I mean are these people serious?
So far we’ve heard no one come forward, no one got fired, and we’ve heard nothing about it. All we really know is there were fears about Greece and Europe but that really was nothing new.
We would never hear about the stock market being up 1,000 points because of a “fat finger” or a “skinny finger” or a middle finger given by the traders to the shorts.
Other than that, there has been no news on the subject. And conveniently there’s pressure on the SEC to enact new legislation to prevent such an attack.
Interestingly enough Goldman Sachs and others are under pressure around the same time, and financial reform acts are about to be past and suddenly the market tanks and the laws don’t get passed. Now instead the SEC enacts circuit breakers.
There are some that believe this was an orchestrated financial domestic attack by the investment banks through use of high frequency trading systems upon the market. How could they get away with it and why would they take the risk?
They simply engage in so many trades per day that when volume drys up, the market is dependent upon these hyperactive traders to provide liquidity and provide the “bottom” so to speak. Since they place so many trades per day, all they really have to do is remove the “buy” orders from the machines, rather than intentionally add new sell orders. So nothing is out of the ordinary, other than they refuse to buy stocks after 2. This alone won’t cause a crash, but day traders see something going on, they have signals go off, and they flood the market with their own trades. Goldman, acting as a middleman, merely assists them with the transactions. If any investigation occurs, they will simply say “we don’t know why these people made these trades, we weren’t the one’s selling, and they can say “so we didn’t want to buy stocks after 2, that’s not illegal. Meanwhile the message gets accross. Ironically both the congressmen acting as reformers and regulators and the businesses acting in defiance, both probably think they know what’s best for the country. So it’s an attack of one against the other. The banks say “they’re trying to end theamerican empire by overt control and reform, we’ll show them not to mess with capitalism” while the politicians say “we’ll get these financial terrorists”. Now I really have no idea if that’s what happens, but I certainly don’t believe the “fat finger” theory, which would have been proven if it was in fact true, and it seems to be more of propaganda to keep people investing.
We know that there’s usually circuit breakers but they are no longer effective during the time the market tanked (until the SEC recently passed new laws). So what in the world caused P&G along with several other stocks to absolutely get destroyed in value to only rebound just moments later? Could it just be that there was a period of inactivity where there were no market buy orders for P&G, and someone wanted to sell? It had to have been more than one stock. Could it be that the crash was indeed real, and the fear followed by the robot traders intensifying the loss, combined with low volume triggered a sell which resulted in many people getting “stopped” out of their stock, selling the stock in a domino effect as this would have continued had the “plunge protection team” not stepped in to buy up the futures and options and stocks that no one else wanted?
I don’t really know. Meanwhile Buffett sells some shares of KFT, P&G and JNJ, perhaps so he could free up the capital he needed to take over Burlington Northern. Even understaning that a takeover gives Buffett control over the assets and also he will use his huge amounts of capital that come from insurance companies pools of cash as they collect premium, essentially having a zero cost investment leveraged with the intent of producing a stable return, you have to be a little bit concerned that Buffett favoured a complete takeover of BNI rather than own KFT and P&G along with JNJ. More on this later.
Volker recently sugested that Europe shows the US that there is a danger involved in spending too much, and the world was told by the IMF to raise VAT tax (a tax on carbon emmissions). At this point with the US having debt as 96% of GDP and every dollar that is spent actually COSTS GDP and has a negative effect, it seems the government will be forced to cut spending dramatically, raise taxes, and that certainly could result in a decline in the market.
If you aren’t trying to time the market, there still are discounts available, and if the market declines those discounts will be even more attractive to purchase.. It seems an increase of taxes and decrease in spending, with a federal reserve rate hike (which will probably be put off until after 2010 elections for political reasons), along with removal of the usage of leveraged financial instrumemnts that cannot be clearly valued and stable will bring down the economy temporarily, but is needed to attract foreign investors, discourage additional leverage, and dampen the system so that the markets are less of a casino. It’s only after then that we can expand. Unfortunately there are a lot of people worried that if we slip into financial troubles, Bernanke will onlyprint more and more money trying to get the system going again, and the amount of printing of money needed to starve off a crash could result in hyperinflation. The idea that the US is going to continue to be the world’s super power sounds a little bit extreme. Buffett and Munger believe that it’s more so the other countries around the world catching up with us. Personally I think that ther are a few solutions but they represent a drastic shift in the opposit direction. That means maybe there should be some restrictions on derivatives there should be some limits, just as it was believed that the ability to use 10:1 margin during the late 20s was a bad idea. Now using leveraged instruments, banks are trading at 40:1. The glass steagle act prevented this type of thing being done at a wide scale level, and I think that the repealing of this act was a big mistake.
TO me you have two options. One is to accept the fact that the US won’t always be the superpower it was, and start uniting towards the one world government that conspiracy theorists are so terrified about. That way you can work towards collectively making the world better rather than individual countries. Either way, I still feel that banks being allowed to use derivatives and federal reserves allowed to print money at will starves the commonman of wealth.
The other solution is perhaps just as radical, and that’s to get rid of the federal reserve and IRS, return to sound money. This would represent a huge decline in asset prices and would cause a huge crash and collapse of all debt. But with sound money and 0 taxes, along with a gold standard in which gold is priced at a very high sum of money in the new currency (as it would be neccesary), you would have people all over the world flocking to the US as they did for americas first 150 years. The huge inflow of new entrepreneurs around the world would result in new innovation and new jobs, but only if the US government would largely stay out of most laws as well, as they can’t continue to spend eitherr. There’s all sorts of bogus restrictions that hamper the economy. Here are two examples.
1) what I call the “starvation law” this law basically increases the amount of starvation on the planet. THe government subsidizes farmers and essentially pays them not to produce at max capacity. The government bribes farmers to starve people, just so the government can try to control prices. That ort of thing was done by hooever just before the great depression.2)The No Flying Car law. Due to increased fear around the world, the government puts lots of restrictions on individuals ability to fly. The airspace in which it’s allowed is so limited that it is financial suicide to attempt to produce a flying car in widespread use, even though prototypes that actually work have been around since the ’70s! This may not sound like enough to ward off a financial collapse, but lets just remember how Henry Ford was just a single man who automated the automobile industry, and the booming industrial revolution that followed as a result provided a new way of life for americans. It was the birth of american jobs as opposed to americans just being farmers and huge growth in prosperity would result. Instead of lalowing such things, the government is too busy propping up the “too big to fail” automobile industry (which I prefer to call the too large and ineffecient to succeed..
If you study Buckminster Fuller in how he was able to forecast the future, he would notice a pattern of things getting bigger and bigger until they get too big to manuver and they are replaced by something smaller. Consider boats, trains, plans, cars. COmputers replaced by smaller ones, and phones replaced by cellphones and cellphones by internet. He predicted that there would be an invisible technology at some point, nd essentially that the internet would have a big effect on the economy. But after each stage of replaced with something smaller, it gets bigger. So Ipod replaced with iphone, then grows to Ipad, and eventually perhaps to TV screens as the major media institutions get replaced by the social and small businesses invent various forms of media. The banks fail (or are supposed to) and are replaced by online banking such as paypal and peer to peer lending. The autos and airliners would have failed and have been replaced by flying cars. Additionally, as the autos were too big too fail and should have, another type of car was invented. The tesla motors company invented a luxury electric car that can go 0 to 60 in I think it was 3 or 4 seconds and it doesn’t make a sound when doing it because it’s electric. Although it’s similar to a very high performance luxury car which as you know there are lamborghinis costing hundreds of thousand, this can be bought for the price of a BMW at 50,000. Unfortunately the abilouts kept millions of investors and billions of dollars invested in the old auto industry, and prevented investment capital from flowing into compnies like this. Meanwhile the best engineers and the giant workforce that is very capable of doing great things is also propped up rather than reallocated towards flying cars, fuel cell cars, and electri cars and advanced technologies. Unfortunately the keynesians see the way to restore the economy as propping up the old. Their models don’t take into account the power of innovation and how inflationary periods prop up the things that should probably not be propped up. Eventually the result will be a bust, sure as winter coming after fall. Rather than accepting the fact that the way of life and the universe is expansion and outer awareness and growth followed by a period of condensing, gaining information, and introspective awareness followed by outward expansion once again, just as a breath must be both inhaled and exhaled, the keynesian economists are merely trying to hold their breath as long as possible, which clearly is not healthy.
America was ingenious in it’s plan for a sound money system free from taxes and government and until 1940 america boomed over the years with less than 5% of all people being taxed. It soon made way for people like Thomas Edison to innovate with the help of JP Morgan as the financer, while other men like Nikola Tesla also produced amazing inventions. The rise of Henry Ford and John Rockefeller along with the radio, the telegraph the various methods of communications, and the luxuries of the roaring 20s unfortunately allowed for too much credit during the 20s with the “buy now, pay later” mentality combined with the federal reserves interference in the freemarkets and Hoover’s price controls on agriculture, and the lack of financial education made it all too easy for preditors to teach people of the importace of investing and the safety that existed, and the need for leverage to produce good returns. The federal reserve hiked rates, they didn’t lend out their gold, and they manipulated the money supply.. The artificial growth in the market caught up with it, and FDR over 3 terms regulated the heck out of the market and still couldn’t get the market above the 1929 level. He even seized gold and made it illegal to hold gold. The economy only recovered once the government finally made dramatic cuts in spending and they were forced to increase taxes as well to pay for it. This could have been avoided with a sound money system. In fact, in 1920 there was a depression that most never heard of because nothing was done and it was over within a year.
Anyways, I’m done with my ramble, but the bottom line is that our way of life is made better through innovation that cannot exist with restrictions. Our way of life is made better through increased production that cannot exist with price controls and restrictions that prevent farmers from producing at max capacity. Ultimately more paper does not solve the trick. However, given that we are in this system, we must come to expect booms and busts due to the federal reserve. It’s been proven by a nobel prize winner that the federal reserve fractional reserve system will result in booms and busts that are artificially large. Given that this is the case, how can you benefit? You have to be able to take advantage of price extremees. You have to innovvate within the laws, and produce in new ways.
A fat finger doesn’t cause stock market crashes, nor does it cause stock market booms. Histrocially manias come and go, but booms and busts can also be caused by greed and corruption, andfear and contraction caused by the currupt (debt consolidation). At some point, debt needs to be paid for, and that will result in a slow period economically, or even contraction until an innovative breakthrough can create increased production and higher quality of living and growth again.
Soo if people tell you that a fat finger caused the crash, tell them, you have a fat finger right in the middle to show to them. 
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