Too Big To Fail Banks Score Perfect Trading Quarter

If you are still naïve enough to believe that the average stock market investor is playing with the big boys on a level playing field you need to read the following story. When the Too Big To Fail Goldman Sachs, J.P. Morgan Chase, Bank of America, and Citigroup banks all report that their trading desks made money every day of the first quarter you absolutely know that the fix is on.

As briefly demonstrated in the commentary below the odds against such an event occurring given normal trading parameters are astronomical. One has to wonder how long such collusion between the Too Big To Fail banks and the Treasury Department and Federal Reserve Bank can go on without a public uprising of some sort.

Public anger toward the federal government and the big banks is already at a fever pitch. Why in the world would the banks even want to report a perfect trading quarter, one in which their trading desk made money every trading day, when public resentment towards the banks and their sugar daddy government must already be at record levels? Apparently, the arrogance of the Wall Street banks and those in government who are supposed to serve the public interest knows no bounds.

Read the following article as reported by Bloomberg and try your best to keep your blood pressure at a reasonable level. I warn you that if you are an experienced trader or have a heart condition you may wish to skip the article. Your blood will likely be boiling as you realize that the present stock market is far from being a reasonable normal price discovery free market.

If you must trade, beware. There may be something to the rigged market theory after all.

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Commentary by Jonathan Weil – May 13 (Bloomberg)

Score another triumph for the rigged- market theory.

In a feat that would seem to defy the odds, Goldman Sachs, JPMorgan Chase and Bank of America this week each said its trading desk made money every day of the first quarter. Goldman said its daily net trading revenue topped $100 million 35 times last quarter out of 63 trading days. JPMorgan and Bank of America disclosed similar eye-popping stats. Citigroup, too, recorded a profit on each trading day, Bloomberg News reported, citing unnamed people who knew the results.

The intrigue is high. If a too-big-to-fail bank’s traders were able to make money every day of a quarter, were they really trading in any normal sense of the word? Or would vacuuming be a more accurate term? What kinds of risks do such incredible profits entail, for the banks and the rest of us taxpayers? And are results such as these too good to be true?

There seems to be no satisfying way to answer those questions, or even the more basic inquiry: How exactly do these banks’ trading divisions make money? Reading the companies’ impenetrable financial reports is of little help. However they did it, the data suggest it was as easy last quarter as hitting the side of a barn with a baseball from three feet away.

This isn’t the way “trading” works in the real world. A simple exercise in measuring probabilities is instructive here.

Long Odds:

Let’s say you manage a highly leveraged, diversified investment fund, and have become so skilled at playing the markets that you have a 70 percent probability of making money any given trading day. This would be a remarkable achievement in most markets. The odds that you would post a daily net gain 63 times in a row, though, would be about one in 5.7 billion. The formula for calculating this is: 1/(0.70 to the 63rd power).

Even if you had a 95 percent likelihood of a winning day, you would have only a 3.9 percent chance of doing it 63 trading sessions in a row.

Now consider that four of the biggest U.S. banks just pulled off a quarter-long win streak — all in the same quarter. Why would any of them even want to? Do they think the public doesn’t despise them enough? Surely it would have been easy to tweak the values of some illiquid “Level 3” assets lower for a day if they had been so inclined, just enough to avoid looking perfect. Yet none of them did.
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For the balance of this outrageous Too Big To Fail Banks score perfect trading quarter story go to Bloomberg.