How Goldman Sachs Made $100 Million a Day in a Flash

[The Straight Story]

How Goldman Sachs Made $100 Million a Day in a Flash
Wednesday, April 28, 2010

Some Wall Street critics believe Goldman Sachs’ list of alleged frauds should include the use of high-speed manipulative trading techniques, some of which may be deemed illegal in the near future by the Securities and Exchange Commission.

Goldman’s use of high frequency trading (HFT) reportedly helped the firm earn $100 million a day on an average of three out of five days during one stretch in 2009.

In traditional stock trading, a broker, or “specialist,” matches buyers and sellers at a price that is satisfactory to both. Generally, a buyer will tell the broker his top price and expect the broker to actually find a seller at a lower price. However, in the age of computerized trading, Goldman Sachs and others can use “flash trading” to send out automated sell offers at higher and higher prices until one comes back with no buyer. The program then drops back to the highest acceptable price and sells at what the buyer set as his maximum limit. This allows Goldman to always obtain the best possible selling price, while the buyer loses the normal give and take of bargaining. In the case of large orders, such as those from pension funds or mutual funds, this can cost the buyers a small fortune.

Strange as it seems, this technology was originally developed (by Max Keiser and Michael Burns) for an Internet-based game, Hollywood Stock Exchange, in order to prevent flash trading. However, the patent ended up in the hands of the investment firm Cantor Fitzgerald, which altered the program to facilitate the practice.

According to Ellen Hodgson Brown, author of Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. high frequency trading takes place at all hours, even when the New York Stock Exchange is closed—“when stocks are thinly traded and easily manipulated.”

http://www.allgov.com/Top_Stories/ViewNews/How_Goldman_Sachs_Made_100_Million_Dollars_a_Day_in_a_Flash_100428

[PoliSSHat]

1. I stopped reading after the first sentence....

When I saw that everything GS is doing with respect high speed trading (which most, if not all, Wall Street firms do) is currently 100% legal and allowed by the SEC.

So thats fraud how?

[lonestarnot]

2. Figures.

[lonestarnot]

3. what about "near future" don't you understand de tee dee?

[PoliSSHat]

4. Oh...I get it now

We should claim fraud on people that break laws that arent laws yet. Makes sense to me. Yup.

[tkmorris]

5. No, we should defend people being crooked

Because no one thought to make that particular type of crookedness illegal yet.

I don't know about you but when I evaluate the morality of someone's actions I do not generally consult a law book. Ripping people off is not kosher regardless of what the law thinks of it.

[PoliSSHat]

6. Morality wasnt what was being discussed here....

It was fraud/illegal activities. I just found that first paragraph so ridiculous - "GS is going to get accused of fraud for activities that are currently not illegal". Ooooookkkkkayyyy.

[tkmorris]

8. Of course they won't be charged with fraud for that

As you so ably, and eagerly, pointed out this isn't against the law as it stands. I think what the article was trying to say is that some analysts think it should be labeled as fraud under the law, and furthermore it is likely that it will be in the future.

Your reaction to simply stop reading at that point and jump on the OP with your objection, "But it's legal!" is... a bit odd don't you think? Almost as if you are deliberately trying to paint Goldman Sachs in the most positive light possible. Now why would you do that I wonder?

[JackRiddler]

7. Another remarkable thing - they invented crimes that no one had even thought to make illegal yet!

[Art_from_Ark]

10. That's going to be the new growth industry

Finding new and innovative ways to take P.T.Barnum's famous quote to the extreme, while staying "one step ahead of the shoeshine, two steps away from the county line".

[girl gone mad]

9. Goody!

Another one for my ignore list.