Do High Speed Trading Profits Support Wall Street Banks? What Would Happen If Profits Went Away?

Think of a row boat over the Marianas Trench. It's 36,069 feet deep. Mount Everest would be out of sight with a mile and one half from its summit to water level.Could that be a valid analogy of the height of the stock market and its reasonable value? If you subtract QE 2 that till recently was running at a trillion dollars a year of bond buying and trillion dollar deficits by our irresponsible government. Add that to all the stimulus from central banks like European Union, Japan and China.What is the value of stocks without this alchemy of money-printing support? What could possibly go wrong? Here's a thought. The recent glare of public scrutiny of High Frequency Trading coupled with S.E.C.and Department Of Justice and F.B.I. investigations could determine rather quickly if this type of trading is in fact illegal. Critics claim that high frequency trading is constructively front running legitimate orders from the public.If that HFT trading was stopped immediately what would be the financial ramifications? The question is . How much of the bottom line of Wall Street banks profit is tied to this type of trading? If it were stopped how much of their earnings would go away? Could the banks remain stable and pass stress tests if a portion of earnings were ruled illegal? Some years ago there were only three major exchanges-New York, American, NASDAQ.Now there are 13 public exchanges and 45 "dark pools" and 200 "internalizers". These have become for profit exchanges and off-exchange trading platforms .They sell access for money. That access enables firms like Moragn Stanley and Goldman Sachs and many obscure HFT firms to skim a profit from legitimate order flow.If that all stopped? Could these firms pay their debt? No amount of central bank alchemy could stop another panic about the security of bank stocks. It would be yet another example why Glass steagal should be reinstated and banks should not be on Wall Street

BATS Global Market Exchange IPO: Revenge Hacking Crash ?

Yesterday the slimey BATS Global Exchange IPO got slimed. It's the focus of an SEC investigation of what's wrong with volatile modern day equity markets . Was a 'software bug" to blame? An exchange spokeman said it was. Anyone want to believe a spokeman for a controversial high frequency trading platform whose controversial front running order strategies range to hated? Or was it a hacking revenge event in the publics interest by a dwindling ,fed up minority of honest Wall Street operators ?.The IPO was pulled. It's tough to pull on slime. But where's there's a will there's a way. The offering was priced at $ 16. Moments later it traded at less than a penny. That's ironic because BATS makes mischief by parsing pennies. Slime handlers , Credit Suisse , Citi Group and Morgan Stanley underwriters had to withdraw the offering from the very  exchange that BATS started in 2005. Since that time BATS has grown to handle 11% of toatal equity volume and 3% of option equity contracts in U.S. They got rich. But the SEC and others are wondering what the slime ball firm does for the public interest?

Thank you to ever pulled this sliming off.

The Next Financial Shoe To Drop

Here's a quick tutorial on the root cause of the 1930's Great Depression since it increasingly looks like we will replay that whole episode in slow-motion. Sure the market crashed but the reason for the depression was the failure of the banks. The banks failed because they speculated in the stock market. E.G. Morgan Bank owned Morgan Stanley brokerage .Those speculations went south and people ran on the banks to withdraw deposits. The rest is history.

After the Crash and bank failures, legislation was passed that included the Bank Act of 1935 a.k.a. Glass Steagall. It prohibited banks from ever owning brokers or insurance companies. In 1999 , Glass Steagall was struck down. Banks then did the obvious and bought insurance companies and stock brokers. Also brokers bought insurance companies and banks.

" What could possibly go wrong?". Well first there was the failure of Bear Stearns which was bought by JP Morgan Chase and today Lehman Brothers went Chapter 11 and Bank Of America bought Merrill Lynch. Morgan Stanley and Goldman Sachs are in the wings looking for deep pocket partners i.e. some bank with fat deposits of unsuspecting civilians.

So we have gone full circle with banks now back in the brokerage business in spades. The next time the brokers fail they will take their respective bank owners with them. What's a civilian to do among these financial terrorists? First avoid any bank with a brokerage or insurance subsidiary. Limit all deposits to FDIC limits. Keep some cash at home and a weapon for protection.

Our society has resorted to money as the cure all and to that end we have printed literally bales of it. But like a house of cards, paper can't take much weight.