To follow up on allegations that Goldman Sachs deployed High Frequency Trading ("quant flushing") software, I admit I was wrong about the story going no farther in the corporate media. The blogger who brought up the original story so irritated one of its editors, Charlie Gasparino, as to stir a personal response.
About 1:30 EST, CNBC's on-air editor Gasparino, explained that he'd been bombarded with e-mails from a "zero something" blogger who'd claimed that he'd given Goldman Sachs preferential treatment.
Gasparino appear to be somewhat defensive, explaining that he'd spent "90 percent" of his reporting critical of the financial behemoth and that any allegation of favorable treatment was patently false. But it didn't end there, nor did Gasparino even admit the real source of contention with the blogger "zero-whatever."
At the urging of CNBC's big-breasted Caruso-Cabrera, Gasparino began to rail on about how some bloggers were so stupid, hiding behind their anonymity, more or less a full blown' attack not only on ZeroHedge, but the credibility of the whole blogging community.
Rather than cover the real story--Goldman's uncanny ability to make money while its competitor's languished--CNBC anchor Michelle Caruso-Cabrera launched into a mini-campaign of defamation of bloggers, assailing their credibility. For the wise, this kind of attack readily appears to be what it truly is, the attempted destruction of a story dangerous for Goldman Sachs and the credibility of the mass media.
Reporters and anchors at CNBC apparently see no fault in making themselves the news story- a big no-no in journalism. One CNBC reporter, Rick Santelli, just a few months back actually got in a war of words with the White House about the bailout, as he editorialized about the injustice of bailing out defaulting mortgage-holders.
However strongly Tyler Durden, ZeroHedge's anonymous author, comes on, it's the duty of an objective press to bring to the public's attention a story of this magnitude. If the mainstream media can't or won't cover a story, it falls on bloggers to call it to attention. I discovered the story myself through a blog post by vets74 on DailyKos.
That article dated from July 7th, giving an indicator of just how delayed the mainstream is in covering timely stories. For example, the New York Times held back on the NSA surveillance story for an entire year. There's not being in a hurry, then there's just plain sitting on a story 'til it dies. In the meantime I'd heard all kinds of explanations for the size of Goldman's profits, not a one of course explaining the company's use of High Frequency Trading software nor its fugitive executive, Sergei Aleynikov.
The New York Times did provide a nibble on the quant flushing game in an Op-Ed by Michael Osinki last week, on Friday, titled "Steal This Code." The article largely downplays Aleynikov's theft of the proprietary trading software. Osinki does express his surprise at the scale of the FBI's reaction.
Presented not as a news item but simple opinion, the op-ed doesn't mention the possibility that a large portion of GS' huge profit may have come from quantitative trading, software programs that conduct high-frequency automated transactions a millisecond before they're executed on the exchange. Nor is any mention made of the threat that exposing HFT trading on such a vast scale posed to Goldman, or the credibility of US-based exchanges.
When a broker does this, it's called front-running. Several mutual fund companies were penalized for front-running their own customers' order back in 2003, and paid over a billion dollars in fines (versus restitution.) Because the proprietary software Goldman was executing orders electronically, it likely didn't meet the outdated definition of front-running, although the principles are the same.
What HFT might lose in terms of its profit-by-order, it makes up for with volume. Some 70% of the trading volume of the major exchanges now comes through these high frequency trading programs.
The former Goldman Sachs executive, Sergei Aleynikov, who stole the software was attempting to start his own firm in Europe when arrested by the FBI.
I suggested in my previous comment-on this point that the FBI's role in what should be a simple case might indicate that the software might have been sold to the highest bidder, possibly even a strategic rival like Russia who could use the systems to profit as well. I can just see the thriller, like "Assassins" with Julianne Moore as a hot geek peddling stolen software.
In the tight star chamber shared by New York financial and media elite, Goldman has a reputation to preserve. Reticent indeed would any major media outlet be to suggest Goldman had cheated. Offering illicit quantitative software in the open market challenges the broadly sold myth that Goldman is special, or so much better managed that the normal rules need not apply. The potential PR damage is immense; stifling it the duty of any promotion-minded mid-level media employee.
While other firms appear to execute HFT, it takes real clout and a trusted place on the inner circle of the financial elite to turn massive profits out of HFT. Clearly, Goldman's software offers key advantages. Still. it's the insider access that allows the firm to tap in to the web traffic, analyze it, and determine the most likely transaction that will transpire based on the message's size, destination, and past patterns--aggregate--behaviors. All within milliseconds.-