Surely, You Jest?

High-frequency traders account for between 60% and 80% of the couple billion trades on the NY Stock Exchange every day. They are also deep into commodities and other markets. Using computers and sophisticated algorithms these modern-day “Highwaymen” ride the capital market highways and byways, ducking in and out in nanoseconds to pick up a couple pennies here and there.

And they gallop alongside large institutional block-traders pushing the price up on the block, cashing in when it executes. The “Highwaymen” are long gone with their profits when the pricing drops. The institutional trader (read- Grandma & Grandpa’s pension fund) is left holding an over-priced stock paid for with the hard earned savings of their pensioners. While it isn’t always the old folks who suffer, at the end of the day the high-frequency traders, day-traders, and other bottom feeders have pumped up the prices paid by regular investors-- the “losers,” as those who game the market call them.

None of this has anything to do with the stated purpose of the markets, putting  funds into the hands of business, funds to create jobs. The high-frequency folks, however, are emerging into the daylight. They showed up first on “K” Street doling out hundreds of thousands of dollars to candidates and lobbyists. Well north of a million and a quarter last year according to published reports. Big bucks, but well within their means, given the six billion they are reported to have skimmed off the markets last year.

The high-frequency folks have also laid claim to a positive impact on the market. They feel they’ve made it more competitive and lowered trading fees. They have to be joking. Experts argue that by using their speed to duck in and out of the market, they have taken the edge off competition and destabilized the market. And it seems much more likely that trading fees have been driven down by online trading and the brokerage houses featuring low fees.

None of the fun-and-games trading schemes that have emerged since the markets were opened up to pure gambling plays have anything to do with providing the capital American business needs to create jobs. Laws exempting traders from gambling laws and allowing banks to wander out of their traditional role created this mess, and triggered the economic collapse we are still staggering from.

Restoring sanity to this sector is no big secret. Repeal the gambling exemptions, and set up tax rules that will encourage capital development. Start with a 95% tax on gains from investments held less than a day, 80% on those held less than a week, 60% on those held less than a month, and so on until those held more than a decade are tax free. Let’s take our capital markets out of the hands of the Highwaymen and their ilk and return it to “Investors” and the companies they own. Let’s focus on what’s best for our people in the long term, not the next quarter. Let’s put the market to work providing capital for our economy and jobs for our people.

It’s the Culture, Stupid!

The Murdock media feeding frenzy continues unabated. And it may be just beginning. One defining aspect helps explain much. The nature of the media across the pond is different from that in the United States. Great Britain –and most of what’s referred to as the British Commonwealth– are subject to some form of the “Official Secrets Act.”

For all intents and purposes, these laws put all government activity and government folks (those elected, the bureaucracy, etc.) –so far as what they are doing on the job– pretty much out of bounds, safe from pesky reporters. There could have been no Watergate, no Pentagon papers had we suffered under these laws in the United States.

Media subject to these restrictions are reduced to a frantic effort to be the first to reveal any trace of scandal or other bit on the personal level that they can dig up –by hook or by crook as it now turns out. The kind of stuff we largely leave to the supermarket tabloids such as the National Star, one of Murdock’s first purchases in the United States.

The scion of an Australian publisher, Rupert Murdock was still in his early twenties when he landed in the dog-eat-dog culture of Fleet Street where London’s newspapers reside. The young Murdock inhaled it, savored it, embraced it, and made it his own; embarking on a lifetime culture of journalism as a competitive calling.

As he expanded his Empire across the globe Murdock acquired a wide range of US media: motion pictures, television, newspapers and news services. He was forced to become a US citizen –a prerequisite to the ownership of broadcast entities here– but his heart, his soul, the culture of his News Corp remains on Fleet Street.

No one has suggested that Murdock personally hacked into (among thousands of others) the mobile telephone of a missing youngster, or bribed police and other public officials. However, the culture he has projected since founding his organization may have driven dozens of his employees to engage in these repulsive practices over many years. “Get it first” morphed into “Get it anyway you can”. There are now suggestions that News Corp hacking efforts extended to the mobile phones of families of 9/11 victims in America.

These disclosures couldn’t have come at a worse time for Murdock. First his crown jewel, The News of the World, the leading tabloid in Great Britain, went under the bus in an attempt to save his bid for the 61% of British Sky Broadcasting (BSkyB) that his company does not already own. The enormously popular and profitable satellite service dominates television in Great Britain and Ireland. Until the scandals surfaced, it looked like British government approval of the deal was a slam-dunk. Now Murdock has been forced to drop that effort and his current 39% ownership may be in jeopardy.

Faced with government investigations and legislative hearings in Great Britain and the United States, Murdock’s Media Empire –the second largest on the planet– may suffer more losses. None could be more welcome than an end to a culture that has soured and revealed an evil side.

Cooking the Books

From the time our forbearers first began burrowing into the ground in pursuit of the earth’s treasures, danger has been their companion. Over time the price in human terms that society is prepared to pay has contracted, hence the protection extended miners by State and Federal Laws. That protection, however, is only as good as those who enforce the laws, those who work in the mines, and those who manage them are willing to make it.

When that will to obey and enforce the law is diminished, we see the kind of horrific disaster that occurred a little over a year ago at the Massey Energy Upper Big Branch mine in West Virginia. Twenty-nine of thirty-one miners working a thousand feet underground died at 3:27 PM, April 5^th, 2010, in what investigators now say was a preventable explosion caused by a coal dust buildup.

Hundreds of State & Federal investigators looked at the evidence, interviewed the better part of a thousand individuals –save eighteen executives who took the Fifth– and poured through tens of thousands of documents. It was the document bit that exposed the disgusting culture of deceit and intimidation that was Massey’s business model.

The investigators found that Massey maintained two sets of books; one –a no problems version– for the inspectors when they showed up and another with the real conditions in the mine. All this was against the law of course, a felony in fact, perhaps the motivation for most of the top guys taking the Fifth. Even with these devious practices, in the year before the blast the mine received more orders to shut down unsafe areas than any other coal mine in the United States, so the authorities knew.

There’s lots of blame to go around. What about the workers? Decent paychecks are hard to come by in Appalachia. The culture at Massey seems to have discouraged anybody blowing the whistle. Fear, raw fear that they would lose their jobs kept the workers in line. Two low-level supervisors have been indicted for lying to the Feds after the disaster. Good soldiers taking the hit, still trying to hide the truth.

On top of this dysfunctional organization stood Don Blankenship, CEO. Known for pouring millions into political races, Blankenship comes across in pre-disaster YouTube videos as a garden variety schoolyard bully, blustering and smirking. Of course, as the tragedy unfolded, to the best of his ability Blankenship became Mr. Compassionate Father Figure, as he crafted an explanation for the explosion as phony the proverbial three-dollar bill.

Within eight months Blankenship had sold the company and walked with a huge paycheck by Wall Street standards let alone Appalachia. He’s likely to face Federal and State charges, not to mention civil suits launched by the families of the victims. While the new owners of the company are known to be more responsible, the scars left from the Blankenship era will remain. Justice -if it comes- may help, but it will not heal the evil that was done at Massey.