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The Goldman Sach's HFT Story is refusing to die...

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July 27, 2009 – Comments (2) | RELATED TICKERS: GS

So it seems Goldman Sachs may have brought more attention to High Frequency Trading (HFT) than they wanted in their legal action towards Mr. Alekynikov. Again though, it was pretty much a Catch 22 for them.

The question remains if this will be a watershed story in revealing or sensationalizing the way large investment banks are able to trade. The question remains, if enough attention comes of it, will the legal loopholes allowing it be closed?

From what I've read, it seems their advantage is that for a certain amount of milliseconds, they were able to see buy and sell orders at just the moment before they were executed and their trading platforms were able to trade based on this information.

The defense of this is that "anyone" is able to access this data (of course it involves a huge infrastructure that basically would have to sit right next to the NYSE computers in order to achieve the millisecond latency needed to act on the data).

In my opinion though, High Frequency Trading is basically a form of high tech insider knowledge of all the trades taking place on the exchange. Stocks traders should be angry about this, but so far it just seems people aren't aware of exactly what Goldman Sachs and other institutions participating in High Frequency trading are up to. By exaggerating the fact that it is "only milliseconds" it seems minor, when in fact their entire trading platform and strategy is built on these milliseconds and frankly is rather foolproof.

 I caught three blog & news stories on them this past week, if you care to read:

http://www.nytimes.com/2009/07/25/business/25trading.html?_r=1&em 

http://www.motherjones.com/kevin-drum/2009/07/goldmans-billions-0  

http://trueslant.com/justingardner/2009/07/25/will-goldman-sachs-data-theft-scandal-bring-down-high-frequency-trading/

2 Comments – Post Your Own

#1) On July 27, 2009 at 12:42 PM, caterpillar10 wrote:

... basically a form of high tech insider knowledge ...

 

yes, the difference between HFT and off-the-books owners skimming casino revenue or a loan shark 'busting out' a previously legitimate business is only a matter of magnitude and technology; nobody is paying taxes in any case.  

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#2) On July 28, 2009 at 9:38 AM, pjacmail (< 20) wrote:

Goldman Sachs was the biggest packager and seller of collateralized debt obligations (CDOs), packaging thousands of mortgages together, 75% subprime, yet passing them off as AAA paper. When the market deteriorated, Goldman made profit by selling them short.

           

And many retirees, mutual funds, and city governments who bought these bonds with assurances of Goldman sales people were badly hurt.

 

Goldman Sachs also was a large purchaser of credit default swaps (CDSs), many from AIG. Representatives from Goldman placed pressure on Hank Paulson for government bailout funds for AIG. And where did billions of those bailout funds go? To pay off Goldman!

           

And we the taxpayers are picking up the tab.

 

Goldman Sachs developed computer algorithms for high frequency trading. As such, they insert themselves in rising or falling stocks, buying and selling with lightening speed and making huge profits.

           

As a result, the individual investor buys these stocks at higher prices and sells them at lower prices.

 

Goldman Sachs is profiting from the financial crisis recovery by taking the same huge risks with a bonus-driven culture.

           

And if they create another market bubble, will they require another government rescue?

 

So, please tell me how Goldman Sachs’ activities and business model benefit our society as a whole by creating financial products that contribute to the growth of American financial industry? What do they do that is valuable to other people? Or does Goldman merely create financial gimmicks to make money for Goldman, leaving the crumbs for the rest of us, and subjecting individual investors to a stock market with a casino mentality?

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