We are honored to have the foreword of our book, “Broken Markets” written by former Senator Ted Kaufman. Ted was the lone voice on the Senate floor when it came to market structure issues during 2009 and 2010. He sounded the alarm long before the May 2010 flash crash and warned what could happen to our markets if the new pseudo market makers decided to exit the market if a shock occurred. Listen to his speech from the Senate floor from September 14, 2009. Where are the Ted Kaufman’s in the Senate today?
Thankfully, Ted Kaufman is still speaking out but this time in the form of op-eds. His latest piece “Facebook Fiasco Damages U.S. Markets” is a must read for all market participants. Here are a few excerpts:
“The exodus of retail customers from our stock markets is the most obvious and dangerous indication of this loss of credibility. Too many things have happened in recent years that cast doubt on the integrity of our markets. That’s bad news for long-term investors. It’s bad news for growing businesses that need access to financial markets to raise capital. And it is especially bad news for a country that owes much of it economic power to its reputation for honest and transparent markets.”
“At the same time, again with no regulatory investigation or oversight, High Frequency Trading grew rapidly so that it is responsible for a majority of stock trades. HFT uses mathematical algorithms to run computer programs that execute thousands of trades in less than a second. On May 6, 2010 the computers malfunctioned and the markets had a flash crash where the Dow Jones Industrial average fell by 1,000 points in minutes. Long term individual investors, already concerned that HFT might give large institutional investors an edge, took note. “
“There is a very strong ongoing Wall Street lobbying effort that labels any attempt to regulate anything they do as “anti-capitalist.” That’s self-destructive nonsense. I am a fervent believer in capitalism and free markets. I also believe that if investors think the system is rigged against them, those Wall Street types will have effectively killed the goose that lays their golden eggs.”
“The only way we can ensure that our markets are honest, transparent, and credible is to hire tough policemen and give them the tools needed for effective regulation. We have had warning after warning. If we are going to preserve the kind of markets that helped build this country, we must act soon.”
Once again, Ted Kaufman is sounding the alarm. Let’s hope some folks in DC are listening this time.