Monday, July 6, 2009

Curioser and curioser

How many of you knew Goldman Sachs was using proprietary computer software designed for "low latency (microseconds) event-driven market data processing, strategy, and order submissions"? What does that mean???? Good question. Anyhow, a story is now breaking via Reuters that a former G. S. employee named Sergey Aleynikov made off with the the secret code referred to above, code that G. S apparently uses routinely to do something called "programmed trading," aka market manipulation. The story, as Reuters is reporting it, is one of business espionage and theft. But over at a much more interesting Internet venue called Zero Hedge, a guy named Tyler Durden is seeing through the smoke and mirrors and telling it like it is. According to someone who is apparently a G. S. lawyer, “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.” Durden definitely has this guy's number:
At least it is refreshing that none other than Goldman's own de facto attorney admits that the firm has created a piece of code that permits "market manipulation." When Goldman is the perpetrator, the manipulation is conveyed via "fair ways." And when the manipulator is someone else, the ways become "unfair."
Faithful readers of this blog may recall two posts entitled Reading the Entrails and Reading the Entrails -- Part 2, in which I wrote (in part 2):
By all means, correct me if I'm wrong, but it looks to me like these markets are being manipulated, possibly according to a scheme similar to the one I presented in my last post, where bets are made based on the relation between the principal index and the VMA (voume moving average). If this is the case, then what does it mean when, at the end of the day, the "market" is up or down by this or that number? As far as I can tell, all it means is that this is where things stood at the time the betting window slammed shut.

Here's the scheme I was referring to, as posted on How to Read the Dow Jones Industrials Indicator:

I'm sure the Goldman Sachs software is far more sophisticated than what we see above, but this will give you some idea of the potential for "programmed trading," i.e., market manipulation. This is legal, supposedly. When used by Goldman Sachs. In the hands of a "rogue trader," I suppose it becomes illegal -- but only because it's stolen. NOT because it makes investing in the stock market a total crap shoot for everyone other than those doing the manipulating.

Meanwhile, for your amusement, here's the latest Youtube sensation, a video of Aleynikov and his wife in a dance competition. Don't forget, you saw it first on this blog:

What's next, I wonder, for the magical US economy?

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