Friday, May 07, 2010

The Wall Street Near Melt Down - Was It Greed, Manipulation or Cyber Attacks?


Yesterday I was watching CNBC when in a six minute span the economic world nearly collapsed and then slowly made it's way back from the precipice of catastrophe to settle at a loss of 347 points. It was amazing how the stock market gurus once again totally lost control of the world financial markets, only this time in just six minutes, and then breathed a sigh of relief that we only lost a half a trillion dollars in value in one day.

Let me put that in a form you might understand. Let's say the foundation of the market is 7062 which is the market low during the recent recession reached in February 2009. That was down from a high of 14,161 in October 2007. That means 7062 is the modern foundation of the market, as low as it goes without a depression. This was after the housing, banking, auto and insurance collapses.

When the market opened yesterday it was at 10,868, a decent recovery from the low a year earlier. About 2:46 pm it was down about 300 points, a rather precipitous drop for the day. In the next six minutes the floor fell out from under the market as the Dow dropped 998.50 for the day, the largest one day drop in history. It happened so fast the trading machines could not keep up with the panic.

That means there was a 26% loss of the increased value of the stock market since it hit bottom in February a year ago. Six minutes and a 26% loss, which equaled over ONE TRILLION DOLLARS! If you were standing in front of your house and instantly over one fourth of your house disappeared, only to have a little over half of the loss reappear during the next 90 minutes, would you feel good about it?

Wall Street thinks we should feel good only part of the house disappeared. They think we are fortunate the loss for the day was only about half a trillion dollars rather than one trillion. I say they are nuts. These are the same people who failed to see the recession coming. The same people who lost over half of the value of our 401k and other retirements funds. The same ones who cost us over $6 trillion in home equity between 2007 and today.

What they aren't telling us is who profited from this market manipulation. It certainly did not just impact on the stock market. Someone, you listening Obama, needs to check the pattern of manipulation in currency and commodities markets as the stock market was having a bout of temporary insanity. Someone made billions if not more money in those few short minutes and the politicians better find out who.

As of today's open, the Australian dollar, the euro and the Canadian dollar are all down 4% over just two trading sessions. The Swiss franc is down 2.5%. The yen is up almost 5%. None of that is close to normal market volatility. In the commodities market gold is up a staggering $40 during the same period. Billions of dollars were made in these transactions, by whom? All the media attention was on the stock market but the big bucks were made in the currency and commodities markets.

Even the drop in oil futures has been breathtaking. Oil futures reached a high for the year just Monday and then dropped $9 a barrel since. Remember, in this day of no morals or ethics in the economy the big boys make just as much profit when commodities lose value as when they increase in value. Goldman Sachs is one of the masters at oil price manipulation. There is absolutely no justification for oil reaching new highs earlier this week as demand is down, inventories are up and the future world recovery is weak.

So far no one on Wall Street or in the Regulatory offices is taking the responsibility or blame. Of course not. Besides, it wasn't their money they were losing, it was ours. However, this is a clear case of the extreme vulnerability of the markets to cyber attacks. When you become dependent on machines and the market trading is driven by machines, and when you require the Internet to make sure the greedy money from all over the world can get into the market instantly, then hacking into such a system with today's lack of cyber security is child's play.

Why no one in the media or Obama administration is discussing the potential for a cyber attack as the cause of the massive market disruption is beyond me. Cyber security is the greatest threat to our financial system, far greater than the greed of Wall Street. Today such security does not exist. Just ask any intelligence agency because all of them including the Department of Defense have had their secure systems hacked.

Wake up Washington, the dangers to our financial system are only just becoming obvious. Did we forget that Osama Bin Laden once said bring down the financial system and you bring down America? Both the criminal networks and terrorists have recruited the best cyber minds in the world, not to mention foreign governments who would love to see American capitalism collapse, and their primary target in the world is the American economy. If we remain asleep at the switch much longer the train wreck they could cause in our economy could be far more powerful than any car bomb or limited nuclear attack.


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