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It's Not Just The Stock Market That's Rigged: The Entire Status Quo Is Rigged

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

One has to wonder why we are dodging this truth about what we've become: a nation that turns a blind eye to skimmers, scammers and legal looting.

As in the story of the Emperor's new clothes, the onlooker who declares the obvious-- in this case, that the stock market is rigged--shatters the consensus lie. In the current saga, author Michael Lewis plays the role of the truth-telling boy, and everyone who went along with the fiction that the Emperor's high-frequency trading finery was resplendent is revealed as credulous, complicit or worse.

Lewis' new book is Flash Boys: A Wall Street Revolt.

The high-frequency trading (HFT) scam is old news, and a number of fine books have addressed the mechanics of the skim, for example Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System by Scott Patterson.

Many in the alternative financial media have written about HFT for years. Here are two of my own entries on the topic:

The Stock Market Is an "Attractive Nuisance" and Should Be Closed (August 22, 2012)

We Need a New Stock Market (September 14, 2012)

Interestingly, Mr. Patterson outlined the solution that the heroes of Lewis' book ended up pursuing. Here is a Q&A I conducted with Patterson in September 2012:

CHS: While there are various regulatory “tweaks” that could be put in place, I wonder if we don’t need a more fundamental “re-set” that asks what role the market should play in finance and the economy inhabited by everyday investors.

Scott: I think there are a lot of people in the industry wondering about whether there needs to be a massive overhaul. But it’s probably not a good idea for that to be imposed on the market by the SEC. The uncertainty would be potentially destabilizing. And I just don’t see it happening.

I think the change needs to come from within the market and needs to be imposed by its most important users--I mean, not the high-frequency traders, who are running the show at the exchanges in many ways--but the institutions, the giant mutual fund companies, the pension funds, the long-short hedge funds. They need to exert pressure on the exchanges to stop giving advantages to high-frequency firms.

If we pull back from the media frenzy about HFT, we find the market is rigged in many other ways. The Federal Reserve's policies, stripped of Orwellian mumbo-jumbo, are all about rigging the market to go in one direction--up.

Consider this chart, courtesy of long-time contributor Harun I., of the Dow Jones Industrial Average: I call it the tale of Two Dows. In the Great Bull Market of 1982 - 2000, a market fueled by an extraordinary economic expansion, the DJIA gained an average of 610 points a year.

In the anemic "recovery" of 2009 - 2013, the DJIA gained an average of 2,500 points per year. While the Fed rigged the 1990s Bull Market with low interest rates and other policies, it pulled out all the stops in the last five years:

The stock market is only the tip of the iceberg of what's being rigged. For a taste of what's rigged, ask yourself this question: if Mr. Elite Insider perpetrates a scam, and Mr. John Q. Citizen breaks similar laws, is there any difference between the treatment each receives?

Let's go even deeper and ask: why is looting legal, even though it is obviously crooked? Why is high-frequency trading legal? Why is it legal for the Fed to offer money at 0% to its buddies but not to Mr. John Q. Citizen?

Why is it legal to issue student loans to future debt-serfs that is unlike all other debt in that it cannot be discharged in bankruptcy?

Since the legal looting continues unabated regardless of what party or toady is in office, then what actual difference is there between the Demopublicans and Republicrats?

It's not just the stock market that's rigged--the entire Status Quo is rigged. There are two sets of laws and two sets of opportunities: one for those holding the concentrated wealth and power, and the other for the rest of us debt-serfs.

If the system isn't rigged, then why are insolvent banks and bankers protected from the creative destruction of capitalism that befalls John Q. Citizen when his risky bets go bad? Why do we as a nation keep insisting the Emperor's new clothes are splendid when he is in fact parading around buck-naked?

One has to wonder why we are dodging this truth about what we've become: a nation that turns a blind eye to skimmers, scammers and legal looting. Perhaps, in Joseph Conrad's phrase, we hope to escape the grim shadow of self-knowledge. Here is the passage from Chapter 7 of Lord Jim:

I gave no sign of dissent. I had no intention, for the sake of barren truth, to rob him of the smallest particle of any saving grace that would come in his way. I didn't know how much of it he believed himself. I didn't know what he was playing up to--if he was playing up to anything at all--and I suspect he did not know either; for it is my belief no man ever understands quite his own artful dodges to escape from the grim shadow of self-knowledge.

Pay Our Pensions Or We'll Throw You in Jail: the Legalization of Looting (March 19, 2014)

 

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Thu, 04/03/2014 - 16:32 | 4622518 LawsofPhysics
LawsofPhysics's picture

Captain obvious...

 

When fraud is the status quo, possession is the law.

 

that is all you need to know now...

Thu, 04/03/2014 - 16:37 | 4622535 zaphod
zaphod's picture

Please adjust these stock "prices" for the M0 money stock.

I think you'll see a massive collapse in stock prices over the past 5 years, this represents reality.

Thu, 04/03/2014 - 16:38 | 4622544 Thought Processor
Thought Processor's picture

 

 

Regardless of rigged or not, that is one hell of a topping pattern.

Thu, 04/03/2014 - 17:04 | 4622612 Anusocracy
Anusocracy's picture

The paradigm for society is the government paradigm.

The government paradigm is to rig everything so that it is the beneficiary.

The trickle-down effect from government is what is being observed.

Thu, 04/03/2014 - 17:09 | 4622631 icanhasbailout
icanhasbailout's picture

Have I not been calling for a manipulation-free, humans-only market for years now? I even asked around here for investors to start one at one point, got a lot of up arrows and no inquiries.

Thu, 04/03/2014 - 17:30 | 4622695 negative rates
negative rates's picture

Those hardline hypocrites.

Fri, 04/04/2014 - 00:15 | 4623898 Say What Again
Say What Again's picture

Hey Charles Hugh-Smith,

Have you ever heard of a "log chart"?  You can't compare "600 points" to "1000 points" or whatever it was because the scale is different for each of those two run-ups.

 

Thu, 04/03/2014 - 16:42 | 4622557 smlbizman
smlbizman's picture

i thought it was john q. corzine...

Thu, 04/03/2014 - 16:39 | 4622548 DoChenRollingBearing
DoChenRollingBearing's picture

Stocks are near their all-time highs.

Some real estate is on fire, some not so much.

Will the BRICs help us get our wealth back?  Ahh...

But, the new Rolex "Sky-Dweller" would beg to differ (although many high-end items do OK when times are bad)

"Peak Wealth?"

http://tinyurl.com/ny475e6

Thu, 04/03/2014 - 16:52 | 4622584 LawsofPhysics
LawsofPhysics's picture

Well, we for one are doing more business with Brazil than ever before...

Thu, 04/03/2014 - 16:56 | 4622592 DoChenRollingBearing
DoChenRollingBearing's picture

That's interesting.  Peru is doing just fine as well.  I had read recently that things were slowing down in Brazil, and a friend who sells capital equipment to PetroBras (and a few others) told me that his Brazilian orders are all on hold.

Thu, 04/03/2014 - 17:54 | 4622816 seek
seek's picture

Brazil is the #2 market for one of my clients (tech industry), and they've seen the same thing.

China went from "iffy" in January to "definitely down" in Feb/Mar, and pretty much the rest of the BRICs flipped to "definately down" by late Feb.

The outlook was not pretty.

Thu, 04/03/2014 - 21:51 | 4623637 Jam Akin
Jam Akin's picture

Brazil is on hold until after the World Cup.  A sort of extended Carnival this year.

India is on hold until after the elections in May.  If Modi wins, it will be a big shot in the arm for business.

For China, my business is still doing OK, based primarily on investment in the auto manufacturing segment.

Thu, 04/03/2014 - 17:24 | 4622671 Sudden Debt
Sudden Debt's picture

A friend of mine got a offer today to buy a 3 bedroom appartment in Athens Greece as a holliday house for 45k euro's.
I think that's a good indicator where the rest of europe will be heading to in a few years.
And in some places over here... prices are insane!!!400, 500, 600k for a small appartment? NO PROBLEM!

Thu, 04/03/2014 - 16:53 | 4622587 whatsinaname
whatsinaname's picture

1982 was when the 401 k programs started and commoners started "investing" in stock markets. That explains the parabolic rise after 1982. Then the savings banks wanted a piece of the action so Glass Steagall was gone. The rest is history.

Thu, 04/03/2014 - 17:08 | 4622625 Freddie
Freddie's picture

The stock market is a corrupt joke like Amerika. Michael Lewis is correct - the markets are rigged.

Thu, 04/03/2014 - 20:59 | 4623509 Milestones
Milestones's picture

Homerun with the first swing of the bat. Congrats.                  Milestones

Thu, 04/03/2014 - 16:36 | 4622528 CaptainSpaulding
CaptainSpaulding's picture

I too am rigged. I am not a clown, But i play one for Zero Hedge

Thu, 04/03/2014 - 16:39 | 4622546 fauxhammer
fauxhammer's picture

That's just your schtick

Thu, 04/03/2014 - 17:04 | 4622616 Winston Churchill
Winston Churchill's picture

Was the castration painful ? Normally done with cheesewire, without anaesthetic.

Words have meanings.

Thu, 04/03/2014 - 18:26 | 4622977 RafterManFMJ
RafterManFMJ's picture

Well, that really depends on what the meaning of the word 'word' is.

Thu, 04/03/2014 - 16:37 | 4622537 ebworthen
ebworthen's picture

One big giant Ponzi scheme.

A big club with very few members.

Thu, 04/03/2014 - 16:38 | 4622540 SheepDog-One
SheepDog-One's picture

I also thought long ago that the 'grown ups' like the big funds would reign in the little weasel HFT guy brats, but apparently I thought wrong and they're all just crooks.

Thu, 04/03/2014 - 16:43 | 4622558 css1971
css1971's picture

Privi lege.

Private law.

 

Lady Justice has not been blind for a long time. The elites are privileged. They are aristocrats. Wealth and privilege are handed down through families. Ladies and gentlemen the days of democracy are over. The United States of America is now a cryptofascistic plutocracy.

Thu, 04/03/2014 - 16:56 | 4622591 LawsofPhysics
LawsofPhysics's picture

Yes, and it will continue so long as the bread and circuses hold.

Thu, 04/03/2014 - 16:45 | 4622566 toady
toady's picture

Truthfully, scamming is all that is left.

Ever since the 'financilization' of everything, some people still build houses or manufacturer cars and the like, but they receive minimal compensation.

Only the Wall Street scammers are doing well. The gov benefits scammers do pretty good at the high-level gov contract level, and the section 8, food stamp, & other subsidy scammers, well, they subside.

I hope the 0001% are enjoying their ill-gotten gains!

Thu, 04/03/2014 - 16:47 | 4622571 Mark123
Mark123's picture

An entire world gone mad with debt...what could go wrong?

The fact that there is a chart like the above that even exists is astounding.  It is unlikely that in another generation there will be any real law and order left....pretty grim future for what is left of the Western World's middle class.

How did things work out for the Britons when Roman law and order collapsed?

Thu, 04/03/2014 - 18:49 | 4623049 TheReplacement
TheReplacement's picture

Not so good.  They had to have the Danes come in and establish Danelaw.  That cost a lot of blood and treasure.

Thu, 04/03/2014 - 16:48 | 4622573 Spastica Rex
Spastica Rex's picture

Turning a "blind eye" to "skimmers, scammers and legal looting?"

Ridiculous.

Fraud is the foundation of our consumer society. It's embraced, lauded, and nurtured at all levels.

Thu, 04/03/2014 - 16:51 | 4622576 Ignatius
Ignatius's picture

"If the system isn't rigged, then why are insolvent banks and bankers protected from the creative destruction of capitalism that befalls John Q. Citizen when his risky bets go bad?"

This question answers itself, does it not?

Thu, 04/03/2014 - 16:50 | 4622577 Ariadne
Ariadne's picture

Look into the vig payments the POTUS receives from the IRS, and the judges for confiscations, seizures and appropriations.

Thu, 04/03/2014 - 17:03 | 4622606 arby63
arby63's picture

It may have always been rigged but at least you used to get something for you time and money. Not so much these days.

 

I do think that the .1% money will eventually fade its impact on the fraud economy. Its a slow burn. 

Thu, 04/03/2014 - 17:10 | 4622632 mt paul
mt paul's picture

the rigging 

is rigged...

Thu, 04/03/2014 - 17:11 | 4622638 TrustWho
TrustWho's picture

North Carolina State Bar is more accurately described as a Legal Mafia Organization. 

Thu, 04/03/2014 - 17:20 | 4622661 Rising Sun
Rising Sun's picture

lie, cheat and steal - it's the new world order out there

 

oh, and fuck you Barry you fucking piece shit!!!!

Thu, 04/03/2014 - 17:26 | 4622679 Goldilocks
Goldilocks's picture

Alien Ant Farm - Smooth Criminal
http://www.youtube.com/watch?v=CDl9ZMfj6aE (3:38)

Thu, 04/03/2014 - 17:42 | 4622734 Mr Thomson Swift
Mr Thomson Swift's picture

My 2 cents,

Because you are living in the country that had a rendezvous with empire, while the empires power was expanding the nation could behave more honestly and everybody got along without too much fuss.

It appears that the empire and its power are now in reverse, people need to behave much less honestly to keep what they have or get their hands on more, and, people don’t get along so well any more.

Now you a have rendezvous with the future, and, your government is going to pull us all in  

Thu, 04/03/2014 - 17:54 | 4622812 css1971
css1971's picture

That's a great big exponential curve you got there, hitting the limit once, twice three times. The limit is the value of money. Third time lucky. Maybe this time they can make it go to infinity and beyond.

Thu, 04/03/2014 - 18:11 | 4622914 maxamus
maxamus's picture

The reason you can't discharge student loans in bankruptcy is, if you could, upon graduation every college student would declare BK and wipe out all their loans.  It's not like this is a house or car loan where the lending facility can reposess something, you really can't take back an education.

And most "debt-surfs", as you put it, are there because of their own greed.  Gotta have a $50,000 car, a $400,000 home, lavish vacations, etc...  Oh, was I supposed to pay for this stuff??

Thu, 04/03/2014 - 18:53 | 4623061 TheReplacement
TheReplacement's picture

Insisting people take responsibility for their actions... racist bastard!

Thu, 04/03/2014 - 20:58 | 4623498 Ned Zeppelin
Ned Zeppelin's picture

You need to give this deeper thought. The notion that higher education will improve your life is drilled into these kids' heads. The price of tuition rises exponentially thanks to the easy money that is dispensed but only in the form of loans.

You answered your own question - who lends without collateral? Lenders who are confident they will get their money back No Matter What.

It is a racket. Only restoring the right to declare bankruptcy will return sanity to the market, since the loans will dry up. Colleges will be forced to price to market. The distorting effect of government interference via a vis prices on display in all its glory.

Thu, 04/03/2014 - 18:20 | 4622949 logicalman
logicalman's picture

Everything is rigged, and has been since humans decided to stop being hunter-gatherers and take up agriculture.

As soon as someone had a store of food in reserve there was some 'get rich quick' type ready to steal it.

The trick is knowing it's rigged and acting based on that knowledge - not the same for everyone.

The ultimate thieves are in government. They make statutes that are unlawul and use hired thugs to enforce said statutes for their own benefit.

 

Thu, 04/03/2014 - 19:52 | 4623270 Blame Crash
Blame Crash's picture

And lets not forget about elections. They're rigged too.

Thu, 04/03/2014 - 19:57 | 4623294 AdvancingTime
AdvancingTime's picture

To say the market is rigged is an understatement. After over 30 years of trading commodities I will flat out state without any reservations that lies and manipulation run rampant. If you think anyone is looking out for the small independent trader you are wrong.

An unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position. For the big boys, its insider information and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the weak out of their positions.

This is a reason for caution! If it looks like a Ponzi scheme, sounds like a Ponzi scheme, and feels like a Ponzi scheme, then it is probably a Ponzi scheme. More on this subject in the article below.

http://brucewilds.blogspot.com/2013/07/markets-more-lies-and-munipulatio...

Thu, 04/03/2014 - 20:29 | 4623401 SweetDoug
SweetDoug's picture

'

'

 

Take a look at the bigger picture and the idea that there are two laws now, for one man.

 

One for the powerful, the special interests, and you.

 

This is the breakdown of society, the reinstitutionalizing of a stratified society.

 

You must try to figure out where you fit in, in the hiearchical politically correct poker game.

 

•?•
V-V

Thu, 04/03/2014 - 22:13 | 4623678 Cheduba
Cheduba's picture

My company was just bought out, so I was forced to sit through an hour explanation of our new 401k "benefits" today.  (Disclaimer - I cashed out my 401k several years ago because I knew it would end up being confiscated eventually anyways).

In their brochure, they were proclaiming 20% and 30% returns on their mix of managed stock plans!  All stocks went up in 2013, so congratulations, your monkeys picked some stocks and they went up because the Federal Reserve printed a few trillion dollars!

It was great though because someone was questioning their expense rates and the representative was really squirming, saying that every 401k management firm charges them and how if your portfolio went up by 6%, but you ended up 4% up, then you were ahead, right?  Then, another guy pointed out that a $7 expense per $1,000 invested wasn't that great of a deal when you have $200,000 and that ends up being $1,400 per year!  Classic.

F*ing financial middlemen parasitic skimmers.  They earn billions by managing the money of gullible suckers who are brainwashed into loving their servitude with "tax free contributions" to their plans.

Fri, 04/04/2014 - 04:17 | 4624090 syntaxterror
syntaxterror's picture

Why can companies like Caterpilar set-up off shore scam business operations to avoid payings taxes but I can't? After all, since corporations are people too, the inverse must also be true.

Fri, 04/04/2014 - 10:48 | 4624821 Iam_Silverman
Iam_Silverman's picture

From the article above:

"In the Great Bull Market of 1982 - 2000, a market fueled by an extraordinary economic expansion, the DJIA gained an average of 610 points a year."

This timeline in the chart has always made me wonder how much inflection was caused by the introduction of the 401K and similar plans.  That alone suddenly ushered in millions of new "investors" to the financial services realm.  Stocks, bonds and to a smaller extent - commodities all seemed to rise over the same period - where correlation usually caused one investment avenue or the other to dip as outflows from one strategy moved into another.  But, all rose over the same period.

Now, with more people having skin in the game due to forced participation in the "markets" due to ever lower numbers of defined benefit retirement plans, are the numbers skewed by the level of participation as a percentage of the general population?

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