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Private Stocks And 'Dark Pools' In American Finance

Dark pools – private stock trading platforms not available to the public – are under investigation by the SEC. We look at inequities in the stock market and what they mean for public investors.

In this file photo, Securities and Exchange Commission (SEC) Chair Mary Jo White attends the meeting of the Financial Stability Oversight Council (FSOC), Thursday, April 25, 2013, at the Treasury Department in Washington. (AP)

In this file photo, Securities and Exchange Commission (SEC) Chair Mary Jo White attends the meeting of the Financial Stability Oversight Council (FSOC), Thursday, April 25, 2013, at the Treasury Department in Washington. (AP)

We don’t want to be “shocked, shocked” that the US stock market is not kindergarten.  That just maybe not everything is perfectly fair and clean and open at every moment.  We get that.  On the other hand, Wall Street is supposed to be the great engine of American investment.  And it is where an awful lot of people’s savings – one way or another – end up.  College savings.  Retirements.  And they expect the system not to be rigged.  But maybe it is.  Everybody’s talking “dark pools” these days.  This hour On Point:  Wall Street’s “dark pools” – where you don’t know what’s going on.

– Tom Ashbrook

Guests

Scott Patterson, financial regulation reporter for The Wall Street Journal. Author of “Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market.” (@pattersonscott)

Joshua Brown, financial adviser at Ritholtz Wealth Management. Author of “Backstage Wall Street” and “Clash of the Financial Pundits.” (@ReformedBroker)

Shah Gilanicontributing editor at Money Morning and the Money Map Report, contributor at Forbes. (@theShahGilani)

From Tom’s Reading List

The Wall Street Journal: ‘Dark Pools’ Face New SEC Probe — “The Securities and Exchange Commission is investigating a number of big ‘dark pools,’ according to people familiar with the probes, as stock-market regulators ramp up pressure on the private trading venues. Investigators are exploring whether the trading systems are properly disclosing to clients how they operate, treating all investors fairly and protecting confidential client information, among other concerns, the people said.”

The Reformed Broker: “The stock market is a giant distraction to the business of investing.” – “The stock market is a derivative of the value of corporate America. The intrinsic value of a corporation can be estimated by the dividend yield when you purchase the stock and the subsequent earnings growth. It is corporate America that creates value; the stock market itself creates none. In fact, the stock market subtracts value, due to all the costs we pay to play the game. It’s a little bit like the casino, one might say. And I say that advisedly.”

Bloomberg: Dark Pools Take Larger Share of Trades Amid SEC Scrutiny – “Shares changing hands in private venues such as dark pools accounted for 40.4 percent of total share volume on June 10, according to data compiled by Bloomberg. That’s the most since 41.7 percent took place off-exchange on June 22, 2012. The three biggest exchange companies each matched about 20 percent of trading on June 10.”

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  • HonestDebate1

    Feel free to delete this comment Mr. Moderator but the economy is in free fall with a 3% drop from projected GDP, the IRS scandal grows as we learn Lerner targeted a Senator, a huge majority believe they destroyed the emails purposely which explains Lerner’s fearlessness, now EPA emails are gone too as they defecate in the hallways, Syrian and Yemeni fighters are coming to America with plastic (undetectable) bombs, a new study shows Al Qaeda attacks are on the rise and On Point ignores it all. These issues should not be relegated to a Friday round-up. You should be ashamed.

    • rvl1

      Jeez, let’s stick with the topic. OnPoint isn’t here to satisfy YOUR agenda. Take a break, troll.

      • 1Brett1

        B-b-but he’s on a crusade to help save America! Surely that’s more important than sticking with the topic on hand?!

        • MrNutso

          Save his America.

          • Ray in VT

            I think that it is pronounced ‘Merica. ‘Postraphe ‘Merica.

    • Ray in VT

      Lame.

      • jefe68

        He wants his $1.90′s worth of attention…

        • Pleiades

          Don’t forget to remind HD1 that the value includes taxation. That’ll get him (or her) started.

    • nkandersen

      We don’t have a practice of deleting comments unless they meet a very strict standard of explicit or inappropriate content.

      Thanks for sharing your thoughts here!

      nick andersen
      web producer | on point radio

      • TFRX

        At this point I can only figure that

        Thanks for sharing your thoughts here!

        is part of WBUR, if not NPR’s, mandatory signature.

        • nkandersen

          It’s not; we don’t have a mandatory signature format.

          nick andersen
          web producer | on point radio

      • HonestDebate1

        I wish you had deleted it Mr. Moderator, my offer was sincere. I will do so now to avoid any further distraction. There are some 20 replies on the thread and I truly did not intend to instigate a quarter of the off-topic comments.

        Is there a better way to register complaints where I can be assured they are seen by staff and not the commenters? I’m not looking to make a spectacle but I also don’t intend to stop holding your feet to the fire. I think that is prudent and I infer it is even welcomed at times.

        • jefe68

          Don’t listen. It’s really that simple.
          It’s not about you…

        • nkandersen

          You are more than welcome to email the program: onpointNPR AT gmail DOT com with programming suggestions or pitches; due to the volume of pitches we receive, we won’t be able to respond to every pitch, but we do value your thoughts on our programming choices.

          Best,

          nick andersen
          web producer | on point radio

          • HonestDebate1

            Thank you, I’ll do that in the future. Sorry for the distraction. This topic is important despite my questioning it’s priority at this time.

    • Pleiades

      HD1, if you are not happy with the programming that Mr. Ashbrook and the staff of On Point have been selecting recently, you are free just like the rest of us to find programming that reflects what you desire to hear discussed.

    • MrNutso

      Against my better judgement. Lerner’s conduct is unbelievable, because it is literally unbelievable. Unless you think her discussing with a colleague whether it made sense to investigate an outside group that made an inappropriate offer to Sen. Grassley as some sign of misconduct. Her colleague dismissed the idea, and that was that.

      • jefe68

        As you can see, HD is getting his news from Fox, the purveyors of malicious gossip and anti-Obama screeds.

        • MrNutso

          I read that the problem really came from an AP headline saying “Emails: IRS Official Sought Audit of GOP Senator.”

          • jefe68

            But Fox has been making a lot of hay out of this story.

          • TFRX

            In the words of every English, Scottish, Irish or Welsh soccer announcer who’s spotted a really cheesy dive, Fox is “making a meal out of this”.

          • Ray in VT

            “The emails show former IRS official Lois Lerner mistakenly received an invitation to an event that was meant to go to Sen. Charles Grassley, R-Iowa.

            The event organizer apparently offered to pay for Grassley’s wife to attend the event. In an email to another IRS official, Lerner suggests referring the matter for an audit, saying it might be inappropriate for the group to pay for his wife.”

            http://abcnews.go.com/Politics/wireStory/emails-irs-official-sought-audit-gop-senator-24304646

            There are always issues when things go on between the two branches of government, so ground must be lightly walked on, but it does sound like there could have been a legitimate issue there.

          • MrNutso

            I agree. And having discussed in house, nothing ever came of it. The Right is now getting apoplectic over people even thinking about things that may be relevant in performing their jobs.

    • TFRX

      Wow. You’re letting Tom run his own show?

      Mighty big o’ ya.

    • jefe68

      You have the freedom to change the channel and not listen. I do suggest that you might exercise that freedom.

      • hennorama

        jefe68 — you miss the point.

        Selfish and self-righteous views must rule the day, and freedom of the press be damned.

        • Ray in VT

          Plus the benefit, I think previously stated, of distracting the conversation by having others react to a post.

          • hennorama

            Ray in VT — TYFYR.

            There is an actual benefit, though — the hearty laughter that every one of these hilarious posts from Sir Nobler Than Thou (self-proclaimed) elicits.

            “You should be ashamed” gets me every time.

            Then Sir NTT follows up, below, with the hilarious question and statement:

            Is there a better way to register complaints where I can be assured they are seen by staff and not the commenters? I’m not looking to make a spectacle but I also don’t intend to stop holding your feet to the fire.

            As if his “complaints” are so important that he must “be assured they are seen by staff” before he “registers” them.

            Too funny for words.

          • Ray in VT

            And as if it has not been repeatedly noted that there is an email button/link at the top of the page.

          • hennorama

            Ray in VT — regarding said obvious and convenient [Contact us] page (which is also at the very bottom of the forum), a selection from the Gregg Smith Response-O-Matic:

            Too Long Didn’t Read

            Thanks for your response.

  • John Cedar

    Private trading is an important factor in how big banks and big oil
    inflate petroleum prices. It is only natural that they try to achieve
    the same results with the rest of the market.

  • http://hlb-engineering.us/ HLB

    So how many Americans watched Brad Katasuyama (IEX) testify in front of the US Senate 9 days ago? Informed, educated Americans who post to this program’s comments section.

    BK was a major protagonist in Flash Boys, author: Michael Lewis.

    That hearing was repeated on C-SPAN last Saturday* and is likely availabe for streaming at two websites.+

    * When I watched it.
    + US Senate & C-SPAN

    • JGC

      You can also get further information about how trading works on Katasuyama’s IEX platform, as well as a list of participating banks/brokerages, and the testimony you mention above at http://www.iextrading.com

  • Yar

    Things haven’t changed throughout all of history.
    This passage from the Bible seems to fit: Luke 16

    1 There was a rich man who had a manager, and charges were brought to him that this man was wasting his possessions. 2 And he called him and said to him, ‘What is this that I hear about you? Turn in the account of your management, for you can no longer be manager.’ 3 And the manager said to himself, ‘What shall I do, since my master is taking the management away from me? I am not strong enough to dig, and I am ashamed to beg. 4 I have decided what to do, so that when I am removed from management, people may receive me into their houses.’ 5 So, summoning his master’s debtors one by one, he said to the first, ‘How much do you owe my master?’ 6 He said, ‘A hundred measures of oil.’ He said to him, ‘Take your bill, and sit down quickly and write fifty.’ 7 Then he said to another, ‘And how much do you owe?’ He said, ‘A hundred measures of wheat.’ He said to him, ‘Take your bill, and write eighty.’ 8 The master commended the dishonest manager for his shrewdness. For the sons of this world are more shrewd in dealing with their own generation than the sons of light. 9 And I tell you, make friends for yourselves by means of righteous wealth, so that when it fails they may receive you into the eternal dwellings.

    10 “One who is faithful in a very little is also faithful in much, and one who is dishonest in a very little is also dishonest in much. 11 If then you have not been faithful in the unrighteous wealth, who will entrust to you the true riches? 12 And if you have not been faithful in that which is another’s, who will give you that which is your own? 13 No servant can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money.”

  • http://socialentrepreneurship.change.org/actions/view/twenty-first_century_metric_america_in_your_state BeholdersEye

    I think 401k plans are dark pools, death dumb blind and numb investors supporting a false market place….

    • Human2013

      The demise of the pension plan and the creation of the 401K is the worst thing that has ever happened to America. With the Demise of the pension plan – a huge liability on the balance sheet – CEO pay has skyrocketed, income inequality is soaring and the respect and dignity of the American worker has declined.

      Just consider in the years since the invention of the 401k, more than 7 trillion has been added to the market….this is where things start to go terribly wrong. Wall street CANT be trusted with our retirements. I truly believe the 401k is the cause of most of America’s financial woes.

      • TheDailyBuzzherd

        “The Retirement Heist”, Ellen Schultz.

      • Don_B1

        What Wall Street wants now is control and replacement of the Social Security system.

        In 2005, after his reelection where he ran on other issues, George W. Bush tried to give it to them.

        But CEO pay has skyrocketed because of the demise of unions and, with the lower marginal income tax rates, the CEOs can get more bang for their buck taking immediate profit for themselves rather than investing in the companies that they are running. A higher marginal tax rate encourages C-level employees to take a relatively smaller salary and grow the company where they will eventually earn more, along with workers at that company.

        Just the change (lowering) of average income taxes has contributed hugely to the growth in income and wealth inequality. See:

        http://krugman.blogs.nytimes.com/2011/09/20/taxes-and-the-wealthy/?_php=true&_type=blogs&_r=0

        for a revealing graphic.

  • Human2013

    Today’s topic represents all that is wrong with free market economics — whatever that means.

    At the rudimentary level, the stock market is merely a mechanism to bring together lenders and borrowers — that simplistic. However, somehow, the broker ends up with the biggest piece of the pie never allowing the entire amount borrowed to flow to the intended business.

    A financial advisor, investment house, retirement planner, financial expert all represent a serious conflict of interest. NO, FIdelity, Goldman Sachs, does not and will not put your own investments ahead of their own. Our government is completely complicit in their own demise; they repealed Glass-Steagall, ignored Brooksley Born and have shown no backbone in dealing with “the street.”

    Please refer to this email by a former Goldman employee:

    “…And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.”

    “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

    http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=all&_r=0

  • toc1234

    nice use of scare quotes on the dark pools. as if any of this actually affected the people who get all worked up about it. the root of their “concern” is envy and desire to tear others down (btw those are eyeball-rolling quotes around concern).

    • http://hlb-engineering.us/ HLB

      People who own 401(k)s & are invested w. big funds ARE affected by dark pools & flash trading. Hoober Doober

      • toc1234

        you sign your comments with Hoober Doober?? odd. but maybe you are from somewhere in the south and that’s normal. whatever.

        • jimino

          “what’s wrong with his fact?”

    • TFRX

      What’s it like having everyone be so envious of you in your own mind?

      • toc1234

        to be honest, it can be tiresome… people (the OWS crowd for example) really should start worrying about themselves instead of what everyone else is doing. you know, sort of like what second grade teachers tell their students.

        • TFRX

          And there we go: You, telling the board, how other people should start worrying about themselves.

          Project much?

          • toc1234

            nope – just trying to help. and if I can reach just one person today then the npr world will be a better place.

        • jefe68

          Yeah, we should all mind our own business when it comes to how Wall Street and big banks do business.
          I don’t see how letting these sharks roam our financial world unregulated is a prudent way to run one of the largest economies on the planet.

      • OrangeGina

        what’s wrong with his fact? it is a fact, you know . . . and they are talking about this right now.

        • TFRX

          the root of their “concern” is envy and desire to tear others down

          Submitted without comment.

      • Human2013

        LOL

    • Ray in VT

      Obviously these concerns about the markets being unfairly run so as to potentially provide some with special perks or advantages is rooted in “envy and desire to tear others down”.

  • http://hlb-engineering.us/ HLB

    Before the Greenspan/Bush/Bernanke/Paulson crash of 2007/2008, almost 67% of Americans were invested in the equities markets. That figure is now at 50%. Going down?

    These figures were reported at the Senate hearing last week, re: flash trading and dark pools.

    • harverdphd

      So the “most incompetent president ever” fooled the democrats on the housing market as well as Iraq? Watta guy.

      Everything will adjust to the market. You might be able to move out of your yurt.

  • http://socialentrepreneurship.change.org/actions/view/twenty-first_century_metric_america_in_your_state BeholdersEye

    Real, should you not be calling ‘dark pools’, the black market places, if that is what’s happening? I thought private investing involved giving the company money directly without third parties?

  • http://neilblanchard.blogspot.com/ Neil Blanchard

    This is bogus stuff, pure and simple. We need a rule that forces every stock purchase to be held for a day. Stock purchases need to be in support of the company issuing the stock. Stocks are supposed to back actual productive activities.

    Churning money is extractive, and it should be illegal.

    • MrNutso

      That’s my thought. I’d day longer than a day, but I’m no market whiz. If people want this kind of activity, create a separate market for these activities and return stock markets to their original intent.

    • Don_B1

      A small transaction tax on each share traded would go along way toward slowing, if not stopping, churning in the stock market. And it would be simpler to implement, and it would raise needed money for supporting the safety net, which the big holders of stocks are putting more people in need of with the growing inequality they are seeking.

  • http://hlb-engineering.us/ HLB

    Routing of orders is kickback-centered. Call them discounts or rebates, they’re just kickbacks. The American public pays for all of it.

  • http://hlb-engineering.us/ HLB

    Obama’s SEC pick thinks our government is transparent-centric. What a whopper. If any president’s appointments and actions are opaque to the American public it’s Barack Obama’s.

  • hennorama

    No one should worry — the “free (read: bought) market” will work all of this out.

    Nothing to see here.

    • http://hlb-engineering.us/ HLB

      Yeah, that’s what they said about our “efficient markets” until they stopped saying it. HD

      • hennorama

        HLB — thank you for your response.

        Let’s see … what other tropes should we bring out?

        “It’s different this time.”
        “Let the market decide.”
        “Wall Street needs less regulation, not more.”

        Your turn.

  • http://hlb-engineering.us/ HLB

    Flash Boys is the read of the year.

  • http://hlb-engineering.us/ HLB

    The US Senator carrying the water for Ameritrade, NYSEX, Goldman, et al at the Senate hearing last week was Minnesota’s Ron Johnson. Badly prepared for the event he spent most of his time trumpeting America’s “free markets.” It was embarrassing to watch this stand and salute the flag for a country that no longer exists.

    • Don_B1

      A true example of the Peter Principle.

  • http://hlb-engineering.us/ HLB

    Here it comes.. the trumpet call for an army that no longer exists.

    Yes, let’s be frank: you are an apologist for “evil doers” in the markets.

  • AC

    we can’t even enforce traffic laws; i highly doubt there aren’t shenanigans going on in greater scale…..

  • MrNutso

    So since it’s always been rigged, we shouldn’t make an attempt to un-rig it?

  • http://hlb-engineering.us/ HLB

    I’ve got homes right here. In the glorious Outer Banks. Priced to move. Ignore the climate clowns that claim it’s all underwater 30 years from now! Look, I’m taking a big hit here. My kids are gonna have to go to Goober State now. Help me out. Help you out. Take the deal.
    –Joshua Brown, Pitchman

  • jefe68

    So the reasoning is that it’s always been a rigged game, so it’s fine and dandy? That’s his argument?

    The rigging of the financial system against anyone with a 401K and a money market fund is The fees over the long term eat up the gains.

    http://www.motherjones.com/kevin-drum/2013/05/401k-retirement-funds-are-rip

    http://www.dailyfinance.com/2012/06/05/hidden-401k-fees-retirement-plan-ripoff/

  • hennorama

    Mr. Brown is arguing that scandals and lawsuits are “keeping people out of the market.”

    This of course completely ignores that what is really keeping many people out of the stock markets is that they are loss-averse, based on their experiences during the Great Recession.

    He also tacitly condones rule bending/breaking by saying, in effect, “Twas ever thus. Waddayagonnado?”

    • MrNutso

      Fuhgeddaboudit

  • http://hlb-engineering.us/ HLB

    Because it’s in our nature, that makes it legit.
    –Joshua Brown, ethicist

  • Charles

    This Joshua Brown is very condescending. His argument seems to be of the “don’t worry your pretty little head about it” variety.
    “It’s always been that way” and “so what” are not compelling to me.
    The broader point is that this is exactly the kind of thing that can lead to systematic financial system breakdowns. But that almost never happens when nobody is minding the store, right?
    Oh.

  • http://hlb-engineering.us/ HLB

    Not just asymmetry of information, asymmetry of law enforcement, too.

  • Yar

    Charge a gambling tax of 50% on any individual stock trade of less than six months. Each share should hold a specific ID that a time counter is attached.

    • red_donn

      If one really wants to balance out the function of the stock market with actual business decisions, then the “long term” stock holding point should be set to a measurement of employee lifespan. A survey of Fortune 500 CEOs found that 80% would reject a plan that yielded greater financial gains a year from now, in return for taking a smaller hit on the returns in the next two quarters. The incentives of a one-year holding period are still too short to fundamentally connect with how a business should be run for its own long-term good.

      Make it a three tier system (with some sliding scale mechanisms) that go from outright gambling, to short-term financial holding, to actually investing in a business. Currently the third is very much in the minority.

  • http://hlb-engineering.us/ HLB

    As some of the experts pointed out to Michael Lewis, any legal correction to the financial system spawns its own Godzilla that goes on a rampage that no one can predict.

  • Robin

    So, for those of us who lost faith long ago that the markets would ever be fair, is there anything else we can do with our retirement funds? I’d like to find a way to NOT support these thieves, but I don’t want to out it under the mattress either. Is there an alternative?

  • hennorama

    If it’s “just a penny,” then give me the penny, and see how fast this stops.

  • http://hlb-engineering.us/ HLB

    A penny here or there is another centimeter of ice on the leading edge of the wing of our financial airplane. At 40,000 ft.

  • http://hlb-engineering.us/ HLB

    When interest rates are at 0%, there is TOO MUCH liquidity in the markets.

  • Yar

    Okay you just described what is looming as the bubble of baby boomers need to pull liquidity out as a generational move. Who is going to buy?

    • twenty_niner

      Exactly. As boomers cash out stocks and bonds and sell their homes, who is going to buy, especially with a third of the millennials living with their parents and gen X being a significantly smaller generation?

      • harverdphd

        No problem…market value will adjust down.

    • harverdphd

      Easy…Market value will adjust down.

      • Yar

        Yes, but not in a linear fashion. Remove ten percent of equity from the market and the price of what remains drops by more than half, maybe by 90 percent. The stock market will crash at some time during boomers retirement. They are a generational bubble and it will pop.

  • Michiganjf

    These crooks don’t just rip us all off, they BRAG about it in e-mails to each other!

    Whatever can be done to rein in these crooks SHOULD be done!

    Make the market safe for small investors again… those who trade on the economic fundamentals of a company for the long term!

    Do away with gimmicks for the rich!

    • Godzilla the Intellectual

  • hennorama

    “These firms don’t take any risk,” as Mr. brown says, because they are front-running.

  • http://hlb-engineering.us/ HLB

    It was 4 years without a negative trading day minus one day when there was an order problem. That individual testified* to that effect at Carl Levin’s hearing, as I recall.

    * Or the case reported on.

  • http://hlb-engineering.us/ HLB

    There is a solution. Take your money to a broker* who trades at IEX. Katsuyama’s firm. His exchange charges a fixed transaction and they don’t give their order information away. Let alone sell it to others. It’s all transparent plus they were delaying their order execution in the beginning to thwart the efforts of high frequency trading.

    I’m taking my money out of TDAmeritrade because their CEO said this spring there wasn’t an problem. A thesis they repeated at last week’s hearing. And he wasn’t go to allow the customer to choose the broker the trade is executed with.

    * Example: Royal Bank of Canada. Unfortunately, you have to be a Canadian to bank there.

    • Robin

      I applaud IEX and will make every effort to use them, but doesn’t the money traded through IEX still go to the same place — people who are lying to fix interest rates, selling worthless paper and earning jackpots when it fails, getting multi-million dollar bonuses when their companies are going under…

      I’m looking for an alternative to THAT world.

  • http://hlb-engineering.us/ HLB

    There’s Wall Street’s advice: just go out to lunch. Everything will be fine.*

    * Out to lunch: sounds like the Obama administration.

  • http://hlb-engineering.us/ HLB

    Goodness, if Joshua Brown represents the summa of Wall Street finance types now, they better bring back Richard Fuld* in a New York minute!

    * The Gorilla.

  • Michiganjf

    True!

    Past abuses are no excuse for current abuses!

    The goal should ALWAYS be to eliminate ANY abuses which crop up!

    • MrNutso

      That could be the new investment caution. Investors should be aware that past abuses are not indicator of future abuse performance.

  • http://hlb-engineering.us/ HLB

    See the Bearded Lady. She’ll read your financial fortune, too!
    –Joshua Brown

  • hennorama

    Hold the phone Mr. Patterson. You’re asking market traders to be honest traders.

    Good luck with that, Senor Quixote.

  • hennorama

    The book title Where Are the Customers’ Yachts?, by Fred Schwed, rings as true today as it did when it was first published waaaayy back in 1940.

    See:
    http://www.goodreads.com/book/show/288897.Where_Are_the_Customers_Yachts_

  • Alberto Roldan

    I am listening to the live discussion on the radio and this is the most informative and balanced discussion on the financial markets that I have heard. For the purpose of transparency and full disclosure I am an applied mathematician that designs predictive algorithms like HFT, but in the healthcare area.

    • Godzilla the Intellectual

      You’re adorable!

  • Godzilla the Intellectual

    Hey Dumb A$$ES, I don’t know how many times I can say this before you get it through your thick skulls;

    COOPERATIVE CORPORATIONS. Employees ARE the stockholders.

    • TheDailyBuzzherd

      In theory, this model could make unnecessary all kinds of regulations since the employee has skin in the game. Unfortunately, we live in a climate of socialized risk and disproportionate compensation. Also, there are rules against this already meant to protect the employee. With tweaking, it could work, but would company culture stand up to such lofty ideals?

      • 1Brett1

        I would venture to say “no” to your question. I’ve even seen small companies that start out with some sort of cooperative structure (a couple of software companies, even a restaurant). Then, when the companies grow, the culture changes. Disparities between upper management and employees widen, with the company eventually looking like any other top down company.

        • Godzilla the Intellectual

          LOL

          • 1Brett1

            I suspect you might have some interesting insight into cooperative corporate structures that would be valuable to any discussion. Unfortunately, you neither seem to have a cooperative attitude, a desire to truly engage, nor ostensibly a level of maturity conducive to participation. I could be wrong, and maybe you’ll come around; I hope so. For one thing, it seems you are sort of indirectly advocating for non-traditional work environs, and I’d bet you are critical of traditionally structured corporations (as evidenced by your arrogant comment and your “liking” DailyBuzzard’s comment)…I respect intelligence but not presumptuous, and especially not arrogance, albeit justified in some cases.

        • TheDailyBuzzherd

          True, but not all are unsuccessful. Which is why Chrysler’s Sergio Marchionne’s “horizontal” management style should be viewed with great interest. He claims that there’s no hierarchy, it would be interesting to get an insider’s take.

          • 1Brett1

            I’m not familiar with what you describe at Chrysler, specifically, although I have seen small companies work with a more democratic structure…my own sense is that there does have to be some sort of hierarchical and chain of command structure, for one thing, and that inherently means some employees have more power than others, with some making more empowered decisions. Although, I believe all employees need some sense of empowerment.

            I own a small landscape design company, and the structure has changed over the years. It is very small, and I definitely keep a tight rein on the culture, with strict rules. As time goes by, and I have more employees who have been with me for years, I delegate more and more and enlist more ideas from others.

            With each year, I also do less and less of the physical work (especially right now, as I just had surgery to repair two rotator cuff tears) and am doing almost all of the design, and I do all of getting and maintaining my customer base.

            I’ve had opportunities to expand it into a larger company, doing more commercial-type landscaping, which I am not in business to maintain lawns or landscape new subdivisions, etc., I’ve never wanted to run that type of business. Mine is a niche business, installing formal, traditional Japanese, Chinese, English and French style gardens, mostly. If I were to go in the aforementioned direction, I would structure my business with employee profit sharing, and so on…I’d try experimenting more, anyway.

            I also teach music and perform professionally, but that is structured, where I am the sole “worker.”

    • 1Brett1

      Finally, someone of supreme intelligence who can knock some sense into the rest of these knuckle heads! But will these idiots listen?!?! And, just why won’t they listen?! Your superior intellect and insight should certainly make even a numbskull understand!!! Have patience, GODzilla, they know not what they think.

  • Arkuy The Great

    I am going to play extreme devil’s advocate here. Imagine me in red fur with horned ears, bloody teeth and carrying a pitchfork (which I am sure some readers here do already….)

    The SEC missed Bernie Madoff’s chicanery. He was no shady figure out of Goodfellas or Boiler Room but an above board solid operator, so it seemed. He had a seat on the NASD, was a lecturer in business and finance at major schools in the NYC area and had a sterling reputation in financial circles. Until he didn’t any more. Now did the SEC really miss his dirty dealing or did someone look the other way? Likewise, did the SEC miss the MBS/CDO/CDS crisis as it was forming or did they ignore its development at the behest of certain incumbent organizations in the financial industry? Is the SEC in the capture of established operators? Does the SEC, in fact, do their bidding in protecting their market share from a crop of new competitors in their space? Is the SEC’s action against ‘Dark Pools’ merely a cynical attempt to stamp out new competition and keep the fortress of Goldman Sachs, Chase, Citicorp, B of A, etc. safe? I suspect the real villain may not be the group currently being hunted but, rather, the hunters themselves!

    • Don_B1

      Any time an S.E.C. Commissioner attempted to increase enforcement, various members of Congress would threaten to cut funding, such as during the George W. Bush administration when William H. Donaldson (2/18/03 to 6/30/05) tried to restrain hedge funds.

      But the S.E.C., like most federal entities that oversee activities of the wealthy, has always been underfunded.

      But when President George W. Bush appointed Christopher Cox to Chair the S.E.C., he appointed a strong deregulator to the post. Anyone who expected any action from the S.E.C. under his leadership was a fool.

  • tbphkm33

    Is not today’s show topic further evidence that the United States is no longer a free, open and fair capitalist economy, but in fact a manipulated, rigged and exclusive economy based upon crony relationships. Capitalism is but a facade over what really is going on in the country. In fact, it is an economy manipulated by big money, be that large corporations or the super rich. All at the expense of the middle class and the poor.

    Need further examples, look at the rigged cable TV/Internet or the cell phone markets. Sure, there is choice, the choice between a few big players that have manipulated the market to insure maximum payout of the consumer with minimum input by the supplier.

    Rigged economies are highly dangerous. There is plenty historical evidence of these dangers. Although, one does not need to go much further than a myriad of third world nations where innovation and choice is nonexistent, simply because the entire market is rigged to favor the few well connected. The United States is well on the way toward consumers paying more for less choice, less innovation, and lower quality. The United States is behaving like a third world nation.

    You may say it is a choice to have cable TV, Internet and a cell phone, but the market corruption is much deeper. Look at necessities, such as food. There is a vast difference in quality between low cost retailers such as Walmart and higher end stores such as Whole Foods. Healthcare costs in the United States are spiraling out of control, partly because much of the population do not have access to nutritious food. A reality that did not exist 30 or 40 years ago, but has developed from corporate interest to maximize profit while minimizing costs. Leading to much of the population only have access to low quality foods.

    No, the problems with the United State’s economy extends way beyond Wall Street, but in so many ways, Wall Street is the head of the snake that is constricting and killing The People and the Union.

  • mister-E-maynard-MA

    Josh Brown is an apologist whom you should ignore or rebuke.

    Let’s look at three simple ideas that discredit his discussion.

    (1) He says in effect, “There has always been unfairness in markets. The little guy has never had it so good. So get over it, shut up little guys.”

    The fact that things are always imperfect is a totally empty reason to give up on improving them. Improvement efforts should be applied to all things until the effects of these efforts appear to become counter-productive or the expenditures involved are wasteful in relation to the benefits.

    (2) He says in effect, “No little guys who behaved sensibly lost in the Flash Crash. He knows that this is a lie, and his statements to this effect show that he is not speaking in good faith. Huge amounts of money were lost by little guys who had stop-loss orders that had been suggested by their financial counselors. Some of the most extreme trades were rescinded, but the percentage cut-off for those rescissions were an arbitrary regulatory finding.

    (3) Any little guy placing an order now at the posted price sees no execution and the price moves away. The little guy modifies the order and the price moves away again, and the cycle goes on for four or five repetitions. It’s a lot more than one cent the HFT propagandists speak. This is not how liquid markets act. It is proof of a rigged market with phony posted prices that evaporate due to HFT front running.

  • DJJS

    Very disappointed, Tom, that you did not question the SEC’s ability to properly investigate the dark pools. Michael Lewis, author of the hot new book FLASH BOYS, seriously doubts the SEC’s impartiality given that many SEC employees move on into jobs in the financial markets. In his book, Lewis writes that in a meeting with the SEC regarding front-running, “The SEC staffer argued that it was unfair that high-frequency traders couldn’t post phony bids and offers on the exchanges to extract information from actual investors without running the risk of having to stand by them [the phony offers], (p. 105).” I was on hold for about 40 minutes today hoping to broach the matter which you apparently thought was unimportant…

    • http://www.CayerComputing.com/ M. A. Cayer

      They will fight fire with fire: High Frequency Auditing.

  • Meredith Smith

    Speaking of scandals that are not fair to the ‘public’ and institutions that require ‘integrity’, while I am not shocked, I am ashamed to discover that today’s show was about the stock market. I heard Mr. Ashbrook and his guests bring up these terms in regards to the stock market:
    “…talk about a long term problem of fairness being undermined.”
    “fairness, integrity, favoritism, secrecy, lying”

    The stock market is a gamble and everyone knows it. I am under 40 and am not in the finance world at all, and am an average investor. I have invested in the market my entire adult life and have a very nice sized nest egg of savings thanks to the stock market. I will retire comfortably, when that day comes, thanks to the stock market. I don’t high frequency trade.

    On the other hand, I pay about 30% of my income to the federal government. I have no faith that I will ever see social security.

    Let’s talk about instead, where that 30% of my money is going in terms of current events:

    VA Scandal: costing tax payers over $1 billion in malpractice due to poor care, money grubbing, lying management with secret wait lists. The veterans were dying while the senior executives were getting bonuses. This is what happens when you have a monopoly and veterans have nowhere else to go. The bureaucrats get fat, while the patients die. Our President desperately wants to socialize the whole healthcare system because the VA is doing such a great job. Brilliant. We can all be on wait lists of death, while the management walks home with big bonuses paid with my tax dollars.

    IRS Scandal: Talk about favoritism, secrecy, lying, and fairness. Are you kidding me? Our government is using my money to give bonuses and salaries to individuals to target and silence their political enemies and nobody is doing anything about it. At this rate, we will have a one party system forever. The MSM doesn’t report this and Eric Holder won’t do anything because it is his party that will be the one party. Those words again – favoritism, secrecy, lying, fairness.

    Mr. Ashbrook states, “We still have a democracy. Do we need more regulation?” No. We do not have a democracy. We have unfair, disingenuous, liars and cheaters running our government and no one is doing anything about it. While I appreciate that this program is trying to point out that there might be a scandal with these ‘black pools’ (and if there is – I hope they get punished, if they are doing anything illegal), there are much bigger stories today that affect our entire country and our democracy. The lack of coverage is being noticed and more and more people are disapproving. Stop trying to criminalize Wall Street and
    the companies that actually create jobs and make our country great.

    Corporations and Wall Street are the only reason that I will have retirement money. Our federal government is disgusting right now. Please report it.

    Special thanks to Wall Street and the strong companies, strong workers, brilliant entrepreneurs who are willing to take a risk and start a company and make America great and give me a place to invest my hard earned money. Yes, some of them might be evil, too, but at least they are creating jobs and are not a giant vacuum on the economy, like big government. The corporations could decide to leave. As
    well as many small business owners, such as myself. When everyone is sitting on the wagon and no one is pulling it, things might get ugly.

    • Don_B1

      I understand that you have come to think that Social Security will not be there when you retire. But the reason is that the big banks want to get to handle your money to make 6% to 12% on the $trillions that people set aside for their retirements.

      I hope you read all of my post here as I really think it is important both for you and for the whole country to understand this.

      Social Security will not be there for you ONLY if you let it go by not voting for people who will preserve it. It was never meant to be the sole source of income for retired people, but with the growing inequality in this country, it has been getting much harder, and will continue to do so, to put aside any significant amount for retirements.

      The subject today is at least tangentially related to one of the big problems for the economic future of this country: the growth of economic inequality, both income and wealth. This country’s economy is some 70% consumerism (at least when it is at full strength), so how are people going to buy things when their incomes are not rising and costs of energy and food are rising (higher extraction costs for oil and gas and lower productivity of crops due to global warming and droughts and floods)?

      It has been shown that economic inequality, when it grows past some level actually slows the growth of the whole economy even as the wealthy continue to get more wealthy.

      The first problem in getting these things turned around is for the American people to understand that the country’s economy and the government’s role in it is not like a household’s budget. This this is a terribly FALSE analogy/metaphor! To see this, consider:

      The reason is that a household is not a closed system, like a country with trade to the world less than 10% of its GDP and thus the difference in imports over exports is less than 5% of GDP and can be ignored as a significant source of income for this discussion.

      A household’s GDP does not come from financial interactions between its members, but from interactions (trade) with outside (foreign) parties.

      In the economy of a country, my spending is your income and your spending is my income. In a household, one member’s spending is not another’s income.

      Thus in a country, when both you and I represent a significant part of the population that sees a strong imperative to cut our individual spending (such as following the financial crisis of 2008), without a government to make up the lost spending, both of our incomes will decrease.

      The Great Recession of 2007-2009 has left the country in a “Lesser Depression” since because the government did not rise to the occasion and do enough spending. The stimulus — ARRA — was just under $800 billion spread over two years when the economy had lost some $2 trillion in one year and continues to lose almost $1 trillion compared to potential GDP which could be achieved with full employment. And what spending there was did not extend for a long enough period.

      Then every time the economy showed indications of recovery, the Republicans, particularly in the House of Representatives, managed to insert some cut in government spending that took the wind out of the economy’s sails.

    • Kevin Burber

      “Stop trying to criminalize Wall Street and the companies that actually create jobs and make our country great.”

      “Corporations and Wall Street are the only reason that I will have retirement money.”

      You are young. Thirty and single is a pretty nice place to be, Talk to us in another 10-15 years and I would like to get your take on corporations. You aren’t even aware of what is going on yet…walt…just wait.

      • Meredith Smith

        Hi Kevin, I’m not exactly sure what your point is, if there is one. For the record, I am a few months shy of 40, I am married and I have children. I’m not sure why my age or marital status matters, but you made some bad assumptions. I have been working since I was 10 years old. My first job was a paper route in a small rural town where employment has always been between 15-20%. I always managed to find work (considerably less than minimum wage while I was kid). I have never taken a government hand out. I haven’t stopped working since the paper route, except for a few months during my first year of college and a few weeks of maternity leave with each of my children. I have a great job and have 17 people working for me in my small business. We are all good people who pay taxes. 30 and single does sound kind of nice, but I wouldn’t give up my kids or the company that I have helped to build. I am sure there is a lot of evil going on in the Wall Street circles and I am glad some of the Wall Street criminals are in jail. My point wasn’t so much that there is not evil on Wall Street (and as I mentioned in my earlier post, if these dark pools are illegal, I hope they all go to jail). My point was more that, yes, we all know that Wall Street is rigged and is a gamble, but I have still made money as a very average investor. My main point was that the government isn’t supposed to be rigged and gamble. But the federal government takes my hard earned dollars and squanders it on incompetent bureaucrats who are definitely cheating and lying and NO one is doing anything about it. Not even the media. About 20 years ago, I would have expected more of the media, but not any more. I am saddened. Some major scandals were breaking last week when this wall st. story was done and I just thought how incredibly ironic it was that Mr. Ashbrook was so shocked at the ‘lack of integrity, fairness, etc’ in Wall Street, but makes no mention of the govt. scandals going on right in front of our very eyes. Those billion dollars in VA malpractice lawsuits are like a billion punches in my stomach as a hard working, tax paying American and small business owner. I’m not a fan of Wall Street, I think it smells like a sewer. But they are doing a better job with my money than the federal government who is supposed to have integrity and public trust (just like the media). If you have a point, though, I would love to hear it.

  • De_Miller

    Josh-
    I had a sell trigger on Ford stock that executed due to the Flash Crash mentioned on the show. Fifteen minutes later the price returned but my shares were gone. The stock appreciated further and I lost those potential earnings. I was affected personally.

    • http://www.CayerComputing.com/ M. A. Cayer

      It is not for the faint of heart. – CBOT store shopper

  • http://www.CayerComputing.com/ M. A. Cayer

    http://www.cayercomputing.com/stockMarket/SMAdmin.php

    Several years ago, I wrote this PHP script using the board game, ‘Stock Market’ as the design specification along with previous trading system experience. You can see it executes very fast by the timestamps. There is an occasional Internal Error due to resource allocation problems. With a bit of randomness, the results are different from game to game.

  • Satwa

    A small fee per trade would cure a lot of problems.

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    Awesome Show!

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