A year on from board ..., page-13

It has been proven that the US markets are manipulated.

There is tangible and written evidence as was described in a weekly update From Phil Anderson’s CYcles trends and forecasts earlier this year:


“Alan D Jagolinzer, working at Stanford University, took the time recently to go back and re-assess the private meetings American government officials held with the large — and then under stress — financial institutions during the prior financial crisis.

Those meetings at the time were being held to formulate a response to the unfolding crisis. What came out of the meetings was ‘TARP’ (The Troubled Asset Relief Programme).

But more importantly, discussions were also detailing how much money would be involved in TARP and how it would be allocated.

Here’s what The Economist had to say about Jagolinzer’s findings back in February (2018):

‘…this mattered hugely. The very survival of some institutions was at stake; in the end, hundreds of billions of dollars were pledged. Knowing the structure and scope of the bail-out in advance would have been a vitally important piece of in-formation for investors during this period.

‘The [Jagolinzer] paper examines conduct at 497 financial institutions between 2005 and 2011, paying particular attention to individuals who had previously worked in the federal government (and) in institutions including the Federal Reserve. In the two years prior to the TARP, these people’s trading gave no evidence of unusual insight. But in the nine months after the TARP was announced, they achieved particularly good results.

‘The paper concludes that “politically connected insiders had a significant information advantage during the crisis and traded to exploit this advantage”.’

Yep.

The next piece of research is a little more sinister even, if that’s possible.

It’s actually two papers. The first is from Andrea Barbon, NBER working paper 24089, December 2017, and the second from Marco Di Maggio, again an NBER working paper, 23522, June 2017.

Both papers used trading data from 1999 to 2014 and the data was from Abel Noser. Abel Noser is a company that tracks trading transaction costs.

Noser kept the data from 300 brokers but the researchers used just the 30 brokerage firms through which some 85% of trading volume flowed during those years.

It’s worth quoting from The Economistagain. The researchers…

‘find evidence that large investors tend to trade more in periods ahead of important announcements, say, which is hard to explain unless they have access to unusually good information.

‘They could acquire such information in several ways. The most innocent is that brokers ‘spread the news’ of a particular client’s desire to buy or sell large amounts of shares in order to create a market, mush as an auction house might do for a painting. But it is also possible, the papers suggest, that they give this information to favoured clients to boots their own business.

‘Strengthening this argument is the finding that large asset managers which use their own affiliated brokers do not lose out.’

Their conclusion:

‘One study suggests insiders profited even from the global financial crisis; another that the whole share-trading system is rigged.’”