have become subjects and it will only get worse because we’ve somehow reached the point where that seems natural and right instead of the abomination it is. We were founded on the principle that the individual liberty of the Citizen comes first and regulation was to be limited to what is needed between Citizens so that one doesn’t trample on another. We’ve turned that on it’s head often with arguments that seem so reasonable that everybody dumbly goes along. It’s only for our own good, after all.
Another example comes from Mary Schapiro, Barack Obama’s choice for SEC chief and, like Madoff, a former NASDAQ official. “We found inadequate risk disclosure and touting, such as how the fund can beat the market with less volatility and promises about expected returns.”
I can’t put my finger on it, but this quote really bothers me. As if the person saying it doubts the very notion of anyone offering a better product or service than anybody else unless they’re a fraud. I’m still trying to put “inadequate” and “touting” together, unless it’s just “touting.” What does she want? For vendors to stop making claims about their products? That they disclose all their trade secrets, if they do? That people abandond the idea innovation? Maybe I’m just stretching here…
With regard to explaining Madoff — although I’m not familiar with the details of the case — I’ll throw this out: human factors. The weakest link in any (reasonabley strong) security system is the people who have access to it. In computer security, for example, it’s the users. Not matter how good the safeguards, if you can fool someone who has access, you’re in. Not the SEC nor anyone else can build a system that keeps its own users out — and therefore not the people they let in either.
I can only imagine the Madoff must be very, very good with people. It sounds like he pulled the Wall Street equivalent of selling refrigerators to eskimos.
Isn’t Madoff an example of things going right? He’s a fraud. Investors found out. Problem solved. Caveat Emptor.
How can the people that gave him their money not be held accountable?