Wednesday, May 12, 2010

Take it away, Ian Welsh:
It wasn’t just Goldman who made money trading every single day in the last quarter, it was four banks.

I cannot emphasize enough: this is the sign of a fixed market. It is impossible that this could happen in a free market. Impossible.

This means they are extracting money from the markets, aka: from everyone who isn’t a market mover. Small traders, pension funds, trading accounts of cities, etc… Even if those actors aren’t actually in decline, they are making less money than they should as the banks make sure that their buy orders are filled at the highest price possible, and their sell orders at the lowest level possible. And, in fact, many of them will be in outright decline as a result of these games.

At this point, if you are not a market mover, you can only make money in the market by anticipating the moves of the market movers. This is now about guessing what a few people will do, so you can ride the tiger. Just don’t fall off.
As the New York Times reported (link above):
Despite the running unease in world markets, four giants of American finance managed to make money from trading every single day during the first three months of the year.

... Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase & Company ... finished the period without losing money for even one day.

Their remarkable 61-day streak is one for the record books.
It sure is.

Ritholtz comments:
A super steep yield curve, ZIRP, and a rip roaring market make trading easier than usual . . .
At a minimum, you can say the Fed helped make this possible.


The Fed is loaning money to those banks at zero percent interest. The banks are turning around and buying treasury bonds that pay 3-4%. That's why they are making money hand over fist. That's why they made a profit every single day.

The Federal Government is using the banks as a sponge to soak up the treasury bonds that it can no longer sell to the rest of the world. It is effectively paying the banks interest to monetize the debt.

Bottom line -- they've maxed out the USA's credit worldwide. They're just printing money now.

By Anonymous Anonymous, at 5/12/2010 7:45 PM  

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