Was Last Week's Market Crash a Direct Attack By Financial Terrorists?
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Last week, the
Coming on the very day that Congress considered two key financial reforms, the timing of the "flash crash" raises concerns that Wall Street is resorting to extreme tactics in its efforts to intimidate politicians who want to rein in the capital markets casino. Thursday's market plunge could have been an act of financial terrorism. Wall Street has both the motive and the means: Goldman Sachs, which is currently under investigation for a very different kind of fraud, has the trading power to make just such a market crash occur, and has much to lose from financial reforms moving through Congress.
On Thursday afternoon, the Dow Jones Industrial Average plummeted 700 points in about 10 minutes. A few hours later, top Democratic negotiators reached a compromise with Sen. Bernie Sanders, I-Vermont, over a plan to audit the Federal Reserve's secret bailout operations. The Fed has pumped nearly $4.3 trillion in bailout funds into the banking system since the onset of the crisis, and we know almost nothing about that money. The "Audit The Fed" amendment would finally tell the public the full extent of Wall Street's bailout operations.
Later Thursday night, Congress voted on—and rejected—an amendment that would have forced the break-up of the six largest
This amalgamation of events is eerily similar to what took place on Sept. 29, 2008, after the U.S. House of Representatives shot down the Troubled Asset Relief Program. Immediately after the vote, big banks made the market plunge a record 778 points, sparking widespread fear and panic that helped convince Congress to eventually pass the bailout.
Can these conveniently timed market freak-outs be chalked up as a simple, if stunning, response to significant political events? Or is there something more sinister going on?
Right now, there is enough financial firepower concentrated in the hands of a few individuals to move the stock market whichever way these people want it to go. These 10-minute 700 point drops could very well be a precision-guided High Frequency Trading (HFT) attack designed to show Congress who's boss.
In today's stock market, 70 percent of all trades are executed by computer algorithms via High Frequency Trading. And Goldman Sachs completely dominates the HFT business, with a virtual monopoly over trading at the New York Stock Exchange, as Tyler Durden describes for Zero Hedge:
Goldman's dominance of the NYSE's Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity, and generating who knows what other possible front market-looking, flow-prop integration benefits. Yesterday [5/6/10], Goldman's SLP function was non-existent. One wonders -- was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse.
Importantly, Durden notes that in April, Goldman executed a huge proportion of trades for its own account—enough to significantly move the market, if it wanted to.