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The New York Times has front page expose today on "the hot new thing on Wall Street," a powerful, computerized speed advantage that reaps billions for the select few:

Indeed, the story is itself written in a way that mystifies machine trading. The main points seem to be that some players-Goldman Sachs (natch) among them-have very fast computers that submit and cancel trades in the markets so quickly that ordinary mortals can't hope to keep up. And they get paid a fraction of a penny (sometimes) when they make these trades. And they get to see what other players are doing (or trying to do). The best part of the article is breakdown of a scenario, provided by an anonymous source, that purports to show how the speed traders made about $7,800 by inserting themselves into a series of trades made by a consortium of people who bought stock in Broadcom on July 15. The consortium paid a total of $1.4 million for its shares.

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That means the high frequency guys skimmed off just over one half of one percent. The

Times

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finds this ominous:

It all seems very spooky and unfair. And yet, it also seems like business as usual.

Stripped of the

Times

' voodoo, it appears that the "high frequency" players are just horning in on the game formerly exclusive to "market makers" and specialists, who have long lived off something called "the bid-ask spread." Basically, this is the dirty little secret on Wall Street ("secret," at least, to naifs): trades aren't free, and your brokerage fee or commission is only one part of the cost you pay to play.

The Times

has not, to my knowledge, ever accused market makers of profiting unfairly from their positions.

Interesting as it is, the

Times

story glosses past what I suspect is a much bigger market manipulation by "too-big-to-fail" players like Goldman and

, as well as the largest hedge funds. As explained last year by

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, large movements in commodities like oil can create momentum gains as new investors pile in, harming both consumers and late investors while dumping huge profits on the early speculators, who get out after luring in the dumb money. Last summer we saw oil triple in price, throwing off tens of billions to Morgan Stanley and a few other sharpies. As with oil, so too with bonds, stocks, and anything else traded on exchanges.

When small-timers manipulate stocks this way, the feds sometimes move in and shut them down and the technique is called "pump and dump." When the too-big-to-fail boys do it, however, it is simply called "the market."

Unlike the computerized speed trades the

Times

is protesting, the giant pump-and-dump scheme is not new. The infamous robber-baron Jay Gould perfected it (along with any number of other manipulations, i.e. stock watering, bear raids, short squeezes) in the 1860s.

The Times

has always declined to report vigorously on this kind of thing, however, its reporters preferring to take stock tips from the likes of Gould. Back in the day, the paper even

in support of his successful attempt to corner the gold market.

Not that the respected "paper of record" would do anything like that today, of course.

Update:

After I penned this,

WSJ

about how the guy who runs Citi's secretive oil trader, Phibro, wants his $100 million annual pay. His name is Andrew Hall. He has a castle in Germany, but he mostly lives in Southport, CT (my old stomping grounds). The photo of him with this piece is priceless, as are the comments following the story, wherein many people attempt to justify this guy's pay.

He "earned it," right?

If you're among those trusting souls who still believe "the free market" sets the price of oil, consider

provided by Chris Cook, who has spent some time in the business:

"We have now reached the culmination of a process of financialisation of the oil market to a degree where the market has become entirely sociopathic. It now operates to the detriment of consumers and producers alike and for the benefit of the intermediaries who control the market." Andrew Hall is just one of these "intermediaries."

. All of it. This is the kind of the the Times should be doing, and isn't.

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