A Few Smart Quips

1) Jesse:  "GM Wants to Get Back Into Financing to Increase Its Profits"

"Bloomberg reports that GM Considers Buying back GMAC

Or starting a new unit.

Having its own financing unit will 'increase its profitabiltiy.'

"As a dog returns to his vomit, so a fool doth repeat his folly." Proverbs 26:11

Unless of course you get to keep the gains, and a greater fool, the public, assumes your losses."

The Bloomberg story is here.  I can only pray that if GM is allowed to get back into the financing business, they are heavily restricted in terms of what they can do... The Bloomberg article mentions "GM probably wouldn’t want GMAC’s mortgage business."  I should hope not - they shouldn't be allowed to have anything to do with the mortgage business.  They are a car manufacturer - or did we all forget that already?

2) Tyler Cowen on the EuroBailout:

"I view it as a bit like the U.S. in Afghanistan.  Whether it will yield anything useful from here on in can be debated for a long time.  But if we pull out precipitously, and the Taliban take over, it will be seen as a big U.S. loss (whether that's worth the cost is not the question of concern here, only that it is a gross cost, whether or not it is a net cost, all things considered)."

3) John Stewart on Wall Street's Fat Finger:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
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www.thedailyshow.com
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"Apparently last Thursday at 2:40 PM Wall Street got fat fingered."

"Course when it happens really fast like that it probably feels more like two fat fingers in the DOW and then one in the NASDAQ... I guess that's why it's such a shocker to the economy."

-KD

The SEC Talks About Reforming Market Mechanisms

Via Calculated Risk:  Mary Schapiro sez:

"In addition to time out mechanisms, we will consider any other steps that potentially could prevent or help minimize the harm that occurred on May 6. These include: (1) exchange-level erroneous order filters; (2) “collars” on the prices at which market orders or aggressively priced limit orders can be executed; (3) limitations on the size of market orders or aggressively priced limit orders; and (4) eliminating the practice of displaying stub quotes that were never intended to be executed."

So that's a total of 5 prospective improvements to be made, 4 of which I discussed here already. 0)Time out mechanism: NYSE's LRP already exists, 1) preventing aberrant trades before they happen, 2) individual stock trading curbs, 3) limit the size of market orders - to ZERO! 

I didn't discuss her point number 4:  "stub" orders, and I don't think that would make a difference.  If you do the other 4 things, "stub" orders become irrelevant.  By the way - a "stub" order is a boundary "place holder" type of quote, like a 1c bid, or a $999,999 offer.  Schapiro seems to think that if there was no 1c bid, then the 1c trades couldn't have taken place.  That may or may not be true, but again, will be made irrelevant if the other improvements are made.

-KD

What a Difference A Day Makes

Yesterday: "Stocks Soar on Europe Bailout"

Today "US Stock Futures Fall on Concern Aid Plan Won't Solve Crisis"

Whattttt?  It won't solve the crisis?  You are KIDDING me! (/sarcasm)

Related: I strongly recommend reading this NY Times article about NY State Employees reacting  (negatively) to mandatory 1 day work furloughs. 

"Mr. Paterson announced last week that he would pursue the furloughs after the unions refused other concessions to save the state money, like giving up a 4 percent raise or delaying employees’ paychecks by several days. The one-day furlough is expected to save the state about $30 million, and the governor has said he would seek additional furloughs every week until the Legislature reaches a deal with him on the state budget, which is now nearly six weeks late. 

The furloughs will exclude most public safety and health workers like State Police troopers, correction officers and nurses."

Seems New Yorkers don't like austerity any more than Greeks do...

-KD

Recap: Crash Coverage and Greek Tragedies

So I've been writing pretty prolifically for the past several days, and have seen record blog traffic resulting from what I think were some quality posts, and some nice mentions from major sources.  Felix Salmon and Tyler Cowen each had nice things to say about my coverage of "The Crash,"  as did EconomicsOfContempt.

Tyler Cowen and the Globe And Mail each linked to my Greek ramblings today, as did Clusterstock.

Just in case you missed any posts, here they are in the order I wrote them.  I think they are all well worth the time to read, and again, I am lucky to have a very tuned in audience of market participants who have added exceptional value in the comment threads.  Thank you all for that.  And thanks to the few people who hit my Tip Jar!  Much Appreciated.

1) WTF Stocks? 

"The rumor is that some Joey Baggadonuts meant to type in 15M (for million) but typed 15B (as in... BILLION) instead.  Now, I can't believe that guys can still do this. It boggles my mind that there aren't risk controls in place.  When I was trading, we took great lengths to make sure that you couldn't do this - even if you had fat fingers, if you dropped a can of soda on your keyboard, if a ferret ran across your computer, or if you suffered from some sort of dementia and just went crazy - you couldn't send an order like that without being 100% sure that you were doing it, if you could even do it at all.  When we moved to a new execution system from a third party, we mandated that they install confirmation screens on every order entry window.  "The devil is in the details," my boss always used to say..."

2) More on The Crash:  Possible Triggers and HFT

"While I don't want this to become a debate over the merits of high frequency trading, we need to acknowledge a few things:  1) there is a red herring argument that one of my loyal readers already made in a prior comment thread, to the tune of "but you said that HFT algos would provide all the liquidity we need!"   No  - what HFT proponents say is that HFT algos provide liquidity, which is always a good thing. I would always prefer liquidity to lack of liquidity.  Now people are going to crucify them for NOT providing liquidity! Well, which is it?  If you're complaining that you don't like the HFT liquidity, here's what happens when you don't have HFT liquidity!  I read comments on other blogs that said things like "I was trying to buy near the lows but HFT algos kept out bidding me by a penny!"  Well - wouldn't that be good? Wouldn't that STOP the price decline, if HFT algos kept putting in higher bids?!?!?"

3) On Canceling Trades

"And the Law of Unintended Consequences rears its ugly head again.  Merkel's point is simple and accurate:  if buyers who step in later see their trades canceled, it removes all incentive for them to step in - and then you don't get the bounce back that we saw!  Think about how much havoc it causes a trader who astutely bought cheap stock, then sold it out at a profit.  He's now short!  Or, he spent the entire day wondering if his order would be canceled, in a state of limbo.  What's the alternative - that traders should just assume that the orders will get canceled, and NOT buy stock?  Guess what - if no one buys, the stock stays cheap!  SOMEONE has to buy, and that someone shouldn't be penalized in favor of remedying the ignorance of the seller who screwed up."

4) The Best 10 Minutes You Will Spend All Weekend

The audio of TraderAudio's Ben Lichtenstein's call from  the S&P 500 futures trading pit during the crash.  I listen to this every day now, and will probably put it on my Ipod to listen to while I run!

5) Market Speed Bumps

"There's one key issue, though:  when the LRP is triggered, the NYSE's quote (behind the scenes - you wouldn't see it, but the market centers who "talk" to each other to make sure that you get the best price would see it)  gets a special tag on it, essentially labeling it as "slow," and as a result it's no longer protected by Reg NMS as part of the NBBO.    Essentially, all the other market centers and exchanges no longer have to honor the NYSE's prices, and can simply trade "through" the NYSE's bids. 

Now, this is a problem. If we're going to have trading curbs in individual stocks, they need to be standardized across all trading venues!  Furthermore, it's clear to me that since the NASDAQ wants to cancel trades that are out of line with prevailing prices, we do need individual stock curbs.  Why on earth should the trades be allowed to happen at all if they are then going go be canceled?  Be proactive - prevent the trades from happening in the first place! "

6) Remedies:  Don't Lose Faith in Markets  - Lose Faith in Market Orders

"there's really no reason why we couldn't ban the "market" order type.  Really.  There's no reason why anyone should ever use a market order. None.  In fact, BATS exchange automatically adjusts all incoming market orders to limit orders, where the limit is the greater of 50c or 5% of the stock price:  higher for buy orders, and lower for sell orders.  Just a little bit of built in protection. "

And then, on to Greece:

1) I Learned it By Watching You!

"The Ponzi world is in full effect, with Europe's massive bailout program announced last night.   Basically, in case you don't get this - the ECB (European Central Bank - Europe's version of our Federal Reserve)  will buy the crappy assets no one else wants to buy.   It's like TARP for Europe, only their problem is that the "toxic assets" are not complicated synthetic structured mortgage bonds - it's their own currency and the debt of their constituent countries!

Solving debt problems by printing more money... Again... As if that will solve the problem - which, remember, is INSOLVENCY...  I guess we (the U.S.A.) can't complain, though - after all, we wrote the book on Ponzi bailouts. (related:  see FNM's earnings from last night).  The Fed and Helicopter Ben originally created this plan and implemented right here on our home soil, buying mortgage backed securities and treasury bonds, and then, when they finally called it quits on that program, simply using Fannie and Freddie to overpay for mortgage loans in a relentless attempt to prop up the housing market."

2) EuroTarp - It's Like Watching A Re-run of USA 2008

"Europe is making the same assumption that our Fed and Treasury made back in late 2008 - that the market was screwing up and not properly recognizing valuations.  Why is it that when assets aren't priced as governments wish they were priced that it means the securities markets are malfunctioning?  As I commented on Marginal Revolution:  we, in the USA, already watched this show - and guess what - it wasn't malfunctioning securities markets at all! It wasn't temporarily depressed prices (LIQUIDITY PROBLEM) - it was that the assets really weren't worth as much as people previously thought (SOLVENCY PROBLEM!). Really - we did EXACTLY this in the US, but didn't learn anything from it, apparently.   Just ask Fannie Mae.

Greece's debt isn't mispriced due to a malfunctioning securities market or because evil speculators are manipulating it. It's priced as it is because Greece is insolvent and people KNOW that."

 In closing, here's a picture of Oscar (r)  and Mr. Griffey (l), who have become fast friends:

 -KD

Europe - It's Like Watching a Re-run of USA 2008

A commenter on Marginal Revolution quoted the ECB's actual release, which included: 

"The objective of this programme is to address the malfunctioning of securities markets."

 Pause... Does that ring a bell with anyone?  TARP?  "Firesale prices?"  Bernanke: September 23, 2008:

"banks will have a basis for valuing those assets and will not have to use fire-sale prices. Their capital will not be unreasonably marked down."

Europe is making the same assumption that our Fed and Treasury made back in late 2008 - that the market was screwing up and not properly recognizing valuations.  Why is it that when assets aren't priced as governments wish they were priced that it means the securities markets are malfunctioning?  As I commented on Marginal Revolution:  we, in the USA, already watched this show - and guess what - it wasn't malfunctioning securities markets at all! It wasn't temporarily depressed prices (LIQUIDITY PROBLEM) - it was that the assets really weren't worth as much as people previously thought (SOLVENCY PROBLEM!). Really - we did EXACTLY this in the US, but didn't learn anything from it, apparently.   Just ask Fannie Mae.

Greece's debt isn't mispriced due to a malfunctioning securities market or because evil speculators are manipulating it. It's priced as it is because Greece is insolvent and people KNOW that. 

Marginal Revolution commenter MoneyDemandBlog notes:

"Greece is Europe's Freddie Mac. Both are insolvent entities with a strong implicit guarantee. Both will require new regular subsidies needed to preserve the fiction of going concern."

That's a good starting analogy - but it's even worse than that.  At least in the US some people will want to prolong the farce of Fannie and Freddie under the guise of propping up housing prices.  Europe, however, is likely to fall into a sort of Tragedy of the Commons problem, where when the other nations see that they are paying for Greece's excesses, they aren't going to like it very much.  The "responsible" Germans won't want to subsidize the fact that, as a friend of mine put it last week:

"The Greeks would rather kill each other in the streets than work and pay taxes."

We may see something similar here in the US when our states that are in over their fiscal heads have to figure out what to do.  Bailouts from our government may result in a wildfire-like spreading of moral hazard, where no state feels they need to balance their budget, and everyone expects handouts from Uncle Sugar...

extend and pretend... wait and see.

-KD

I Learned It By Watching YOU!

The Ponzi world is in full effect, with Europe's massive bailout program announced last night.   Basically, in case you don't get this - the ECB (European Central Bank - Europe's version of our Federal Reserve)  will buy the crappy assets no one else wants to buy.   It's like TARP for Europe, only their problem is that the "toxic assets" are not complicated synthetic structured mortgage bonds - it's their own currency and the debt of their constituent countries!

Solving debt problems by printing more money... Again... As if that will solve the problem - which, remember, is INSOLVENCY...  I guess we (the U.S.A.) can't complain, though - after all, we wrote the book on Ponzi bailouts. (related:  see FNM's earnings from last night).  The Fed and Helicopter Ben originally created this plan and implemented right here on our home soil, buying mortgage backed securities and treasury bonds, and then, when they finally called it quits on that program, simply using Fannie and Freddie to overpay for mortgage loans in a relentless attempt to prop up the housing market.

I know I'm not the only one who remembers the classic public service announcements from the 80's, where the father finds drugs in his son's room and confronts him:

Of course, Europe learned the Ponzi bailout model by watching us...  For a change, I'm not the only one using the term "Ponzi" this morning - check out TPC and Jesse.

Also, my friend Ted wanted me to link to this SnL segment where there's a good bit on Greece at the end (3 minutes in):  "Really?  With Seth & Amy"

"Really Greece - you're in crippling debt and you don't want to make spending cuts?  Really? Where do you think your money is going to come from?  Royalties for inventing civilization?  Really?  Your only exports are olive oil, takeout coffee cups, and Zach Galifinakis.

And so the Ponzi Scheme goes on, Yet people will still be surprised the next time the market crashes.

-KD

Aftermath: Remedies - Don't Lose Faith in Markets - Lose Faith in Market Orders!

First off, if you've missed my prior posts on the Crash of May 6th, please take the time to check them out now.  There is also ample valuable information from knowledgeable readers in the comment threads.  They are well worth your time to read through.

-Market Speed Bumps

-The Best 10 Minutes You Will Spend This Weekend

-Why Should We Cancel Trades?

- HFT and Possible Triggers

- WTF Stocks?

Now, where do we go from here?  Senators are already calling for investigations and studies, and there will be talk about increased legislation and regulations.  Here are my suggestions.

1) IF the NASDAQ wants to cancel trades that are at "crazy prices" - to use the subjective term - and I think it's beyond debate that they do want to cancel such trades, since they already demonstrated such, THEN steps should be taken to prevent these trades from taking place in the first place.  There is no reason to allow these trades only to cancel them after the fact.  If you want to protect traders from themselves, then PROACTIVELY make sure that the trades can't get printed unless people really want to trade at those prices.  Institute market wide individual stock based trading curbs, perhaps similar to the NYSE Liquidity Replenishment Points, but make sure that they apply to price increases as well as decreases, and make sure they aren't structured to attempt to prevent stock prices from falling.  We should not try to prevent lower stock prices via legislation!  We SHOULD try to prevent "abnormal" trades - if we want to protect traders from themselves.

2) Who are we protecting anyway?  I think it's widely agreed upon that no one wants to see professional investors bailed out of computer trading algorithms run amuck.  If a crazy computer algo takes a stock from $30 to 1c and then back to $30, who cares?  Investors shouldn't care - if you didn't read the news or watch TV intraday, you might not even know that the stock moved!  Your portfolio value is unaffected.   Traders should absolutely LOVE it!  If there are crazy computer algorithms in the market doing crazy things, guess what, that makes it much easier to make money!  We rational humans can outsmart algo's gone wild with ease, right?   The first thing I did Friday morning was enter a bunch of lowball bids in a number of stocks, PRAYING for a repeat of whatever happened on Thursday.

Of course, retail investors who lacked a true understanding of what they were doing got plugged on stop orders, which turned into MARKET orders when their price level was triggered.   One claim is that trading activity like this makes people "lose faith" in the market.  Don't lose faith in the market - lose faith in market orders! I like that credo.  Please join me here at Kid Dynamite's World in declaring war on market orders.   One commenter on Ritholtz's blog sarcastically noted, only semi-sarcastically, I think:

"I would always advise people against entering stop losses that become market orders. Perhaps it’s those type of orders that should be banned. Should I call my Congressional representative to try and enact a law to stop those people who use them from hurting themselves? Do you advocate that?"

I strongly agree with that sentiment, and noted that there's really no reason why we couldn't ban the "market" order type.  Really.  There's no reason why anyone should ever use a market order. None.  In fact, BATS exchange automatically adjusts all incoming market orders to limit orders, where the limit is the greater of 50c or 5% of the stock price:  higher for buy orders, and lower for sell orders.  Just a little bit of built in protection.  So, related to that point:

3) Brokers, especially broker catering to retail investors, should step up their client education platform IMMEDIATELY.  It's in their own best interest, obviously.  I'm sure Etrade doesn't want to have to explain to a client why their sell stop order in ACN got filled at 1c.  They make you demonstrate experience or investment competence to trade options, and they should do the same with market orders and stop orders.  If we want to protect investors from themselves, and again, I think it's been demonstrated that we do, we should educate them and make sure that they have all the information they need to make an intelligent, responsible decision.  If someone wants to enter a stop order, they need to be certified to do so  - this really isn't a big deal - the SEC could design a 5 question quiz demonstrating that when you enter a sell stop order at a price of $30, you understand that you can get filled at $30.25, $30, $29.99, $15, or 1c.  Investors need to understand this, and we need to continue to remove "excuses" from our markets.

4) Should we ban "high frequency trading" ??   I certainly don't think so.  As I've noted in my previous posts: of course the increased speed and technology of our modern markets contributed to the severity of the crash - but aberrations due to technological quirks are quickly self correcting (as we saw!) - stocks bounced right back.  When fast cars crash, they do more damage than horse & buggy crashes - but we don't ban automobiles.

One reason I included the tremendous audio from the S&P Futures Pit in Chicago is that it's an old school market with no computers.  The same people who blame high frequency trading for dominating markets also blame them for walking away! (the Wall Street Journal wrote an article stating as much, and others have expressed similarly confused views)  Well, non-HFT liquidity providers had ample opportunity to step in and show how much better they were when the HFT guys turned their systems off right before the big downdraft (please read PeterPeter's comment about why HFT guys did this - it's due to problems they were seeing in being able to accurately process information on time).  The S&P futures pit audio shows that there was massive illiquidity there also - in a non-computerized, old school market with traditional liquidity providers.  No one wants to step in and get run over when markets crash.  Computers/no computers/stock/bonds/commodities - it doesn't matter.  When markets crash, they crash hard and fast.  You can't regulate or legislate that behavior away!

5) Let's not forget something - prices got crushed because there were more (or more aggressive) sellers than buyers.  It's not because machines wanted to destroy the world, or because the markets are manipulated.  I think the decline was long overdue, as the massive previous rally in the markets was based largely on forced investing, goosed and fueled by the Fed in the way of zero interest rates.  Investors demand return - they need return, so they sought out risk assets in a way very similar to the bubble we're trying to recover from - buying across asset classes in a manner I thought was reckless.  When you buy because you HAVE to be a part of the party, you have a quick trigger on the way out - you don't want to be the last one holding the hot potato.   Throw in a dose of pure economic disaster and contagion brewing in Europe, and you have all the ingredients for the perfect storm.

I use the term Ponzi scheme a lot on this blog, and markets designed to go higher based on the need for more buyers participating rather than fundamental improvements are also destined to crash hard when the buyers disappear.  On Thursday May 6th, the buyers disappeared and the sellers wanted out.

To summarize - it wouldn't be hard to institute reasonable individual stock trading curbs to slow down markets a bit in times of extreme stress.  It would also be a noble goal to try to continue to educate retail investors who don't know what they are doing, so that they can avoid trades that result differently than they had intended.  I think trying to legislate away market movements is impossible, though, and that minimal intervention is needed:  after all, this crash was a long time in the making.

There's a saying:  stocks take the stairs up, and the elevator down...

-KD

Market Speed Bumps

If you've missed my previous posts on the Crash of May 6th, please go back and check them now - there are also many intelligent comments in the comment threads.  The Best Ten Minutes You Will Spend This Weekend, Canceling Trades, Possible Triggers & HFT, and WTF Stocks?

I want to take one more post to explain what one of the problems was during the crash - and I think this will help with potential solutions, and with understanding what went wrong.  First, we have a lot of different market centers now.  The market is fragmented.   That means that you can trade IBM on the NYSE, or alternative exchanges, ECNs (electronic networks) or dark pools.  Reg NMS "protects" the NBBO - national best bid or offer. That means that regardless of what exchange (I'll use the term "exchange" instead of "market center" because it's easier, although these alternative market centers are not all technically "exchanges") you trade on, you have to trade at a price that is at least as good as the best bid or offer on all of the exchanges.  This is a good thing.

The NYSE, however, has a provision called LRP - Liquidity Replenishment Points - which is designed to act as a sort of market speed bump during times of significant price movements.  Many people are familiar with "trading curbs" we have for the major indices, which can result in altered or halted trading if the major indices move by a certain amount intraday.  Well, the LRP is like a trading curb for an individual stock - it temporarily changes the stock from automated electronic matching to specialist controlled matching - the NYSE specialist steps in and tries to slow things down a tad while he sources liquidity and tries to pair off orders.  In the NYSE's own words:

"A volatility control built into the Display Book to curb wide price movements resulting from automatic executions and sweeps over a short period of time.   When triggered, LRPs automatically convert the market temporarily to “slow” or Auction Market only mode, allowing specialists, floor brokers and customers to supplement liquidity and respond to the stock’s volatility. "

This is also, potentially, a good thing.  If people are worried about automated electronic executions - and it's pretty clear to me that people ARE worried - then the LRPs are a backup plan that take over in times of stress.  Interestingly, the trigger thresholds are not very large - they depend on the price of the stock in question and its average daily volume, but for a stock like IBM the LRP would be triggered with a move of only $1 (that's not a $1 change on the day, it's a $1 change in a hurry).

There's one key issue, though:  when the LRP is triggered, the NYSE's quote (behind the scenes - you wouldn't see it, but the market centers who "talk" to each other to make sure that you get the best price would see it)  gets a special tag on it, essentially labeling it as "slow," and as a result it's no longer protected by Reg NMS as part of the NBBO.    Essentially, all the other market centers and exchanges no longer have to honor the NYSE's prices, and can simply trade "through" the NYSE's bids. 

Now, this is a problem. If we're going to have trading curbs in individual stocks, they need to be standardized across all trading venues!  Furthermore, it's clear to me that since the NASDAQ wants to cancel trades that are out of line with prevailing prices, we do need individual stock curbs.  Why on earth should the trades be allowed to happen at all if they are then going go be canceled?  Be proactive - prevent the trades from happening in the first place! 

What's funny is the back and forth between the exchanges in the aftermath.  From the NY Times:

"The absence of a unified system to halt trading in individual stocks led to bitter accusations between exchanges on Friday. Robert Greifeld, chief executive of Nasdaq OMX, appeared on CNBC to criticize the New York Stock Exchange for halting trading for up to 90 seconds in half a dozen stocks on Thursday.

“Stopping for 90 seconds in time of crisis is exactly equivalent to not picking up the phone,” Mr. Greifeld said."

A few minutes later, Duncan L. Niederauer, chief executive of NYSE Euronext, responded in an interview on CNBC, blaming Nasdaq’s computers for continuing trading while the market was in free fall.

“These computers go out and just find the next bid they can find,” he said.

Mr. Niederauer acknowledged the need to introduce circuit-breakers along the lines of those already in place on the Big Board, and his views were echoed by some chief executives of the new exchanges.

I think it's likely that we'll see some sort of standardized individual stock trading curbs instituted as a result, which seems to be a pretty reasonable solution.  I can only hope that curbs will be temporary (and by that, I mean that they will be in place for only a short time after they are triggered) and balanced - so that they aren't designed to put an extended halt to trading if stock prices fall, while continuing to allow trading if stock prices rise.  

 

-KD

The Best Ten Minutes You Will Spend This Weekend

If you do nothing else today, listen to this audio clip of Thursday's crash live from the S&P 500 futures pit in Chicago.  Pure, unadulterated adrenaline and chaos.  Pure. 

For those unfamiliar with the lingo, he's leaving off the first two digits, so when he's saying "91 even bid" he means 1091 in the SPX futures.  He says "even" because they were just trading in whole numbers, not sub-dollar increments.  Note that at the peak panic they were ten points wide: 1060-1070.  This is for one of the most liquid increments in the world.  Look back over the last several months and see how many days we had where the S&P500 didn't have a 10 point range for a whole day - and this was the bid-ask spread.

Also, note, that this is an old school, auction market.

Incredible.

(if the embedded audio above didn't work, click here)

EDIT: The voice is Ben Lichtenstein of Trader's Audio. Well done, Ben. One for the ages.

-KD

Does Anyone Want to Defend the Decision to Cancel Trades?

In the wake of yesterday's market bloodshed, the NASDAQ announced that they'd be canceling trades more than 60% off of prevailing last sale before things went haywire.  Now, I addressed this in last night's post, and others are writing about it this morning.

First of all, back to a solid explanation of what happened, courtesy of, believe it or not, a Georgetown Finance professor, James Angel:

“The LRP model doesn’t work,” Angel said. “The idea that when the market is going crazy you can slow down trading in one market and not others means that sell orders were churning through the books at every other market. NYSE dropped out of the running.”

So when the NYSE tries to slow things down, Reg NMS requires orders to be rerouted to other market centers.   A commenter on my previous post explained it thusly:

" I believe the core problem here was a real order imbalance with lots of volume (which took us down the original 350), then NYSE halts these stocks, the market orders get rereouted (REG NMS and all) to ECN's where there is much less liquidity, and what liquidity is normally there is mostly provided by the nefarious HF strats who were rightly scaling back risk. So the 10K shares that might have been a downtick on NYSE blows through the BATS book completely."

Market orders can do a lot of damage to thin order books.  Folks - if you're using market orders, you had better be aware of the risks.  Interestingly, the NYSE, who has been losing market share to other market centers as a result of the ongoing market fragmentation, is positioning their positive spin on the crash, basically blaming the other market centers for failing to stem the cascade.

Paul Kedrosky asks aloud: "why are we wiping out all the errant trades by runaway algorithms and market battle bots?"

David Merkel points out, emphasis mine: "NASDAQ should not have canceled the trades.  It ruins the incentives of market actors during a panic.  Set your programs so that they don’t so stupid things.  Don’t give them the idea that if they do something really stupid, there will be a do-over."

And the Law of Unintended Consequences rears its ugly head again.  Merkel's point is simple and accurate:  if buyers who step in later see their trades canceled, it removes all incentive for them to step in - and then you don't get the bounce back that we saw!  Think about how much havoc it causes a trader who astutely bought cheap stock, then sold it out at a profit.  He's now short!  Or, he spent the entire day wondering if his order would be canceled, in a state of limbo.  What's the alternative - that traders should just assume that the orders will get canceled, and NOT buy stock?  Guess what - if no one buys, the stock stays cheap!  SOMEONE has to buy, and that someone shouldn't be penalized in favor of remedying the ignorance of the seller who screwed up.

I commented on both Kedrosky's and Merkel's blogs that the goal wasn't to protect the battle bots, it was to protect the retail investors who screwed up because they used the wrong order type (although that doesn't make it right - as I mentioned in yesterday's post too).  Again, we see the "bailout" theme - bailing out those who screwed up and preventing them from bearing the consequences of their bad decisions.  In case it's not clear, of course I don't think that algos gone wild should be bailed out either via canceled trades.

If anyone wants to defend the decision to cancel the trades, I'm all ears - but your argument needs to be better than "HEY ITS NOT FAIR THE COMPUTERS RIPPED ME OFF AND MY STOP ORDER GOT EXECUTED AT A PENNY WTF OMG *$XYS !^^!@&!*#"  If you don't understand that this can happen with a stop order, don't use stop orders.

-KD

More on the Crash - Possible Triggers, and High Frequency Trading

So I wrote this piece earlier, talking about possible explanations for the carnage today, but not liking any of them.  Then I remembered an email I got from a former broker of mine around 2:15pm today, talking about the carnage in the BRL-JPY exchange rate.  You can look at the Yen vs other currencies too, but the bottom line is that the yen spiked before the S&P tanked.  What does this mean?  Well, the yen is the base currency for the "carry trade."  You can borrow Japanese Yen, pay their interest rate (basically zero) and invest in other currencies and their markets.   You earn the difference in interest rates - the carry. 

The email I got was actually a little different from the standard carry trade explanation:

"Please see attached chart -- BRLJPY is down 6.2% today and moving quickly, looking at this cross vs SPX you can see it bottomed earlier than equities and have mirrored. This represents probably the single biggest Japanese retail FX position. As I mentiond this morning we saw some very big moves in FX vol and Japan is largely closed this week, this could lead to a much bigger move when Japan comes back next week.  Risk assets are becoming highly correlated again."

I think his point was that this indicated a massive de-risking by Japanese customers - selling their higher yielding BRL (Brazillian Real) positions, shifting back into their low yielding yen positions.

Now, there are some facts:  1) markets were selling off already before the big crash.  2) there is some significant global instability, centered around questions about what will happen in Europe.  Another former colleague of mine writes:

"there is a huge problem in Europe with over night Commericial paper market. check out EURBS5 ; the market completely closed and there was no money today.

estimate balance sheet of european banks is 5.5trillion of which 1.5 trillion is funded overnight using commercial paper - sounds like this is the major concern"

In plain English, the fear is that Europe is about to undergo a Lehman-esque scenario where none of the banks are lending to each other.  I would expect the ECB and even the US Fed to step in and provide ample liquidity, but in any case, there are some serious tremors effecting global credit and equity markets.

And then comes number 3 - the one that everyone will be talking about:  It's almost impossible to argue that algorithms didn't play a role in today's price action.  As I wrote earlier, it seemed likely to me that this looked to be a case of Algo's Gone Wild, feeding of each others signals and resulting in a crazed feedback loop of selling.  However, the guys I've talked to so far who are major players in the electronic trading space have told me that they had no issues with their models today - things were normal, and the computers didn't "take over" or "go bezerk" or rack up massive losses.  If there are any readers out there running quant models - please let me know your thoughts. 

The same big electronic trader suggested that one possible explanation is that an algorithm gets into a "sell loop," where it is sending out a sell order which, for some reason or another doesn't get immediately acknowledged, or doesn't get acknowledged within the threshold for the algorithm.  So, the algo, thinking its order didn't make it,  spits out another order, which doesn't get acknowledged,  and it spits out another, etc etc etc.  Why would the algo be coded to send out a new order before it had an "out" on the prior order?  I don't know - that seems odd to me, (any algo writers out there?  please share your knowledge in the comments section) but I remember a great story that my boss used to tell on our trading desk about how in the old days, when they sent a program trading order to sell a basket of stocks, the old dot-matrix printer behind them would loudly whir to life and print up a confirmation that the basket went.  One day, trying to sell a basket, they got no confirmation.   Silence.  So they hit the button again.  And again... and again... Until finally someone shouted - "THE PRINTER IS OUT OF PAPER,"  as they watched the market fall under the cascade of sell orders that had just been sent.

A third big player in this space just told me "all the HFT guys pulled out of the market instantly," which seems to jive with an article that the WSJ wrote this afternoon.  The high frequency traders don't want this chaos either - it makes it more dangerous for their models to get hooked long or short stock.

While I don't want this to become a debate over the merits of high frequency trading, we need to acknowledge a few things:  1) there is a red herring argument that one of my loyal readers already made in a prior comment thread, to the tune of "but you said that HFT algos would provide all the liquidity we need!"   No  - what HFT proponents say is that HFT algos provide liquidity, which is always a good thing. I would always prefer liquidity to lack of liquidity.  Now people are going to crucify them for NOT providing liquidity! Well, which is it?  If you're complaining that you don't like the HFT liquidity, here's what happens when you don't have HFT liquidity!  I read comments on other blogs that said things like "I was trying to buy near the lows but HFT algos kept out bidding me by a penny!"  Well - wouldn't that be good? Wouldn't that STOP the price decline, if HFT algos kept putting in higher bids?!?!?

On the other hand, 2) there is no doubt that higher speed markets (like we currently have) will have higher speed price movements in boundary scenarios like today.    Price movements get exacerbated by speed - but notice that prices recovered quickly too. So, that begs the question - who got hurt today?  After all, I asked my dad, "did you see what happened in the market today?"  "Yeah - the Dow was down 300 something points."  he replied.  "Yes - but it was down 1,000 at one point!"  I explained.  He had no idea - it didn't effect him!  It shouldn't effect most people!  If you left your trading desk to take a dump you might not have known anything crazy had happened when you got back.  If you are a normal retail investor who isn't staring at the screen or watching CNBC all day, you probably didn't even know what happened!

The obvious answer of "who got hurt?"  is anyone with a stop-loss order.  Let's go to Investopedia for a definition, and a perfect example of what the problem is:

"An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor's loss on a security position.

Also known as a "stop order" or "stop-market order". 

They continue:

"Setting a stop-loss order for 10% below the price you paid for the stock will limit your loss to 10%. This strategy allows investors to determine their loss limit in advance, preventing emotional decision-making.

It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time."

Ahhh.. But there's a problem, isn't there - and you saw it today.  When the stock hits your limit and triggers your stop order, it sends a market order.  Obviously, in gapping markets, this can be deadly.  For this reason, I'd suggest never using a stop market order - if you really want to have that order in there, use a stop LIMIT order, perhaps with a limit even a decent percentage below your stop price - so that when the order gets triggered, you are trying to execute a sell order with a limit slightly below your trigger price - but not at the market.  It all gets back to the fact that I would never use a market order... but let's continue:

NASDAQ has declared that they will cancel trades where the price varied by more than 60% from the prevailing price at the time (I reported earlier that I'd been told the threshold would be 30%).

Now, I liked the comment I read on a Clusterstock post this evening that said:

"I am waiting for someone to explain why the algos  should be entitled to an expectation that the exchanges  will cover their butts when their trading programs go nuts"

That's a great point.  If we're going to allow pervasive algorithmic trading then why do any trades get canceled at all?  I THINK that the NASDAQ is canceling these trades in the interest of orderly markets, which certainly is a reasonable goal, but again, it's about bailouts and responsibility.  Of course, they also don't want Mom and Pop Retail to have to eat the results of their stop orders gone bad, but in bailing out Mom and Pop Retail, they are also bailing out the electronic algos  - if there were any, and it seems likely that there must have been SOME - who sold cheap stocks.

Ok - so, in an effort to avoid a lengthy "HFT SUCKS!" - "NO - HFT IS AWESOME" debate, I want to leave you with two quotes from bloggers I read regularly, and which I think are both very valid.  First, the "algo's certainly didn't help" point,  from one I've been quoting a lot lately, The Reformed Broker, Josh Brown:

"The "Fat Finger" thing is nonsense.  Maybe someone made a sizable error, but one cannot deny the fact that the algo-driven tradebots poured gasoline on the fire.  The machines were triggering stops and wrecking everything in sight before human beings with qualitative senses could get a handle on what was happening."

And then, the "this has happened before, without computers, and it will happen again, with computers" view from TPC:

"There’s all sorts of speculation over what caused the crash today.  The answer is simple.  Pure unadulterated fear.   Everyone is looking for someone to blame, but we’ve seen this happen in markets for hundreds of years.  It happened before there were computers and it now happens that there are computers.  Today was a classic fear filled day.  We saw huge downside in many debt and forex instruments before the crash and the equity markets were the last to capitulate.  The bids fell off the board and the sellers just continued to hit the bids.  There might have been some “fat finger” trades or some electronic trading that contributed, but this was primarily fear.  Good old fashioned fear.  This has always happened in markets and will always happen in markets.  It’s as simple as that as far as I’m concerned.

Investors are scared out of their minds as China looks like it is slowing substantially and Greece and the EMU appear to be on the brink.  There are real fundamental reasons for the recent declines in stocks.  In addition, it’s important to remember that there are a mountain of longs that have piled into the market in recent weeks and months with the expectation of a nice easy recovery trade.  That is clearly off the table and there is a huge trade being unwound here.  Greed has quickly turned to fear."

The only quibble I have with TPC's comment, again, is that I don't think that fear explains stocks getting hit so hard that they fall to prices of a few pennies.  I've never seen nor heard of that before, and I don't think it would have happened if we had old school specialists standing in the middle slowing down every order.   That's not to say that I think old, slow, trading is better, however. 

-KD

Holy Cow. WTF STOCKS? Heres' What I'm Hearing

Ok - first, disclaimer:  I'm up here in the woods of New Hampshire.  I don't have Bloomberg, I can't see how much stock printed at each of the crazy prices, and I was out buying plants at the time the crash happened, notified by a text from the Big Show that read simply: "HOLY FUCK."  BUT, I do have a lot of experience with market structure, index arb, electronic execution and the like, and I am still in close contact with several senior people in these roles at major firms - I'll get to what they have told me in a minute.

Now, here's what I do know:  

1) people are talking about a fat finger error in the e-mini futures.  That makes no sense to me. If there's an error, I think it HAS to be in the "cash" basket - in other words, stocks, not futures. That's the only way you can get stocks like ACN to trade down to pennies. YES - pennies.  Futures errors wouldn't do that.  Complicating issues, though, SIZE traded in the e-mini SPX futures as this was happening - $15B or so in notional... So that makes it look like futures were involved also! Or perhaps that was everyone else in the market panicking to sell the most liquid asset  as they saw the stock prints.  

2) another initial thought I had was related to a discussion I had with a friend a mere two days ago about "peer factors."  Peer factors are, dumbed down, the way to describe how a quant model will model the fact that everyone has the same inputs in their model.  If all the models are correlated, then, when they are triggered, things can go bad in a hurry. HOWEVER, a buddy of mine who runs quant trading at a major firm told me that he has several of these models running currently and that they were fine today - it wasn't a Terminator-esque case of the machines becoming self aware - at least not in the peer factor quant models. 

3) The rumor was that Citi had a major execution error, yet another buddy of mine told me he had a lengthy call with them, where they denied it.

So, how can this happen?  Well - some execution systems will allow you to type in the size of the basket.  The rumor is that some Joey Baggadonuts meant to type in 15M (for million) but typed 15B (as in... BILLION) instead.  Now, I can't believe that guys can still do this. It boggles my mind that there aren't risk controls in place.  When I was trading, we took great lengths to make sure that you couldn't do this - even if you had fat fingers, if you dropped a can of soda on your keyboard, if a ferret ran across your computer, or if you suffered from some sort of dementia and just went crazy - you couldn't send an order like that without being 100% sure that you were doing it, if you could even do it at all.  When we moved to a new execution system from a third party, we mandated that they install confirmation screens on every order entry window.  "The devil is in the details," my boss always used to say...

Each trader had execution limits - that meant that I couldn't send a $1B basket no matter how badly I wanted to.  Pure and simple - my systems login wouldn't send it.  Now, on certain days, I'd need to execute billion dollar baskets, so we'd have to change the risk parameters - but in general, there were caps on the size of each basket, the total volume for the day, and extra warnings if you tried to send an order that was even 25% of your max quantity - you'd have to click through confirmation boxes of the type "ARE YOU SURE YOU WANT TO DO THIS?"

Anyway, what will happen in the aftermath of today's frenzy?  One contact told me that they did some quick math and figured that in S&P500 stocks, $31Billion of notional traded below the 1100 level in the SPX.  That is a lot of stock.  A different former colleague told me "I  think people figured it out and bought it back ahead of the offender. I also think the person with the mistake had time to cover."  I'm also told that all trades more than 30% off of stable last sales after 2:30pm will be busted.  THIS IS WHAT I'M TOLD - THIS IS NOT A GUARANTEE.  In other words, if you scooped ACN at 10c, you're probably getting that trade busted.

we'll await further developments...

-KD

Apocalypse Now

Back in the day, Sports Illustrated has a little weekly sidebar called "This Week's Sign of the Apocalypse."  It was an absurd story illustrating the downfall of society.  Over the past few years, I've mentioned my observations of such stories in passing:  Enron: The Play,  Sean Avery's suspension for mentioning sloppy seconds, Chad OchoCinco, Fergalicious, Dick Fuld, Nancy Pelosi, and Octomom/Kate Gosselin.  I've been wanting to do a post about how you can see where society is going just by looking at the kind of television shows being produced (just think Jersey Shore, Pretty Wild, and the entire Rock of Love / I Love New York new genre of pulchritude.

Just in case you're unaware, those 4 series are about, in order 1) a bunch of guidos on the Jersey Shore 2) 3 sisters who are famous because one of them got naked in Playboy, and another on of them is a thief who broke into Lindsay Lohan's house (the third sister has yet to achieve notoriety).  3) a former rock icon (is that too generous a description?!?!?) who likes to bang road skanks, and 4) a road skank who achieved fame by being a skank on ANOTHER absurd show in which Flavor Flav tried to find love by dating a bunch of women, which she somehow parlayed into not just a show, but an entire FRANCHISE.  Oy vey.  If I asked you, 15 years ago, to estimate the probability that these would all be shows on TV, it would have been somewhere in the range of six sigmas against, right?  And I haven't even scratched the surface...

Anyway, The Reformed Broker, Josh Brown, wrote a post a few days ago about the increasingly apocalyptic level of modern headlines, titled "Spring 2010:  All Hell Breaks Loose."   Josh focuses on real life headlines, not the alterna-world of made for TV which I was talking about above, and the results are just as scary:

Volcanic Explosion in Iceland Grounds All Planes

Earthquake Rocks Chile

Massive Rig Fire Threatens the Gulf

Chinese Coal Mine Caves In, Hundreds Trapped Inside

Oil Spill Becoming One of Worst Ecological Disasters in US History

Truck Bomb Found Smoking in the Heart of New York City

West Virginia Coal Mine Collapses, 29 dead

US Attorney May Launch Criminal Probe of Goldman Sachs

Earthquake Rocks Indonesia

Nashville Faces Worst Flood Ever, Downtown Underwater

Contagion Spreading As Greek Economy Collapses

John Carney Fired at The Business Insider

oh man...  At least Hogan Knows Best was cancelled...

-KD

Two More Economic Indicators: Bacon and Breasts

This morning I wrote about an honest economic indicator:  beer.   Then I read Hologic's conference call transcript, and was hit with another indicator: breasts.  Hologic is a big player in the female health space, specializing in breast imaging systems and their peripheries.  I'm long HOLX stock, with the basic thesis being one that was mentioned in the transcript: "the inclusion of additional lives entering the healthcare system and an emphasis on early detection and prevention could result in increased exams."

However, HOLX guided conservatively for the year, as they noted: 

"Relative to the second quarter last year, we have heard from many of our customers that there was a slight reduction in a number of screening mammography, and as a result, a reduction in biopsy procedures. We believe this is primarily due to the high levels of unemployment and resetting deductibles and co-pays, leading to the decreased wellness business"

Come on now.  If the economy is recovering so rapidly, then why are women cutting essential expenses like breast cancer screening?  Also, note, that they are talking about lower levels from what should have been an easy comparison in the 2009 comparable quarter.

Then, just when I thought I had another key data point figured out (bearish!), my wife returned from a trip to downtown Concord where she checked in with a high end candy store in town that specializes in candy apples coated in a variety of fancy products, which sell for about $5 each.  She brought me back a piece of the new product:  chocolate covered BACON - which is selling for $2 a strip.  My wife even got some channel checks from the store owner, asking if people were pretty much buying them as novelties.  The response was that people buy one in the store, and then buy 6 more to take home!  If people spending $2/piece on chocolate covered bacon isn't a bullish indicator, I don't know what is...  By the way - I know chocolate sounds good, and bacon sounds good, but chocolate covered bacon is mediocre at best.

So, we have bearish beer indicators from MolsonCoors, bearish breast indicators from Hologic, and bullish bacon indicators from the Concord candy store... I guess we'll continue to play the wait and see game.

-KD

note: I am long HOLX stock.  Also note: this post is certainly not intended to make light of breast cancer, and I hope that no readers are ignorant enough to read it in that way.

Beer as Economic Indicator

"MMMMMM.... Beeeeeeeer." - Homer Simpson

Molson Coors gives us the only economic data point we need to know this morning to evaluate the true state of the economy, emphasis mine:

"Molson Coors says its first-quarter profit climbed 38 percent on a tax-related gain. But consumers bought less of its beer and costs rose, causing adjusted results to miss Wall Street's expectations.

Molson Coors Brewing Co. sold 3.8 percent less beer worldwide. It blamed the decline on high unemployment and a slow recovery in consumer confidence."

Forget all the mumbo jumbo with super extended unemployment benefits, increasing retail sales, government dominated mortgage markets, ISM, PPI, etc etc etc.

You need to know one thing:  consumers don't buy "3.8% less beer" if things are getting better.

Q.E.D.

-KD

note: no positions in beer company stocks.  long 2 assorted six packs (not MolsonCoors) in my fridge

Things to Read

The Reformed Broker post title win: "The Pain in Spain Falls Mainly on the Plain (folks)."  Also, shrimp speculation.

NY Times: "Shanghai is Trying to Untangle the Mangled English of Chinglish"   also be sure not to miss the slide show.

Calculated Risk: "Fed Discussed Possible Housing Bubble in 2004"

"MR. KOHN [Fed Governor]: House prices are elevated relative to rents—and will look even more so when rates begin to rise—but are more likely to correct by rising less rapidly than by crashing. >Eggs will get broken when rates begin to rise, but the capital in most intermediaries is high, and the system is resilient."

DOH!

Also from CR: "96.5% of Mortgages Backed by Government Entities in Q1"... Holy schnikeys...

Jesse's Cafe Americain: Muni Bond Contrary Indicator?

ZeroHedge:  "Greece Bailed Out to get in Even More Debt."

And In case you missed my posts recently: 1) Greece Tax Dodgers and 2) Lies from GM

-KD

General Motors, The Wolf and Teddy KGB

I wrote about GM's shenanigans where they claimed to have "paid back the taxpayers, in full, with interest, ahead of schedule" a few weeks ago.  Then I saw the ad they were airing on TV - it's so brazenly wrong that it even made my wife gasp at the audacity.  Take a look, and make sure you enjoy the multimedia extravaganza I've put together for you in this blog post (potentially NSFW language ahead):

Whoa whoa, GM - in the immortal words of The Wolf in Quentin Tarantino's Pulp Fiction: "Let's not start sucking each others dicks quite yet."

Well Let's Not Start Sucking Each Other's Dicks Quite Yet sound bite  Pulp Fiction sound bites

I am writing about this again today because the NY Times's Gretchen Mortgenson wrote an article about it today, with the tagline, "Fair Game:  At GM, Repaying Taxpayers With Their Own Cash."  Of course, that header immediately made me think of Teddy KGB in Rounders: "It's a fucking joke anyway, after all, I'm paying you with your money."

Still Up 20 Grand sound bite  Matt Damon sound bites

Amazingly, GM's CEO, Ed Whitacre didn't clarify, "your money: I'm still up $45Billion from the last time I stick it in you."

I was excited to see that Mortgenson was trying to explain the "TARP money shuffle" to her readers, but I think she missed the absurd simplicity of these accounting shenanigans.  I want to make sure everyone understand this, so I'll try to simplify.

1) GM has a big pile of debts they can't pay back  so:

2) The US Treasury gives them a huge loan: $52 billion

3) Now, GM has a) the same huge pile of debt it had before, along with b) a new pile of $52B in debt to the Treasury, and c) $52B in cash.... then:

4) GM declares bankruptcy, which massively reduces 3a, as preexisting debtholders restructure the debt they hold. It also massively reduces 3b, as the Treasury restructures the debt they hold - taking equity instead.   In fact, it reduced the Treasury debt to $6.7B, which GM then paid back - using the cash it had - WHICH IT GOT FROM THE TREASURY!

Voila - the TARP shuffle.  

At least we can feel good that GM is spending money bragging about it's "payback," while the American Taxpayer is still $45Billion in the hole on this transaction.

-KD

98% of Greek Pool Owners Lie on Their Taxes... Blame The Speculators?

98% of Greek pool owners lied on their taxes.  It's true. It's not just some evil speculator hyperbole I made up to sink Greece (note: I have no position in any sort of Greece interests) - it's just one of the real reasons why Greece has a massive solvency problem.  From the NY Times:

"ATHENS — In the wealthy, northern suburbs of this city, where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools. 

So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools. 

That kind of wholesale lying about assets, and other eye-popping cases that are surfacing in the news media here, points to the staggering breadth of tax dodging that has long been a way of life here. Such evasion has played a significant role in Greece’s debt crisis, and as the country struggles to get its financial house in order, it is going after tax cheats as never before."

Simple math:  16,974 houses had pools.  Only 324 residents admitted to owning a pool.  Thus, 16,650 pools were left out of the count... that's 98%.  And oh, just in case anyone is thinking, "hey Kid Dynamite - don't be an idiot - maybe those other 16,650 people aren't required to file tax returns,"  well - I looked into that, and found this: everyone in Greece has to file a tax return, regardless of income:

"One of the first things you should do when you decide to settle in Greece, or buy property, is register for a Tax number (A.F.M. – pronounced aa – fee - mee)....Once you have an AFM (Tax) number, you are registered with the Greek authorities and are required to submit a yearly tax return in Greece (Form E1) regardless of income, i.e. even if it is a nil return."

The NY Times article continues:

"Various studies, including one by the Federation of Greek Industries last year, have estimated that the government may be losing as much as $30 billion a year to tax evasion — a figure that would have gone a long way to solving its debt problems."

Ah hah... So perhaps Greece's problem isn't that "speculators" are ruining their borrowing ability - perhaps the problem is that Greece's own citizens are lying to their government, depriving them of the tax revenue they desperately need to pay back their debts...

-KD