Once upon a time, President Reagan said, “The nine most terrifying words in the English language are: I'm from the government, and I'm here to help."
Decades earlier, Aimé Césaire wrote a blistering screed against European colonialism that started with:
A civilization that proves incapable of solving the problems it creates is a decadent civilization.
A civilization that chooses to close its eyes to its most crucial problems is a stricken civilization.
A civilization that uses its principles for trickery and deceit is a dying civilization.
The authors couldn’t be farther apart on the political spectrum, but if you strip both down far enough, there is room for agreement between them on a lot of topics.
That’s where putting these quotes next to each other gets interesting, especially for anyone on the outside that is involved with the markets.
Two examples, supposedly related, are seeing very different treatment. The disparity reveals a fundamental hypocrisy few talk about.
First up, new asset types are sending government regulators into a flurry of overreach that is designed to solve some problems but goes much further.
Cryptocurrencies are a prime example. I’ll refer back to what I wrote a couple weeks ago and highlight this quote from Treasury Secretary Janet Yellen:
We have a strong interest in ensuring that innovation does not lead to a fragmentation in international payment architectures.
Short version? The proposals do far less to help investors with hacking attempts or crypto exchange liquidity — both valid concerns — while pushing surveillance and wealth control to an extreme.
“Payment architecture” control is all about how wealth is allowed to flow between private parties… and how the government can have unlimited access to information about them with the explicit intent of regulating the flow.
And, of course, dollar-denominated transactions are already strictly controlled by U.S. government policy that any and all regulated banks or exchanges must adhere to at the risk of decertification and sanction. The government intends to bring any and all transactions anyone makes to heel.
Don’t think that’s just macroeconomics, like Russian oil or money laundering or any of the other headlines you see. It strikes far closer to home than you may believe.
Second, the much-delayed virtue signaling by the SEC for mom and pop investors. This is practically an inverse of the first concern — The changes are designed to solve some problems but fall far short.
The SEC is looking at the problems with commission-free trading, specifically how data is sold and capitalized upon to nickel-and-dime small investors as they enter and exit positions.
Of particular concern is how Robinhood and Citadel interacted to choose which investors could buy or sell. Citadel was a "market maker" that made money off the kind of order flow data the SEC wants to regulate, was a major investor in Robinhood, and was exposed to the massive margin calls incurred by its top-tier clients. Anyone that wanted to buy shares — as long as they were covering shorts and were preferred clients of Citadel — could. Yet no one else could sell shares otherwise.
This is just an extreme example, though. You and I will never get a fair price and haven't for ages.
The SEC inquiry is being pitched as something that will help small investors while functionally doing nothing but pushing profits from one ledger sheet category to another.
According to Bloomberg Intelligence, trading by individual investors has risen from 10% of market volume to 20% in a decade, bouncing off historic lows. A lot more of small investor money is built into passive investments like 401(k)s and other highly restrictive accounts.
Yet there is no talk about how so much money is “passively” invested into funds that actively move about in “dark pool” trading that gives preferential treatment to accounts based on size. Massive amounts of shares are being pushed within internal company accounts and between institutional investors that are not subject to exchange regulations.
There is no talk about stemming any of these or the fake, computerized bids and asks that are not exercised as trades yet push stock prices around. The ones that supposedly support liquidity but really allow artificial arbitrage plays by preferred investors — think big investment banks and their largest clients.
Short version? The SEC has targeted a small but growing segment of the market while completely ignoring the one where the real money is made by treating small investors like second-class citizens or gaming the exchanges' matchmaking systems between real sellers and real buyers.
This ties into a lot of very arcane, long-term problems with the market where there is little interest in addressing the core problems. Hypocrisy thrives by diving deep into complexity where few have the time or resources to root out reality.
Let's put this in simple terms, with some bracketed additions to the aforementioned Césaire quote:
A civilization that proves incapable of solving the problems [its own ruling class creates and perpetuates] is a decadent civilization.
A civilization that chooses to close its eyes to its most crucial problems is a stricken civilization [when this disparity is supported by those that claim to represent everyone else].
A civilization that uses its principles for trickery and deceit [to bolster the power and profits of some over others in spite of similar equity] is a dying civilization.
In this context, these lines (admittedly, twisted around a bit), show how anyone on the political spectrum can agree…
These are nine terrible words: “I'm from the government, and I'm here to help."
