Over the last six months or so, we have focused on the corruption that undermines football and the linked global betting markets. It will come as little surprise that the International Financial Markets (IFMs) are similarly rigged in favour of the insiders. Many of these abuses take on a similar format due to the parallel structures between these markets – examples would include insider trading, cornering markets, the use of disinformation, cartelised corruptions, price manipulations, monopolistic price control and the mutually beneficial collaborations between the institutions and the marketplace.
However, IFMs are both considerably more advanced in their degree of corruption and significantly more complex to decipher as the closed system is, effectively, the planet as opposed to one sport in one market sector. As with football, our Traders enjoy a marked edge in mature IFMs and much of our approach is isolationist but below we cover some of the manipulations that have existed in recent years and show how these market biases are heavily to the advantage of insiders.
The power people do not wish for public attention to be fixed on their market rigging and one of the prime manners in which this disguise is achieved is via the use of language. Even the most determined intellect can glaze over when faced with terminology like credit derivatives, credit default swaps, collateralised debt obligations and continuous proportion debt obligations. The linguistic mystique created is similar to that utilised by post modernist philosophers like Derrida and Baudrillard except that the POMOS use language in order to be taken seriously academically while the financial system abuses language to secrete their market manipulations. These markets are privatised global three dimensional chess games for the financial elite that enable huge profits to be made by insiders at the expense of the rest of the planet. Equally worryingly, nobody knows for sure how systemic risk is being accommodated by these financial instruments – Warren Buffet refers to credit derivatives as “financial weapons of mass destruction”, for example.
So let’s have a look at some of their little games shall we?
* Backdated Share Options – A clever wheeze is to link the pay of the chief executives (CEOs) and other captains of industry to the performance of the share price of their respective companies. By aligning the strategy of a business with the rewards to it’s bosses, the thinking went that a more productive and efficient operation would result. Evidently, in the eyes of your average capitalist, this makes sense and general shareholders were co-opted into the structure in the belief that they would be handsomely rewarded for their investments. Not so. Successful CEOs approach all strategy from a psychopathic perspective and the share option scandal took on two forms. Firstly, there was a major incentive for CEOs to inflate their companies price as their personal rewards were positively correlated with this share price. This was achieved by hiding away the bad news and spinning out the good news with the acquiescence of the financial media. This manipulation is corrupt enough but it pales into insignificance when compared with the practice of backdating share options. Following 9/11, the share prices of many businesses in a number of sectors were heavily hit. Some of the bosses, when their annual share options came up for negotiation, chose to exercise their share option at the historical price ie post 9/11 rather than the current market price which had recovered in the interim period. This is market manipulation. As an everyday parallel example, imagine being able to purchase your house NOW at the price it was several years ago – an immediate resale nets a risk free profit. On a moral level, these individuals were profiting from the impact of 9/11. Equally disturbingly, there are no skills required here – insiders will profit no matter how chaotic their market strategy is. The losers are the other shareholders and market analysts while the insiders and their cohorts were laughing all the way to the investment bank.
* Chapter 11 Bankruptcy – In a competitive capitalist system, companies must be allowed to fail otherwise the system is inefficient and resources will not be allocated in an appropriate manner. True? Well, at the bottom of the shareholder capitalist system, this is undoubtedly the case and, indeed, there may not even be internal reasons for the failure as systemic risk and the decisions taken higher up the corporate ladder can erase a business boutique from the marketplace. However, there is no such hazard at the top of the American system. Businesses that are financially distressed may simply enter Chapter 11 and, following a process of debt restructuring, factory closures, workers redundancies and percentage pay-offs to creditors, are allowed to reenter the rat race without their historical millstones and liabilities – the system is only truly competitive at the bottom of the pile. As a further example of this manner of abuse, consider the case of Long Term Capital Management (LTCM). LTCM was a hedge fund established by a couple of economist nobel prize winners which didn’t prevent it from going belly up big style and who came riding to the rescue? You guessed it – the American government (but using public money, of course).
* Currencies and Foreign Direct Investments (FDI) – All countries are in reality businesses. In a manipulative global financial system, the strategy and whims of the major first world governments and the institutions that perform their dirty work eg the IMF, parts of the UN and certain investment banks and hedge funds directly target countries that are seen to be acting in an inappropriate manner with regard to the strategies of the global financial elite. Targeting the currency (as happened with Malaysia, for instance) or the pulling of FDI (too many examples to itemise!) directly destabilises democratically elected governments as a persuasion to do as they are told. This is an incredibly corrupt power play and it is little wonder that countries like Argentina are no longer willing to buy into the IMF model.
* Brokers – Placed in the position of matching trading positions for their clients allows brokers entirely inappropriate powers in the market place. A couple of the multitude of manipulations that exist for these market insiders are given below. Firstly, if a broker accepts a transaction from a client that he knows to be a mug bet, he/she simply pockets the cash and the transaction cost – the mug's position is never activated. This is particularly fruitful in absolute markets where the position taken may be either i) a win or ii) a loss. Secondly, brokers quickly determine the skilled insiders and analysts who are trading with them and offer inducements to attract future positions from such market participants. These preferential trading conditions include trading out of hours to gain a better price, no transaction costs or trading within the margin (again to achieve a more palatable price). It should be noted that such altruism is totally self-serving in that the broker will only allow such advantages so long as the broker is personally able to financially benefit from the information. Highly liquid positions or trades placed close to a threshold in a truncated market structure will not be accepted at all.
* Private Markets - Globally, there are scores of dark pools of liquidity where banks and institutional investors are able to trade anonymously outside the financial system. It is estimated that 15% of trading is now undertaken in this manner.
We could go on and on and on and on…
The rigging of the global financial system to the massive benefit of the industry insiders and to the massive disadvantage of everybody else is the sole structural parameter than forms the foundation of all markets. The manipulators create the game template while depending on regulatory capture ie a weak regulator in the control of an industry sector to ensure that their trading strategies reach fruition. All major stocks are rigged in the US and Britain although it is still possible to detect level playing field markets in some stakeholder capitalist territories.
Information crime is incredibly difficult to detect as the societal structures to police the market abusers simply don’t exist. When abuse does surface, it is highly unusual as the insiders do not make public the relevant data and it is the job of investigative market analysts to expose the corruption and manipulation. The impact of such research is always greater than it should be however as the corrupters do not plan their abusive templates with focus on how outsiders might analyse their manipulations – they focus merely on short term profit…
Part of the sleight of hand that is utilised to disguise this gross manipulation of all of our realities is numerical illiteracy. All of us find it difficult to imagine what we are unable to feel (touchy-feely syndrome). I was trained as an astrophysicist and, yet, a light year is still a tricky distance to comprehend. Similarly, most people are unable to grasp the true size of a million or a billion or a trillion because these are not figures that exist within our daily lives. This inability to perceive the real value of a figure is an extremely valuable tool in the hands of the capitalist system because we simply cannot picture the enormity of their financial abuses. In a mini attempt to illuminate this issue, I have listed a couple of figures below that I have attempted to personalise to everyday language.
a) Nearly half of the population of the developing world lives on less than $2 per day.
b) According to the Bank for International Settlements, the nominal amount of credit default swaps had reached $20 trillion by June 2006. This is the equivalent to investing $3200 PER SECOND since the year 0 BC. Additionally, the total amount traded on shares last year was $69.8 trillion which represents $11200 PER SECOND for the last two millennia! In one year...
J.K. Galbraith stated that “we associate truth with convenience, with what most accords with self-interest and personal well-being or promises best to avoid awkward effort or dislocation in life”. In our refusal to grasp the true magnitude of this psychopathic financial system in order to fill our homes with a million products we don’t need, we are living proof of the wisdom of Galbraith’s angle.
Shareholder capitalism, following on from it’s imperialist, feudal, slave owning history, has been promising the world’s poor for centuries that the only system that is able to improve their sorry lives is capitalism. Where is this improvement? Why are income inequalities higher than any point in history? Why do we put up with this abusive system? Presumably for the consumerist addiction of those one million products that we don’t need…
Collusion between government, finance, big business and military is the dictionary definition of fascism. We are taught in school about the fascism of Mussolini or Hitler but, on closer inspection, our whole history has been defined by fascism. The dictionary definition of fascism applies equally to the British, Ottoman, Spanish, Dutch, Belgian, Portuguese, German and Italian empires; to the feudal system; to the shareholder capitalism of today. Economists dress this dynamic up with the illusory “invisible hand”. This is bollocks. There is no such thing as the invisible hand. The supposed hand is very visible if you look in the right places but it is just not made publicly obvious. The role of coordinating global economic activity has been entirely fascistic for 150 years at least.
Tocquevillian liberals believe that government should encourage better citizenship and that good citizens matter more to a society than good institutions. Shareholder capitalism turns this structure on it’s head and then abuses the new structure so that such institutions are designed and coordinated for the benefit of the few psychopathic operators that run the show. To the extreme annoyance of capitalists, behavioural psychologists define social living as the default norm and capitalistic tendencies as an abusive disorder. Our species stands alone in it’s acceptance of such an abusive system while our fellow creatures have managed to work out that constructive social communities are evidently the best form of life structure and rogue operators are generally driven out of the grouping.
We are all animals…