Juggling Dynamite

Last week, the US Supreme Court struck down restrictions on how much individual donors can contribute to candidates, political parties and political action committees. The Court voted along its party lines, with a 5(Republican)-4 (Democrat) finding that aggregate limits for individual contributions violate the First Amendment right to free speech. The outcome however, clearly amounts to less political influence for those who cannot afford large political donations. Those who value democracy have cause for concern.

Aggregate contribution limits were first introduced following the Watergate scandal in an effort to restore public confidence in the campaign finance system.

“The decision in the case — McCutcheon v. Federal Election Commission — effectively erases the $48,600 limit that individuals may donate in total to candidates for federal office, as well as the $74,600 limit on contributions to political party committees. The decision leaves in place the $2,600 cap that an individual can give to any single candidate for Congress or the presidency. Yet even with that cap, individuals will now be free to spend as much as $3.7 million per election cycle, according to an estimate from the Center for Responsive Politics, up from the previous limit of $123,200.”

This Frontline report from 2012 is worth a revisit in consideration of this recent development. See: Big Sky, Big Money

The following chart offers some perspective on the time increments in which High Frequency Traders armed with advance order info purchased from the brokers and preferential proximity and access from the exchanges, are able to scalp billions from unwitting market participants faster than the eye can see. The chart comes courtesy of this excerpt from “Flash Boys”: See, The Wolf Hunters of Wall Street You can also learn more about the mechanics of HFT in this 2013 film: The Wall Street Code.

Attorney General Eric Holder told the House Appropriations Committee today that the DOJ is now investigating high-speed trading practices to determine whether they violate insider-trading laws. The news follows investigations already underway by New York Attorney General Eric Schneiderman, the Commodity Futures Trading Commission and the Securities and Exchange Commission. However since the SEC is a self-regulatory body paid for by the financial industry itself (see: In Bed with Wall Street and my recent interview with author Larry Doyle here for more) and since employees of the SEC have been moving directly into lucrative paying jobs with HFT firms the past few years, there should be no surprise that the SEC has found no issues to date.

In yet another educational discussion, Michael Lewis talks to Reuters about Wall Street’s highly charged response to his book about high-frequency trading and rigged markets. Here is a direct video link.

All of which reminds me of the following quote from a defeated Herbert Hoover as he left office in 1934, 5 years after the financial crash of 1929 had brought the country to its knees. From 1929 to 1934 the bankers continued largely unscathed by prosecution or reform. It was not until the Pecora Commission brought industry practices to the attention of mainstream America that the politicians were shamed into effecting meaningful reforms that finally broke up the conflicts of interest which had formed the lucrative life blood of the banking cartel. Yes we can do it again.

“The Federal Reserve and I have tried everything on behalf of the bankers but they have fought us, haven’t tried to cooperate, haven’t even told us the truth. They are without ability and without character.”  — Departing US President Herbert Hoover, March 1933 (1874–1964)