The gyrations in the market last week have the look and feel of classic market manipulation.

From Janet Tavakoli:

Chicago residents grew up to the sound of local early morning radio rundowns of pork belly futures and other exchange traded commodities. Every trick in the book from manipulation of soybeans to silver has played out in Chicago’s trading pits. Every market professional I’ve talked to in Chicago since Thursday is of the same opinion. It makes no difference whether human beings or computers are front running and manipulating trades. The gyrations in the market last week have the look and feel of classic market manipulation.

If you want to manipulate a market, deregulate it as much as possible. Then make it as “dark,” and fast as possible. Make it hard for outsiders to view your trades as they get done, and make it even harder for anyone to figure out why you are trading. Get as much monopoly power as possible over the market. Get funding at the cheapest possible rate. The best possible rate is the near zero cost funding available from the Federal Reserve.

Next, get your “men” stationed in the most influential positions at the exchanges. Make sure your cronies have shock and awe market dominance through, say, High Frequency Trading algorithms that now make up the majority of stock trades.Then, make sure you have advance information of major market-moving events. A bailout announcement by the European Union would do nicely. A few days before the announcement, “bang” the market. Pound down the value so you can monetize put options and other bearish instruments. Trigger customers’ stop-loss orders, and pick up bargains at their expense. Then cash-in again when the market pops up on bailout news.

[ “Banging” the U.S. Stock Market ]

It’s a very tried and true formula. In Reminiscences of a Stock Operator by Edwin Lefèvre, Jesse Livermore (the putative subject of the book) portrays a similar scenario which existed during the the period of 1900-1923 (circumstances which were extant and mutated grandiosely resulting in the big crash of 1929; the manipulation continued well into the 1930’s, until the cheaters could not squeeze any more).

Actually, it’s a scenario that is as old as markets. Big players want to reduce their risk, and what better way than to be in control? Not necessarily directly, but indirectly (it keeps the punters guessing). Pulling strings; Influencing law and the public mindset; then set ’em up and sheer the  sheep who never learn, and are at a loss as to explain what ever it was that happened.

Years ago I read about hunters on the African savanna who would walk after a single animal for days slowly and methodically until the animal ceased to run away from the hunter. After days of constantly walking toward the prey, ultimately the hunter would simply walk up to it and club it in the head.


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