Markets Rotting From Corruption

Markets are rotting from within as fraud and corruption erode confidence. Participants  have lost faith in the integrity of the institutions that participate in, and regulate, many financial markets.

Retail investors are walking (well, running) away from the equity markets.

How many all-or-nothing gap-up and gap-down days can the normal human being watch occur in a row before they realize that the whole thing is bullsh*t? How many beatings can an investor take in their portfolio holdings when not a single piece of news on their stocks ever even came out? How much correlation can a person stand when they’re watching 40 of their holdings get jerked up and down every day on rumors and innuendo, thus negating the benefits of diversification and research entirely?

The Obama administration is ramming through a release from liability for the banks’ ongoing foreclosure practices, such as blatant disregard for the law, with a slap on the wrist. Must keep those “campaign contributions” coming, you know. But these practices are poisoning the well of home ownership, as people don’t trust the system anymore.

In exchange for this amount – which would provide a real pittance to homeowners for the crime of having their homes stolen – banks would get amnesty from legal liability on robo-signing and document fraud, servicer abuse and even some origination fraud.

The MF Global fiasco is still in the headlines. This appears to be a simple case of theft, yet the principal actor, Jon Corzine, is so politically well connected as a principal Obama fundraiser that he is invulnerable. Meanwhile commodity investors are fleeing the market and the CRB index is tanking.

At the root of these problems is a financial services industry that has lost any notion of legal and ethical behavior, and regulators which are incompetent and corrupt. For the country’s biggest financial institutions, it’s still worth it to break the law, because the government has no way to make the banks pay for acting illegally. And so they do, failing to take the example of casinos, in Las Vegas and elsewhere, which long ago realized that to be successful they had to be seen as, and actually be, honest. If you play at Las Vegas, the casino will not cheat and will pay you if you win. Casinos are satisfied with the edge that is built into the game. Banks, apparently, are not, and so feel the need to cheat as well. The players see this and abandon the game. This is the true end game.

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