Wall Street back to old tricks

http://www.suntimes.com/business/roeder/1843393,CST-FIN-curious25.article#

Wall Street back to old tricks

BY DAVID ROEDER Sun-Times Columnist, October 25, 2009

While reading an article the other day about "dark pools," I saw the light: Wall Street must pay.

The big banks pose a threat to our well-being that nearly makes them a national security risk. Just as the nation emerges from a recession brought about by crazed extensions of credit and mortgages, which led to bundling loans into derivatives that even the bank executives didn't understand, along they come with new financial inventions, any of which could precipitate the next crisis.

While reading an article the other day about "dark pools," I saw the light: Wall Street must pay.
(AP)

"Dark pools" are a case in point. These are private trading networks in which investment banks do business with each other. The orders aren't routed through any exchange and are reported later with no disclosure as to price and who was trading. Under prodding from the New York Stock Exchange, the Securities and Exchange Commission is looking into the practice, which on some days is thought to account for 9 percent of all trading.

The practice has a cousin in "flash orders," a system the SEC is considering whether to ban. It involves the big banks paying exchanges for a few milliseconds of an advance peek at bids and offers, giving their high frequency trading platforms an advantage. Exchanges that use it, such as the Chicago Board Options Exchange's stock market, portray it as a reasonable service to high-volume customers. It is disappointing when exchange leaders defend something that runs counter to their industry's missions of price transparency and fair access.

Dark pools and flash orders show how Wall Street's bonus-driven banks are back to living dangerously just months after requiring federal bailouts. The same industry that inflated the market bubble in 2001, hyping recommendations on technology stocks that had no chance at profits, is at it again because it believes the "too big to fail" argument lets it have its own rules. This is the same business that whipsaws Americans with credit card penalties, jacked-up interest rates, subprime mortgages, foreclosures, bank account fees, bounced check fees and a mergers and acquisitions practice that has eliminated good jobs in the United States and destroyed shareholder value. How much more do people need to take?

President Obama proposed to reform Wall Street with a series of initiatives, the biggest of which would be a new regulator to protect consumers from abusive lending and deceptions. It has gone nowhere against a horde of lobbyist cash. It's also caused infighting among regulatory agencies, bickering that serves the status quo.

A more direct approach is to "break up the banks." That's the bumper sticker slogan. The technical version is "reinstate the Glass-Steagall Act." Glass-Steagall, legislation named for its sponsors, worked reasonably well from 1933 to 1999 by keeping the checking and savings account banks out of investment bank territory, such as securities, insurance, hedge funds and real estate speculation. Its Clinton-era repeal came when our 401(k)s were flush and we were too smart for musty lessons from the Great Depression.

The man most responsible for the repeal was U.S. Sen. Phil Gramm (R-Texas). It's the same Phil Gramm who is now vice chairman of the Swiss banking giant UBS, which has agreed to pay the U.S. Treasury $780 million to settle charges it helped Americans avoid taxes by hiding money overseas.

All in a day's work, I suppose.....