At a bail hearing three days later, a federal prosecutor asked that Mr. Aleynikov be held without bond because the code could be used to “unfairly manipulate” stock prices. ~ New York TimesAs opposed to arresting Goldman Sachs for probably using the software to make billions of dollars? I sincerely hope that someone makes the connection between the theft and who it was stolen from. We might be seeing a test case so to speak since this is likley the first time any prosecutor has had their hands on such software.
Until the late 1990s, big investors bought and sold large blocks of shares through securities firms like Morgan Stanley. But in the last decade, the profits from making big trades have vanished, so investment banks have become reluctant to take such risks. ~ New York TimesRecall what I wrote in an earlier post regarding the large spike in volume after 2000 and the formation of a down megatrend for most of this decade:
Computer trading started in the 80's and was driven simply by the emergence of the technology. What could have lead to the need for so much more trading activity? Let's say you're a major fund manager and you realize that the megatrend has meat in it and that investing long isn't going to pay well. What do you do? Play volume, derivatives, arbitrage, and market smoke and mirrors to take advantage of every move that occurs in the relative market stagnation.Looks like I'm not the only one who suspects that the down megatrend was widely recognized by a lot of large trading firms, driving a huge spike in adoption of electronic trading systems for price manipulation and market-making at ludicrous speed.
Notice that the volume was about a billion shares per day and was fairly consistent over the last decade. Notice how it started directly coincident with the tech crunch. No, this isn't a conspiracy theory. Don't read into this line of thought too much, but I will go ahead and suggest that there was a recognized need for large trading establishments and hedge funds to generate profit from trading in the relative shortage of investable stocks.
What makes this line of thinking consistent is that the trading activity didn't continue to grow, suggesting that market fees and other limitations put a hard cap on how much profit could be squeezed out of this type of trading. Or perhaps there is an overlay of two conflicting trends. Either way, the volume spike and subsequent stagnation starting in 2000 is a little curious and I'll get back to this before the end of summer. ~ from Falling Off the Blade
I'll keep watching, but I suspect that the derivitives bubble was a lot more well known than a lot of people want to admit. If I dig back far enough into my own posts on a trading forum a few years ago, theres a post regarding the slow down in home sales likely cascading into increased mortgage defaults. At the time it was rather clear to see the lack of real health in the housing market. After a few years of near zero interest rates, home lenders had litterally sprouted like kudzu, and people were buying into the market because the market was strong.
Be it known, home buyers are not nearly as smart as equity market investors. They will not recognize that what goes up can also come down. I had never seen a real-estate bubble, and it really didn't factor into my projections that the housing bubble and derivitives bubble could actually fuel an equity bubble taking the Dow to 14k. Thus here we are with tons of defaulted mortgages and a Dow 9k. I remember a commercial with a computer generated bull and bear. The bear gave his stereotypically gloomy estimates. They actually came true.
Update: After thinking about this a little more, I see the potential for something larger. The prosecuter looks at the code and finds evidence of techniques that are clearly designed to manipulate trading feedback. The code is used to press charges against Aleynikov and subpoena more code from Sachs. The code that is obtained from Sachs leads to charges and more subpoenas against Sachs. In a plea bargain, Aleynikov testifies against Sachs as the lead witness. Aleynikov took the code knowing that Sachs would have to chase him out of the alley and into the open.
By chasing him, Sachs might end up costing themselves more than having let him go. The interesting part is if Sachs thinks that protecting their code was more valuable than anything they will lose by chasing Aleynikov. Depending on how this unfolds, it could draw enough scrutiny onto big trading firms and hedge funds to get serious investigation into the practices as a whole, and given how unpopular the bailout was, congress will be ready to throw a lot of ink at the SEC and markets in general. Right now Wall Street is the Afghanistan of 2001.
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