(Legally) Burn Them All To The Ground

Art By Alex Schaefer

Art By Alex Schaefer

I’ve marveled for years at reports buried in the earnings releases for major banks in which they appear to be able to repeatedly churn out trading results that not only buck the odds they defy physical statistical reality.

I’m speaking of the penchant for big banks to turn in perfect quarterly trading records — three month periods where they never once having a losing day.

The statistical probability that a given bank, or even a bunch of them, have all of the smartest people working for them and nobody beats them, ever, through honest and fair dealing is simply not plausible.  It is one thing to pull it off once in a while, but the repetitive pattern of these events is virtually proof of cheating in some form, whether legal or not.

The other day there was an obscure notice of a whistleblower lawsuit filed by a big bank guy.  It wasn’t immediately clear exactly what the conduct was that had been observed and was not being exposed.

Matt Taibbi over at Rolling Stone just blew the cover off that box and what’s inside is a nasty many-headed hydra:

Back in June, journalist Simone Foxman at the global economic site Quartz reported that in addition to the two-second head start some Thomson Reuters customers were getting on the release of the University of Michigan Survey of Consumers, other customers may have been getting their data even earlier, “nearly an hour in advance” in some cases.

Rolling Stone has since learned that a whistleblower complaint has been filed to the SEC identifying 16 of the world’s biggest banks and hedge funds as the allegedly even-earlier recipients of this key economic data. The complaint alleges that this select group of customers received the data anywhere from 10 minutes to an hour ahead of the rest of the markets.

10 minutes to an hour early, all undisclosed?

Thompson Reuters has denied the allegations in the lawsuit, but if they are true, and certainly if this applies to more than just one piece of data (like, perhaps,all of them?) it would certainly explain how statistically-impossible results seem to happen with disturbing regularity when big banks are concerned.

Keep your eyes open on this one, because it is you who is being robbed.

This exact situation, whether it turns out to be illegal or not, is why these institutions should never be allowed to trade on their own under any circumstances.  When you are put in a position where you can profit from your customer’s loss the incentives to rig the game so you win and the customer loses become so ridiculously lop-sided that they will happen and you will get screwed.

It was this, far more than anything else, that made Glass-Steagall demonstrably correct from a legislative point of view.

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