Wall Street Friend or Foe

As it has been said what came first the chicken or the egg.  My question is from an insider’s perspective did the lust for money in our society spread like a cancer after the 1987 crash or was it automation. Unknown to many, certain organizations within financial institutions profited enormously from the ’87 crash.  Utilizing the derivatives markets program traders playing the basis between stock-index futures prices and the S&P cash index reaped enormous rewards.  The proprietary traders of companies such as Kidder Peabody, Goldman Sachs, and other big players in these transactions were utilizing program trading for profitability. Because of their enormous capital their trades materially affected the markets. Try to comprehend the transaction.  For example, at the time if an individual wanted to purchase 100 shares of AT&T, you would have to call your broker to place an order.  This would take approximately five minutes after speaking to his assistant giving your account number and your specifications.  The trading assistant would then call the order desk after writing up an order ticket and verbally requesting the purchase of the shares.  A market order in most cases would be executed immediately.  A limit order wouldn’t be executed until your price was hit.  Just imagine this entire process the purchase of a hundred shares of AT&T would take for the individual approximately 15 minutes. Now let’s take a look at a program trade.  Most trading desks in the program trading departments had computers with pre determine portfolios.  For example, a basket of stocks in most cases comprising 50 to 100 stocks would be set up in a file, structured to be compatible to trade execution formats equal to execution systems on the floor of the New York Stock Exchange. This portfolio could be executed at the push of the ‘enter key’ on your keyboard. At the same time formulas written by Wharton or Columbia University MBAs determining ratios (basis) between the cash market index and S& P (stock futures) futures index, would determine how many futures contracts would be purchased or sold based upon the number of shares purchased or sold in the cash market (portfolio).  This transaction would be executed in a matter seconds.  Compare the individual transaction to the program traders transaction, 15 minutes verses seconds, is this not an unfair advantage. Again, these trading strategies put the individual at a disadvantage were touted by the financial services industry as giving the market’s liquidity.  Program trades are nothing more than a speculative transaction for the benefit of a corporation and its senior partners and officers.  The competitiveness of the individual trader has been taken away and given to the proprietary traders of major financial institutions. In response to this and to promote a level playing field is the on line trading through the Internet for individuals. Automation in financial services has taken away the individualized opportunity to succeed as an individual investor and has destroyed investing forever.

The American worker has been forced to utilize the investment vehicles mandated by the Government, which assists the Financial Services industry who seeks only to take value ($) out of the market at the American workers expense. They are doing this through 401K’s, 403B’s, and other government mandated savings and retirement investment vehicles all in the name of retirement and health opportunities. What has happened to the old Defined Benefit Plan (DBP), also known as a Pension Plan? This was the vehicle, which secured the American workers retirement future. The answer is obvious, corporate America needed to change the laws for DBP’s, but it couldn’t, so through their lobbyists and those politicians controlled by them changed the laws through the tax code. New ways to save for retirement and get a tax break now were introduced. You can reduce your taxable income pay less taxes and save current dollars with possibly your company matching 50% of your savings (401K). Then there was the 403B save your dollars now reduce your taxable income and pay taxes later when you draw your retirement pay. This relieved corporate America of their responsibility to the individual worker and put retirement on the shoulders of the individual. It has been said that greed is the root of all evil, Automation and the Internet is a tool of greed.   

 

 

 

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