Casino Economics

(Reuters) – Wall Street traders may be manipulating a key derivatives market and front running Fannie Mae and Freddie Mac, hurting the US-owned mortgage giants in the process, according to an FBI intelligence bulletin reviewed by Reuters.

Using what Federal Bureau of Investigation agents described as “unsophisticated tradecraft,” such as hand signals and special telephone ring tones, some traders are conspiring to rig rates on large orders submitted by Fannie Mae and Freddie Mac, or front running them in the interest rate swaps market, the document says.

The FBI said in the bulletin that the information came from a former high-level employee at a U.S. bank and an employee at a Canadian Bank, plus interviews with other bank workers conducted in 2012 and 2013. The former high-level employee at the U.S. bank estimated the front running had resulted in profits of $50 million to $100 million for the bank, the FBI said.


Current and former employees at the U.S. bank said that swap traders at the bank programmed their phones with different ring tones to identify when certain customers were calling, alerting traders that a large order was about to be placed, the FBI said.

According to the bulletin, one employee at the U.S. bank and the Canadian bank employee reported that senior bankers at the two banks “planned and encouraged this behavior because it led to higher revenue for their respective parent banks.”

Disclosure of the suspected manipulation and front running came in an FBI intelligence bulletin that was distributed last week by the bureau’s field office in Charlotte, North Carolina, to security officers at financial services firms.

The FBI said it had “medium confidence” in the information, which the bulletin described as coming from “multiple corroborating sources with first-hand access.” However, it said it had “low confidence” that law enforcement could prosecute suspected traders because the trades concerned seem to be completely legitimate.

We’ve officially entered the age of Casino Economics.  Anybody who has ever gambled in a casino knows that the House always wins at the end of the day.  If you haven’t already realized it, we’re there now.  The likelihood of being prosecuted and facing jail time is so low that they are not even trying to hide things anymore.

The same Wall Street that collapsed the economy with a rigged gambling scheme has been made whole by the Fed’s Quantitive Easing policy.  How do they repay us?  They formulate even more schemes to pocket cash without thinking of doing anything to aid Main Street.  And, just who benefits from the gamesmanship of Wall Scheme?  The top income percentiles gain more as most of their earnings are by way of investment instead of physical labor.

From an article back in September posted at Bill

The top 10 percent of earners in the United States took home more than 50 percent of all income in 2012, the highest amount ever recorded since data was first collected in 1917, according to an updated report from economists Emmanuel Saez and Thomas Piketty.

While the wealthiest took a big hit during the financial crisis, they’ve almost fully recovered. Last year, income for the top 1 percent of earners “increased sharply,” the report notes, growing by nearly 20 percent, while the bottom 99 percent only saw money rise by 1 percent. “In sum,” the authors write, “top 1 percent incomes are close to full recovery while bottom 99 percent incomes have hardly started to recover.”

This follows a trend since the recovery officially began. From 2009 to 2012, income for the 1 percent grew by 31.4 percent, while everyone else only saw it grow by 0.4 percent. That means the 1 percent “captured 95 percent of the income gains in the first three years of the recovery,” they write.

As long as we continue down the same path, nothing will change.  The game is rigged, fixed, or whatever adjective you choose to place there.  Our current politicians aren’t going to change things because this is all of their doing.  They stand to gain just as much as the top income percentiles as it was recently reported that for the first time ever in the history of our country, the majority of Congress is worth more than a million dollars.

So, freshen your drinks and get your chips ready.  Since we all know the House will win anyway, we may as well enjoy the gambling ourselves and try to catch a magic show or something before we end up broke.


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5 thoughts on “Casino Economics

  1. The same Wall Street that collapsed the economy with a rigged gambling scheme has been made whole by the Fed’s Quantitive Easing policy.

    Everybody at the Fed has a background in Wall Street. Their mindset is that what’s good for Wall Street is what’s good; that’s the way they think. That’s why I don’t think it matters who is running the Fed, they’re all going to do the same thing; look out for their own. Paulson, Geithner, Bernanke, Greenspan, Volker, all peas in a pod.

    Quantitive Easing is great for the financiers but it’s killing the working classes. The average person in Georgia makes $30-35K a year and is treading water, if they aren’t sinking. It’s all well and good to preach risk/reward but it’s a whole lot easier to take risks when you have large cushions to fall back on. The $30-35K person can’t afford to take risks and they really have no place to put their money. Savings accounts, CD’s etc, which was a good place to have your money safe and get a reasonable return are gone the way of the Dodo. At one time, before bank deregulation, you got 5.25%. Now you’ll get less than 1%. The ‘Miracle of Compound Interest” ain’t such a miracle at those rates.

    With the advantage of hindsight, I think this is part of a 40 plus year plan. The Fed used the inflation of the 70’s to deregulate interest on both savings and loans. What seemed like a good thing in periods of high inflation has turned 180 degrees. Interest rates might as well be 0 for practical purposes. Those with money can play the casino and the little guy has no place to go.

    In a related thing, this is a discussion on the role of class in economic politics. It’s takes about an hour to watch it but it’s quite interesting for anybody who cares to watch it. For all the political games and rhetoric, the working class really has no one representing them.


    • The ‘Miracle of Compound Interest” ain’t such a miracle at those rates.

      The “Miracle of Compounded Interest” has been replaced by the “Tyranny of Compounded Costs”. We’ve been railroaded into a system where it’s almost impossible to avoid Wall Street. They have unlimited sources of cash to gamble with, and we’re supposed to bail them out when they royally screw things up.

      You have an excellent track record for giving good information to check out, so I will definitely make time to check out that video. After the Frontline 401k link, I know I’ll learn something when you pass things on.


  2. BTW… I’m not sure how you found out that I had set up camp here, but I am grateful for your presence. Of all the people who left Jay’s, you and RW are the two I missed talking with the most.


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