The Deadly Art Of Stock Manipulation

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HOT STOCKS

CONFIDENTIAL ESSAY

 

By George Chelekis

 

NOTE: I believe this may be one of the most important essays on the financial markets which you will ever read. This essay will be

the lead article in Hot Stocks Review, (Part Two). Up until recently, I knew that I was missing something, but I could not

quite put my finger on it. Now I know what it is. The data which follows is only as good as you can actually use it. These are the cold, savage and ruthless facts of market manipulation. I have not made these up, but have dug them up out of out-dated, generally unavailable books on Canadian market manipulations, and pieced the rest together from observations, personal experiences and conversations with market professionals and insiders. While the books are out of date, the manipulations have been passed down from one generation to another. The only thing missing was someone to supply you with what those tricks were so you can become a more educated speculator. Many thanks to Robert Short and Vern Flannery, of Market News Publishing, for finding and sending me a copy of the book, "The Story Behind Canadian Mining Speculation" by T. H. Mitchell, first published in 1957 by George J. McLeod Limited; also Ivan Shaffer's book, "The Stock Promotion Game." I have been told that many of these tricks are now illegal. If so, would someone please tell that to the market manipulators.

 

THE DEADLY ART OF STOCK MANIPULATION....

 

In every profession, there are probably a dozen or two major rules. Knowing them cold is what separates the professional from the

amateur. Not knowing them at all? Well, let's put it this way: How safe would you feel if you suddenly found yourself piloting (solo) a Boeing 747 as it were landing on an airstrip? Unless you are a professional pilot, you would probably be frightened out of your wits and would soil your underwear. Hold that thought as you read this essay because I will explain to you how market manipulation works.

 

In order to successfully speculate, one should presume the following: THE SMALL CAP STOCK MARKETS PRIMARILY EXIST TO FLEECE YOU! I'm talking about Vancouver, Alberta, the Canadian Dealing Network and the US Over-the Counter markets (Pink Sheets, Bulletin Board, etc.). One could also stretch this, with many stocks, to include the world's senior stock markets, including Toronto, New York, NASDAQ, London, etc. The average investor or speculator is not very likely to have much success in the small cap crapshoots. I guess that is what attracted ME to these markets. I have been trying, for quite some time, to answer this question, "How come?" Now, I know. And you should, too!

 

By the way, the premise of these books is uniformly: "While these speculative companies do not actually make any money, one can profit by speculating in these companies." THAT is the premise on how these markets are run, by both the stock promoters, insiders, brokers, analysts and others in this industry. That logic is flawed in that it presumes "someone else" is going to end up holding the dirty bag. Follow this premise all the way through and you will realize the insane conclusion: For these markets to continue along that route, new suckers have to continue coming into the marketplace. The conclusion is insane in that such mad activity can only be short-lived. I disagree with this premise and propose another solution (see my earlier essay: A Modest Proposal) at the end of this essay.

 

What the professionals and the securities regulators know and understand, which the rest of us do not, is this.

 

"RULE NUMBER ONE: ALL SHARP PRICE MOVEMENTS -- WHETHER UP OR DOWN -- ARE THE RESULT OF ONE OR MORE (USUALLY A GROUP OF) PROFESSIONALS MANIPULATING THE SHARE PRICE."

 

This should explain why a mining company finds something good and "nothing happens" or the stock goes down. At the same

time, for NO apparent reason, a stock suddenly takes off for the sky! On little volume! Someone is manipulating that stock, often with an unfounded rumor.

 

In order to make these market manipulations work, the professionals assume: (a) The Public is STUPID and (b) The Public

will mainly buy at the HIGH and © The Public will sell at the LOW.

Therefore, as long as the market manipulator can run crowd control, he can be successful.

 

Let's face it: The reason you speculate in such markets is that you are greedy AND optimistic. You believe in a better tomorrow and NEED to make money quickly. It is this sentiment which is exploited by the market manipulator. He controls YOUR greed and fear about a particular stock. If he wants you to buy, the company's prospects look like the next Microsoft. If the manipulator wants you to desert the sinking ship, he suddenly becomes very guarded in his remarks about the company, isn't around to glowingly answer questions about the company and/or GETS issued very bad news about the company. Which brings us to the next important rule.

 

"RULE NUMBER TWO: IF THE MARKET MANIPULATOR WANTS TO DISTRIBUTE (DUMP) HIS SHARES, HE WILL START A GOOD NEWS PROMOTIONAL CAMPAIGN."

 

Ever wonder why a particular company is made to look like the greatest thing since sliced bread? That sentiment is manufactured.

Newsletter writers are hired -- either secretly or not -- to cheerlead a stock. PR firms are hired and let loose upon an unsuspecting public. Contracts to appear on radio talk shows are signed and implemented. Stockbrokers get "cheap" stock to recommend the company to their "book" (that means YOU, the client in his book). An advertising campaign is rolled out (television ads, newspaper ads, card deck mailings). The company signs up to exhibit at "investment conferences" and "gold shows" (mainly so they can get a little "podium time" to hype you on their stock and tell you how "their company is really different" and "not a stock promotion.") Funny little "hype" messages are posted on Internet newsgroups by the same cast of usual suspects. The more, the merrier. And a little "juice" can go a long way toward running up the stock price.

 

The HYPE is on. The more clever a stock promoter, the better his knowledge of the advertising business. Little gimmicks like

"positioning" are used. Example: Make a completely unknown company look warm and fuzzy and appealing to you by comparing it

to a recent success story, Diamond Fields or Bre-X Minerals. That is the POSITIONING gospel, authored by Ries and Trout (famous for "Avis: We Want To Be #1" and "We Try Harder" and other such slogans). These advertising/PR executives must have stumbled onto this formula after losing their shirts speculating in a few Canadian stock promotions! The only reason you have been invited to this seemingly incredible banquet is that YOU are the main course. After the market manipulator has suckered you into "his investment," exchanging HIS paper for YOUR cash, the walls begin to close in on you. Why is that?

 

 

The Deadly Art Of Stock Manipulation Pt2

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"RULE NUMBER THREE: AS SOON AS THE MARKET MANIPULATOR HAS COMPLETED HIS DISTRIBUTION (DUMPING) OF SHARES, HE WILL START A BAD NEWS OR NO NEWS CAMPAIGN."

 

Your favorite home-run stock has just stalled or retreated a bit from its high. Suddenly, there is a news VACUUM. Either NO news or BAD rumors. I discovered this with quite a few stocks. I would get LOADS of information and "hot tips." All of a sudden, my pipeline was shut-off. Some companies would even issue a news release CONDEMNING me ("We don't need 'that kind of hype' referring to me!). Cute, huh? When the company wanted fantastic hype circulated hither and yon, there would be someone there to spoon-feed me. The second the distribution phase was DONE....ooops! Sorry, no more news. Or, "I'm sorry. He's not in the office." Or, "He won't be back until Monday."

 

The really slick market manipulators would even seed the Internet news groups or other journalists to plant negative stories

about that company. Or start a propaganda campaign of negative rumors on all available communication vehicles. Even hiring a

"contrarian" or "special PR firm" to drive down the price. Even hiring someone to attack the guy who had earlier written glowingly about the company. (This is not a game for the faint-hearted!)

 

You'll also see the stock drifting endlessly. You may even experience a helpless feeling, as if you were floating in outer space

without a lifeline. That is exactly HOW the market manipulator wants you to feel. See Rule Number Five below. He may also be doing this to avoid the severe disappointment of a "dry hole" or a "failed deal." You'll hear that oft-cried refrain, "Oh well, that's the junior minerals exploration business... very risky!" Or the oft-quoted statistic, "Nine out of 10 businesses fail each year and this IS a Venture Capital Startup stock exchange." Don't think it wasn't contrived. If a geologist at a junior mining company wasn't optimistic and rosy in his promise of exploration success, he would be replaced by someone who was! Ditto for the high-tech deal, in a world awash with PhD's.

 

So, how do you know when you are being taken? Look again at

Rule #1. Inside that rule, a few other rules unfold which explain how

a stock price is manipulated.

 

"RULE NUMBER FOUR: ANY STOCK THAT TRADES HUGE VOLUME AT HIGHER PRICES SIGNALS THE DISTRIBUTION PHASE."

 

When there was less volume, the price was lower. Professionals were accumulating. After the price runs, the volume increases. The professionals bought low and sold high. The amateurs bought high (and will soon enough sell low). In older books about market manipulation and stock promotion, which I've recently studied, the markup price referred to THREE times higher than the floor. The floor is the launchpad for the stock. For example, if one looks at the stock price and finds a steady flatline on the stock's chart of around 10 cents, then that range is the FLOOR. Basically, the markup phase can go as high as the market manipulator is capable of taking it. From my observations, a good markup should be able to run about five to ten times higher than the floor, with six to seven being common. The market manipulator will do everything in his power to keep you OUT OF THE STOCK until the share price has been marked up by at least two-three times, sometimes resorting to "shaking you out" until after he has accumulated enough shares. Once the markup has begun, the stock chart will show you one or more spikes in the

volume -- all at much higher prices (marked up by the manipulator, of course). That is DISTRIBUTION and nothing else.

 

Example: Look at Software Control Systems (Alberta:XVN), in which I purchased shares after it had been marked up five times.

There were eight days of 500,000 (plus) shares trading hands, with one day of 750,000 shares trading hands. Market manipulator(s) dumping shares into the volume at higher prices. WHENEVER you see HUGE volume after the stock has risen on a 75 degree angle, the distribution phase has started and you are likely to be buying in -- at or near the stock's peak price.

 

Example: Look at Diamond Fields (TSE FR), which never increased at a 75 degree angle and did not have abnormal volume

spikes, yet in less than two years ran from C$4 to C$160/share.

 

Example: Look at Bre-X Minerals (Alberta:BXM), which did not experience its first 75 degree angle, with huge volume until July

14th, 1995. The next two trading days, BXM went down and stayed around C$12/share for two weeks. The volume had been 60% higher nearly a month earlier, with only a slight price increase. Each high volume and spectacular increase in BXM's share price was met with a price retreat and leveling off. "Suddenly," BXM wasn't trading at C$2/share; it was at C$170/share.... up 8500% in less than a year!

 

In both of the above cases, major Canadian newspapers ran extremely negative stories about both companies, at one time or

another. In each instance, just before another share price run up, retail investors fled the stock! Just before both began yet another

run up! Successful short-term speculators generally exit any stock run up when the volume soars; amateurs get greedy and buy at those points.

 

"RULE NUMBER FIVE: THE MARKET MANIPULATOR WILL ALWAYS TRY TO GET YOU TO BUY AT THE HIGHEST, AND SELL AT THE LOWEST PRICE POSSIBLE."

Just as the manipulator will use every available means to invite you to "the party," he will savagely and brutally drive you away from "his stock" when he has fleeced you. The first falsehood you assume is that the stock promoter WANTS you to make a bundle by investing in his company. So begins a string of lies that run for as long as your stomach can take it.

 

You will get the first clue that "you have been had" when the stock stalls at the higher level. Somehow, it ran out of steam and you

are not sure why. Well, it ran out of steam because the market manipulator stopped running it up. It's over inflated and he can't

convince more people to buy. The volume dries up while the share price seems to stall. LOOK AT THE TRADING VOLUME, NOT THE SHARE PRICE! When earlier, there may have been 500,000 shares trading each day for eight out of 12 trading days (as in the case of Software Control Systems), now the volume has slipped to 100,000 shares (or so) daily. There are some buyers there, enough for the manipulator to continue dumping his paper, but only so long as he can enlist one or more individuals/services to bang his drum.

 

He may continue feeding the promo guys a string of "promises" and "good news down the road." (Believe me, this HAS happened to me!) But, when the news finally arrives, the stock price goes THUD! This is entirely orchestrated by a market manipulator. You'll see it in the trading volume, most of which is CONTRIVED. A market manipulator will have various brokers buying and selling the stock to give the APPEARANCE of increasing volume and price so that YOU do start chasing it higher.

 

At some point during the stall stage, investors get fed up with the non-performance of the stock. It drifts for a while, in a steady retreat, with perhaps a short-lived spike in price and volume (the final signal that the manipulator has finally offloaded ALL of his

paper). Then, the stock comes tumbling down -- having lost ALL of the earlier share appreciation.

 

Sometimes, with the more cruel manipulators, they will throw in a little false hope... giving you a little more rope so they can better

hang you. Just after a severe drop, there will be a "bottom fishing" announcement which sends the share price up a bit on high volume, rises a little more after that and then continues to drift. Meanwhile, you keep getting "shaken out" through a cruel drip-drip water torture of the share price's slow retreat. Again, virtually every movement is completely orchestrated.

 

 

The Deadly Art Of Stock Manipulation Pt3

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"RULE NUMBER SIX: IF THIS IS A REAL DEAL, THEN YOU ARE LIKELY TO BE THE LAST PERSON TO BE NOTIFIED OR WILL BE DRIVEN OUT AT THE LOWER PRICES."

 

Like Jesse Livermore wrote, "If there's some easy money lying around, no one is going to force it into your pocket." The same

concept can be more clearly understood by watching the tape. When a market manipulator wants you into his stock, you will hear LOUD noises of stock promotion and hype. If you are "in the loop," you will be bombarded from many directions. Similarly, if he wants you out of the stock, then there will be orchestrated rumors being circulated, rapid-fired at you again from many directions. Just as good news may come to you in waves, so will bad news.

 

You will see evidence of a VERY sharp drop in the share price with HUGE volume. That is you and your buddies running for the

exits. If the deal is really for real, the market manipulator wants to get ALL OF YOUR SHARES or as many as he can... and at the lowest price he can. Whereas before, he wanted you IN his market, so he could dump his shares to you at a higher price, NOW when he sees that this deal IS for real, he wants to pay as little as possible for those same shares... YOUR shares which he wants to you part with, as quickly as possible.

 

The market manipulator will shake you out by DRIVING the price as low as he can. Just as in the "accumulation" stage, he wants

to keep everything as quiet as possible so he can snap up as many of the shares for himself, he will NOW turn down, or even turn off, the volume so he can repeat the accumulation phase.

 

In the mining business, there seems to always be another "area play" around the corner. Just as Voisey's Bay drifted into oblivion,

during the fourth quarter of 1995 and early into 1996, the same Voisey Bay "wannabees" began striking deals in Indonesia. Some

even used new corporate entities. Same crooks, different shingles. The accumulation phase was TOP SECRET. The noise level was deadingly silent. As soon as the insiders accumulated all their shares, they let YOU in on the secret.

 

"RULE NUMBER SEVEN: CONVERSELY, YOU WILL OFTEN BE THE LAST TO KNOW WHEN THIS DEAL SHOWS SIGNS OF FAILURE."

 

Twenty-twenty hindsight will often show you that there was a "little stumble" in the share price, just as the "assays were delayed"

or the "deal didn't go through." Manipulators were peeling off their paper to START the downslide. And ACCELERATE it. The quick slide down makes it improbable for your getting out at more than what you originally paid for the stock... and gives you a better reason for holding onto it "a little longer" in case the price rebounds. Then, the drifting stage begins and fear takes over. And unless you have serves of steel and can afford to wait out the manipulator, you will more than likely end up selling out at a cheap price.

 

For the insider, marketmaker or underwriter is obliged to buy back all of your paper in order to keep his company alive and maintain control of it. The less he has to pay for your paper, the lower his cost will be to commence his stock promotion again... at some future date. Even if his company has no prospects AT ALL, his "shell" of a company has some value (only in that others might want to use that structure so they can run their own stock promotion). So, the manipulator WILL buy back his paper. He just wants to make sure that he pays as little for those shares as possible.

 

"RULE NUMBER EIGHT: THE MARKET MANIPULATOR WILL COMPEL YOU INTO THE STOCK SO THAT YOU DRIVE UP ITS PRICE SHARES."

 

Placing a Market Order or Pre-Market Order is an amateur's mistake, typifying the US investor -- one who assumes that thinly

traded issues are the same as blue chip stocks, to which they are accustomed. A market manipulator (traders included here) can jack up the share price during your market order and bring you back a confirmation at some preposterous level. The Market Manipulator will use the "tape" against you. He will keep buying up his own paper to keep you reaching for a higher price. He will get in line ahead of you to buy all the shares at the current price and force you to pay MORE for those shares. He will tease you and MAKE you reach for the higher price so you "won't miss out." Miss out on what? Getting your head chopped off, that's what!

 

One can avoid market manipulation by not buying during the huge price spikes and abnormal trading volumes, also known as

chasing the stock to a higher price.

 

"RULE NUMBER NINE: THE MARKET MANIPULATOR IS WELL AWARE OF THE EMOTIONS YOU ARE EXPERIENCING DURING A RUN UP AND A COLLAPSE AND WILL PLAY YOUR EMOTIONS LIKE A PIANO."

 

During the run up, you WILL have a rush of greed which compels you to run into the stock. During the collapse, you WILL

have a fear that you will lose everything... so you will rush to exit. See how simple it is and how clear a bell it strikes? Don't think this formula isn't tattooed inside the mind of every manipulator. The market manipulator will play you on the way up and play you on the way down. If he does it very well, he will make it look like someone else's fault that you lost money! Promise to fill up your wallet? You'll rush into the stock. Scare you into losing every penny you have in that stock? You'll run away screaming with horror! And vow to NEVER, ever speculate in such stocks again. But many of you still do.... The manipulator even knows how to bring you back for yet another play.

 

What actors! No wonder Vancouver is sometimes called

"Hollywood North."

"FINAL RULE: A NEW BATCH OF SUCKERS ARE BORN WITH EVERY NEW PLAY."

 

The Financial Markets are a Cruel, Unkind and Dangerous Playing Field, one place where the newest amateurs are generally

fleeced the most brutally.... usually by those who KNOW the above rules.

 

Just as I have a duty to ensure that each of you understand how this game is played, YOU now have that same duty to guarantee

that your fellow speculator understands these rules. Just as I would be a criminal for not making this data known to you, YOU would be just as criminal to keep it a secret. There will always be an unsuspecting, trusting fool whom the rabid dogs will tear to shreds, but it does NOT have to be this way.

 

IF every subscriber made this essay broadly known to his friends, acquaintances and family, and they passed it on to their

friends, word of mouth could cause many of these market manipulators to pause. IF this effort were done strenuously by many,

then perhaps the financial markets could weed out the crooked manipulators and the promoters could bring us more legitimate

plays.

 

The stock markets are a financing tool. The companies BORROW money from you, when you invest or speculate in their companies. They want their share price going higher so they can finance their deal with less dilution of their shares... if they are good guys. But, how would you feel about a friend or family member who kept borrowing money from you and never repaid it? That would be theft, plain and simple. So, a market manipulator is STEALING your money. Don't let him do it anymore. Insist that the company in which you invest be honest or straight... or find another company in which to

speculate. Your money talks in LOUDER volumes than any stock promotion scheme. ALWAYS refuse any deal which smells wrong.

 

Refuse to tolerate the scams prevalent in the financial markets. This can ONLY be accomplished by KNOWING and USING the above rules. Thoroughly COMPLETE your due diligence on a company before risking a dime. Dig up the Insider Reports to find out who is blowing out their paper, how often they are blowing out their paper and whatever happened to their "last play."

 

Begin to use this as YOUR rule of thumb: If the insider's paper is really worthless, then avoid it. Find another's whose paper DOES

hold promise and honest possibilities. In these small cap stock markets, you are investing more in the INDIVIDUAL behind the play, than the "possibility" of the play itself. Ask yourself before speculating: Could I lend this person $5,000 for a year and hope to

get it back? If not, then don't! Do it for your own good and the good of everyone else who is so foolish as to speculate in these financial markets!

 

The truly sane and only somewhat safe solution to all of this: FIND GOOD COMPANIES IN WHICH TO SPECULATE AND GET INTO THEM AT THE GROUND FLOOR LEVEL. Anything else is criminal or stupid. This is a case where there really isn't a gray area. It's either

Black or it's White. The company and its management are scamsters

or they really intend to bring value to their shareholders.

 

 

What is Circular Trading

 

Circular Trading is a fraudulent activity in the stock market involving two brokers or market players trading a stock back and forth to give the impression of huge trading volume.

 

In Circular Trading sell orders are entered by a broker who knows that offsetting buy orders, the same number of shares at the same time and at the same price, either have been or will be entered.

 

Circular trading is typically rampant in a market that is tending upwards. The problem is that retail investors trade on momentum. This means that these investors enter the market when volumes are high; for high volumes are perceived to mean higher market interest and therefore higher prices.

 

The trouble starts when the market players who engage in circular trading decide to offload their holdings, sending the stock into a tailspin. Should retail investors get stuck with such stocks, the total money flow into the market will reduce. And that could be some cause for concern for the economy as a whole. The reason is that vibrant markets can propel economic growth, if they sustain for a long while. It is to prevent circular trading and, perhaps, its consequences that the stock exchange has shifted certain stocks to the trade-for-trade segment.

 

What is Trade-for-trade?

 

Under the trade-for-trade segment, every transaction is individually settled. Suppose a trader buys 1,000 shares of a stock for Rs 45 per share in the morning and sells the same quantity of shares in the afternoon for Rs 50 per share. Under the rolling settlement system, the broker is permitted to net the buy and sell transactions, and pay Rs 5 per share less brokerage to the trader.

 

In the trade-for-trade segment, the trader will have to pay Rs 45,000 to take delivery of the 1,000 shares bought, and will have to make delivery for the shares sold. Since each transaction is treated separately, scope for circular trading is restricted. The reason is that trader ramping up the stock price will have to pay the amount to take delivery of the shares bought. And that would entail large outlays.

 

The trade-for-trade segment appears a good measure to lower the systemic risk due to circular trading. The stock exchanges should, hence, actively consider shifting stocks to this segment rather than slapping special margins on the stocks considered speculative.

 

Now the BSE routinely raises the special margin on stocks based on some undisclosed criteria to deter speculative trading. But it is not effective in a vibrant market because retail investors enter in droves in stocks based on momentum; and such speculative stocks carry high momentum.

 

That said, shifting stocks to the trade-for-trade segment would help contain systemic risk better if the stock exchanges are more transparent in their criteria for choosing such stocks.

 

Transparency: At present, neither the BSE nor the NSE states the criteria for shifting a stock to the trade-for-trade segment. Defining the basis for such a shift would provide a perspective for traders and retail investors of the quality of trading in each stock.

 

Suppose the exchanges state that they consider stocks with delivery-to-traded quantity ratio of less than 10 per cent, and price change of more than 50 per cent in a week for shifting to the trade-for-trade segment.

 

Traders and investors will keep hawk-eye on stocks that fit such a criteria (such an information can be obtained from the NSE Web site). This will prevent retail investors from getting trapped in stocks that are victims of circular trading. Such transparency is important because stocks may decline in value after they are shifted to the trade-for-trade segment because of a likely drop in volumes.

 

In short, the BSE and the NSE should actively consider shifting stocks to the trade-for-trade segment as a measure to curb circular trading. Importantly, the exchanges should be transparent in their criteria for choosing such stocks.

 

 

http://www.traderji.com/trading-psychology...lation-pt1.html

 

MORE: George Chelekis - Essays On Stock Market Manipulation

Hi Tavi Star,

 

Many thanks for the information. This is really helpful for me.

THE LOST SCIENCE OF MONEY

 

THE MYTHOLOGY OF MONEY. THE STORY OF POWER

 

By Stephen A. Zarlenga

 

 

CH. 9- THE RISE OF CAPITALISM IN AMSTERDAM

 

THE AMSTERDAM STOCK EXCHANGE

 

The Amsterdam Stock Exchange was built in 1611, modeled on that of Antwerp from 1531. Commodities as well as stocls were traded, with specific areas (“pits”) designated for trading in different items.

 

Amsterdam from 1600s onwards was the direct origin of our present exchange mecanisms and procedures. She got them from Antwerp, which is said to have gotten them from the Levant.

 

In the 1980s and 90s attention often focused on the “innovations” known as “derivative products”: stock market indexes and futures and options contracts based on them. Nearly all of these innovations were in use on the great Amsterdam Stock Exchange in the 1600s and 1700s.

 

We find the same types of contracts, the same general rules of trading, the same methods to cheating the public and of manipulationg markets!

 

The Exchange offered many type of transactions:

 

- Stock sold for immediate cash.

 

- Stock sold on margin up to 80%.

 

- Monthly settlement dates – the 20^th of the month, payment due the 25^th.

 

- Future settlement dates.

 

- Put and call options, with premium payable immediately at the Bank of Amsterdam.

 

- The “DUCATOON” – an imaginary share representing 1/10 of a Dutch East India Company Share, with a monthly settlement price.

 

Agreements on trades were signaled by handshakes or hands claps.

 

Trading in various items could be extremely thin or very hectic. During speculative periods “Feverish buying and selling and gambling were continued until 4 o’clock in the morning in the French Coffe House” adjacent to the Exchange, wrote historian Charles Wilson

 

 

CHETING THE PUBLIC

 

As with today’s Exchanges, cheating was an inseparable part of the Amsterdam Stock Exchange’s activity, and as today, it occurred on three levels:

 

a) Broker’s abuse of client’s orders

 

b) Behind the scenes manipulation of prices

 

c) Using structural faults in market mechanism to fleece participans.

 

 

BROKERS ABUSE OF CLIENT'S ORDERS

 

There were two types of brokers on the Amsterdam Exchange: officially appointed or “sworn” brokers, of which there were 375 Christians and 20 Jews; and more than 700 unsworn brokers, or “free” brokers, who were mainly Jewish. The free brokers were somewhat wild and not proscribed by law from certain practises that took advantage of the clients.

 

In particular, the sworn brokers were forbidden the engage in “dual trading”. This means they were to execute orders for their users accounts but were not to trade for their own accounts. The free brokers traded their own accounts as well, and would “front run” their clients orders, as well as orders that they could see entering the pit through the sworn brokers.

 

“Dual trading” was an important issue in the commodity trading scandals of the late 1980s in America. Though public prosecutors suggested forbidding it, the public never undertood the process. The politically powerful commodity Exchanges, with their large contributions, blocked legislation against it.

 

Dual trading should be banned because it represent a conflict of interest. If a broker haolding a client’s order to buy or sell, is allowed to trade for his own account at the same price, or just in “front” of it, to “front run” it, as it is called on the Exchanges, the market mechanism ceases to function in a fair manner. For the “front running” broker has been given an unfair advantage over other market participants.

 

For example, suppose a broker has an order to buy at a certain price. If he “front runs” it and before filling the order buys for his own account at, or just above the order price, he then controls the client’s order which will buy it back from him, that is, protect his trade from a loss. The same holds true for selling in front of a clients sell order. Just knowing of the order’s existance gives a big advantage.

 

This is serious because with Members’ margin requirements (the cash deposit they must put up) being only about 1% the front running brokers have a posibility of a great gain in a short time period with almost no posibility of loss. If the broker enters and exists a trade on the same day, the margin requirements are generally even lower than 1%.

 

The client loses the oportunity the gain, where his order is never filled and the market rises or falls from his order point. Second, if the broker let the order get filled because he can see that the market is going to go through it anyway, the client’s order is filled in an obviously (to the broker) losing situation.

 

Third, any market that systematically gives an advantage to particular participants over time will harm the relative positions of all others. If some participants can trade with little or no risk, over time everyone else will be hurt.

 

Some modern exchanges put limitations on brokers trading for their own accounts, but they are not always effective because the brokers use what are called “bag men” who they signal to do the offending trade; while they hold back the client’s order, to protect to accomplice’s trading position, and they divide the profits later.

 

Efforts made by Amsterdam Stock Exchange to curb dual trading and front running were not effective, as they have not been in modern times. Computerized trading, as opposed to an “open outcry” system, would largely solve this problem (and perhaps introduce a diffent form of cheating by the computer literati).

 

 

MANIPULATING MARKETS: BEAR RAIDS

 

In 1688 Joseph De La Vega, a Jewish stockbroker in Amsterdam, wrote a book called Confusione de Confusiones, vividly describing exchange activity. He gave a detailed roadmap of how manipulators would launce a bear campaign (to lower prices) , outlining 12 stratagems, which I’ll summarize:

 

At the beginning of the campaign the syndicate borrows all the money available at the exchange and makes it “apparent” it wishes to buy (!) shares with the money. When they start their campaign to drive prices down, the bears actually begin with purcases (which raise prices) and take all items offered! Then, having driven prices up as high as they can, they start selling:

 

5^th stratagem – sell the largest possible quantity of call options

 

6^th stratagem – buy the largest possible quantity of put options

 

7^th stratagem – loan the bulls money, taking their shares as collateral, then sell their shares.

 

8^th stratagem – spread false news by droping a letter: “They have a letler writen and arrange to have the letter dropped as if by chance at the right spot”.

 

9^th stratagem – They get some new person to sell, and finance his loss, if any, in the belief, that anything new gets more attention.

 

10^th stratagem – Whisper loud enough to be heard.

 

12^th stratagem – Sell government bonds to shock the general situation.

 

 

The manipulation of news was also important: “The small boats which were supposed to meet the Enghish ships and speed back to harbour with the news, in reality merely took a turn outside the harbour and having invented their plausible gossip, came back and sold itto the feverish crowds of speculators,” wrote Wilson.

 

 

USING STRUCTURAL MARKET FLAWS TO FLEECE PARTICIPANTS

 

The “ducatoon” trading introduced structural flaws in the market. They were not real shares but were fictious or imaginary units, kept as account book entries by a cashier. Each Ducatoon represented 1/10 of the value of a Dutch East India Company share.

 

The Ducatoons were a monthy phenomenom with a new series of Ducatoons each month. They attracted the small investors ans speculators, and the market makers were mainly Jewisj brokers. While each Ducatoon represented 1/10 of a DEIC share, the market price of the Ducatoons fluctuated independently and the only time they were officially valued at the 1/10 of a DEIC share was on settlement day, the first of each month at 1 pm, as signaled on the floor of the Exchange by an appointed person “raising the stick”. This settlement price would the determine whether speculators had made or lost money on thei Ducatoons and accounts would be settled, debiting and crediting accounts.

 

Readers familiar with modern stock index futures will immediately see the Ducatoon was similar to a stock index future, except in was based on only one company, and for one month at a time; whreas stock indexes are based on index of many companies, and futures expirations are more extended.

 

The same type of riskless arbitrage was engaged in then as show. The market makers in the Ducatoon would sell the Ducatoons to speculators at a premium over the DEIC stock, and purchase the underlying stock to guarantee a profit for themselves on expiration day. Alternatively, they would purchase the Ducatoons at a discount, and sell short the underlying DEIC shares. “The members initiate action only when they can foresee its result so that apart from unlucky incidents, they can reckon on a raher sure success,” wrote De La Vega.

 

Such trading is structurally defective because it allows the price of an item (the Ducatoon, or index future) to be artificially determined by the supply and demand of an entirely separate item (the DEIC share or in modern times the stock index). When a large enough position (open interest) is established in the artificiallly dependent item (the Ducatoon or index future), it will attract and encourage market manipulators to attempt to fix or rig the independent price determining item at the moment of price determination (expiration date or settlement time). The one factor that makes this manipulation and cheating possible or easy is that the dependent contract is settled for cash rather than for delivery of the underlyng item.

 

In modern commodity markets this structural defect is unique to futures contracts settled in cash – primarily the stock indexes and financials. For example, a corn futures contract couldn’t be so easily manipulated because of the threat that those who were “long“ corn futures might demand delivery of corn. Supplying corn on a particular date, to fulfill the contract, is a completely different matter then coming up with cash. Cash can be always be borrowed in an emergency, allowing the manipulators wide leeway in their machinations.

 

The Ducatoon was settled for cash, not the underlying DEIC shares, making the Ducatoon the first known example of this type of structurally flawed futures instrument which have now been made easier to manipulate by the existance of cash-settled options on the futures. These types of contracts are primarily a gambling activity and could be outlawed whitout loss to society.

 

--------------

o gasiti aici

Editat Aprilie 30, 200916 ani de tavi_star

Computerized trading, as opposed to an “open outcry” system, would largely solve this problem (and perhaps introduce a diffent form of cheating by the computer literati).

he he heeee....

mersic de carte Tavi.

THE GREAT AMERICAN BUBBLE MACHINE

 

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

 

By MATT TAIBBI

 

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

 

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup - which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York - which, incidentally, is now in charge of overseeing Goldman - not to mention ...

 

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

 

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.

 

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

 

If you want to understand how we got into this financial crisis, you have to first understand where all the money went - and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long - including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

 

IF AMERICA IS NOW CIRCLING THE DRAIN, GOLDMAN SACHS HAS FOUND A WAY TO BE THAT DRAIN.

 

BUBBLE #1 - THE GREAT DEPRESSION

 

Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids - just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan.

 

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

 

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

 

Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.

 

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line; The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

 

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

 

BUBBLE #2 - TECH STOCKS

 

Fast-Forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

 

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair - but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

 

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

 

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliche that whatever Rubin thought was best for the economy - a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy - beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

 

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

 

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system - one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

 

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

 

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

 

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

 

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

 

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of

the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price - let's say Bullshit.com's starting share price is $15 - in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit - a six percent fee of a $500 million IPO is serious money.

 

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nichol as Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television rear end in a top hat Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

 

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation - manipulated up - and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations - a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

 

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price - ensuring that those "hot" opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business - effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

 

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age - Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" - shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

 

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

 

GOLDMAN SCAMMED HOUSING INVESTORS BY BETTING AGAINST ITS OWN CRAPPY MORTGAGES.

 

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits - an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

 

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

 

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent - they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

 

BUBBLE #3 - THE HOUSING CRAZE

 

Goldman's role in the sweeping disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that poo poo out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

 

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

 

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't.

 

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

 

More regulation wasn't exactly what Goldman had in mind. "The banks go crazy - they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [sEC chief Arthur] Levitt want it stopped."

 

Clinton's reigning economic foursome - "especially Rubin," according to Greenberger - called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

 

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

 

Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation - no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

 

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners - old people, for God's sake - pretending the whole time that it wasn't grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions .... However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

 

"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.

 

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

 

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck ho1ding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million - about what the bank's CDO division made in a day and a half during the real estate boom.

 

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff those same bets.

 

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion - an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

 

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down - and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

 

BUBBLE #4 - $4 A GALLON

 

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years - the notion that housing prices never go down - was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

 

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

 

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

 

GOLDMAN TURNED A SLEEPY OIL MARKET INTO A GIANT BETTING PARLOR - SPIKING PRICES AT THE PUMP.

 

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling - which, in classic economic terms, should have brought prices at the pump down.

 

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help - there were other players in the physical-commodities market - but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures - agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

 

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

 

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

 

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

 

This was complete and utter crap - the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

 

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market - driven there by fear of the falling dollar and the housing crash - finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers - and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

 

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

 

"1 had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you

have to clear it with Goldman Sachs?'"

 

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

 

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index - which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil - became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions - meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

 

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

 

But it wasn't the consumption of real oil that was driving up prices - it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

 

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

 

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."

 

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

 

BUBBLE #5 - RIGGING THE BAILOUT

 

After the oil bubble collapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

 

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

 

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

 

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.

 

The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

 

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 - with its $1.3 billion in pretax losses - off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 - which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first-quarter results six ways from Sunday," says one hedge-fund manager. "They hid the losses in the orphan month and called the bailout money profit."

 

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

 

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money - suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC - which Goldman Sachs had already done, a week or two before."

 

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

 

Fourteen million dollars.

 

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

 

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

 

This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

 

BUBBLE #6 - GLOBAL WARMING

 

Fast-Forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

 

AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON MARKET" WORTH $1 TRILLION A YEAR.

 

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

 

The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

 

Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

 

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.

 

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that 'Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

 

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

 

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

 

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

 

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

 

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

 

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

 

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

Editat Iunie 30, 200916 ani de tavi_star

STOC SHOCK

 

download torrent

 

Stock Shock the movie is breaking new ground. The movie that promises to shed light on illegal naked short selling has actually caught the eye of the United States Securities & Exchange Commission. Stock Shock is a documentary that educates viewers about illegal trading practices, through the stories of Sirius XM (SIRI) investors who believe they were the victims of naked short selling, and the victims of hedge funds who were possibly trading on the inside information that the company would be driven to bankruptcy this past February by certain bondholders. Unfortunately for those that participated, their plan failed and now the SEC is involved.

 

Buckle up and hold on to your wallet as we follow the wild ups and downs

of the American stock market through the eyes of stunned Sirius XM investors.

 

Sirius Satellite Radio's commercial free music and blockbuster talent seemed

to make it a sure-fire investment. After buying out their only competition in

2008 the stock was poised to go through the roof, but something went horribly

wrong.

 

Like fellow investors who had put their money in the once safe holdings of banks

and mortgage lenders Sirius XM stockholders stood by helplessly as the value of

their retirement funds disappeared and with it their life savings.

Was it the bad economy? Mismanagement? Or something even more sinister?

 

Stock Shock exposes the down and dirty schemes and calculated market manipulation

behind the glitter of Wall Street.

It is a must see for anyone who has ever lost money in stocks...or fears they're about to.

cind se lanseaza chestiile alea carbonate sa cumpar si eu vreo citeva mii, la pachet? opening sale! buy one, get one free!

si astept cu interes filmul lui michael moore, din octombrie, care cica o sa explice americanilor de rind de ce nu mai au bani in fondurile de pensii. sau in buzunare.

 

la ce mai e buna analiza tehnica? sau aia fundamentala?

South Park 1303 - Margaritaville (cartoons)

The story brokers don’t want you to read

 

By Arne Alsin

 

This is a column that the brokerage industry does not want you to read. That is because it will embarrass them. Brokers don’t want you to know that they reap big profits by withholding important information from investors. Brokers don’t want you to know that they are the reason why shareholder voting has become a farce. And they don’t want you to know that they regularly and systematically discriminate between classes of investors.

 

The reasons for broker misbehaviour should come as no surprise. They misbehave because: (1) it is profitable; and (2) they can get away with it.

 

Brokers, as fiduciary agents, are supposed to act in the “best interests” of investors. But many brokers act in their own interests when they have an opportunity to generate more profits. Before I get to the cold, hard facts regarding the self-serving conduct of brokers, I will identify the root cause of the problem. That is, brokers wield too much power and influence.

 

There is no other asset class where brokers have such enormous power. A real estate broker or an auto broker, for example, is not able to lend your house or your car to someone else without your knowledge.

 

In the stock market, it happens every day. Brokers lend investor property to short sellers, often at annual yields in excess of 10 per cent, without notice to investors. After lending investor property, brokers have the gall to keep 100 per cent of the proceeds.

 

Broker lending of investor property generates $10bn a year for the brokerage industry. Because brokers are reluctant to share this booty, they wilfully and systematically discriminate between investors. They discriminate between those investors who have information and those who don’t have information.

 

Investors who know when their shares are lent (in other words, institutional investors) demand a piece of the action. And they should. Those investors deserve to be compensated when their property is lent to someone else.

 

Investors who do not know when their shares are lent (retail investors) are treated differently. Brokers regularly loan out the property of uninformed retail investors and keep all the proceeds. Those property owners cannot demand a piece of the action if they do not know about it in the first place.

 

In the brokerage industry, which I believe is collusive and anti-competitive, all retail investors must sign a “hypothecation” agreement when they open a margin account. This gives the broker the right to lend investor property without prior knowledge and without compensation to the investor.

 

The hypothecation agreement is an indefensible anachronism. The reward captured by brokers under the umbrella of the hypothecation agreement is outrageous, and it is not subject to normal open-market supply and demand forces.

 

Per the industry-standard hypothecation agreement, brokers are able to lend out investor property and secure high returns while putting none of their own capital at risk. So, all of the capital is put up by the retail investor; all of the reward goes to the broker.

 

The key to the ruse is this: keep the retail investor uninformed. Broker behaviour borders on the absurd in this regard. When a broker lends the shares of a retail investor to a short seller, who then sells the shares to someone else, the right to vote goes with the shares. To keep the loan a secret from the owners, brokers mail proxy voting materials to investors even when the broker knows that the shares have been lent to someone else.

 

The deceit is carried a step further. Even though the shares have been lent and the retail investor is not legally entitled to vote, brokers allow the investor to vote anyway. As a result, shareholder voting has become a farce. That is evident, in part, by rampant over-voting.

 

The common broker complaint – that it is too difficult to track shares for voting purposes – is a canard. That is because brokers already track shares pursuant to Internal Revenue Service rules.

 

Brokers track shares for tax purposes because they have to. They permit systematic violation of the “one share, one vote” rule because they can get away with it.

Editat Iulie 6, 200916 ani de tavi_star

multumesc tavi star pentru traducere...si un 10 plus pentru acest topic super!!!!