Reflexivity and Fraud: Manipulating Polls, Prices, Perceptions, and Outcomes
June 30th, 2010 by
Any serious student of markets knows the ‘Efficient Market Theory’ is hokum. George Soros’ ‘Reflexivity Theory’ rules. In short, prices change perception and since most trading is done based on perception the case for fundamental analysis goes out the window. Example: dot coms in 2000. Into this mix add the fraudsters on Wall St. who manipulate prices – not to make or lose money per se – but to manipulate perceptions. We saw this in 2008 when stock prices were manipulated by Wall St. to give the impression that the banking sector was about to collapse. The government acted on that perception and handed trillions over to the fraudsters.
The same can be said of rigged polling results. Changing the perception of the public mood can change the outcome. Because people act based on perception, not reality. The popular website DailyKos is suing a pollster for this very reason.
Recently, I called for some favors from friends who are connected with the MPAA (I served on the board of the Creative Coalition) to stop Cantor Fitzgerald’s box office futures contracts because I knew from my experience running HSX/Cantor that insiders were abusing their position in ways that were not consistent with free market capitalist principles and I hated the thought of another American industry getting torched by Wall St.
In the case of Cantor Exchange and Trend Exchange, this means moving prices outside of the ‘price discovery’ mechanism; producing exogenous results for nefarious ends.
Government officials hoping to restore balance and accountability to markets are, unfortunately, beholden to the market riggers and perception manipulators who throw a few dollars at the politicians to finance their election campaigns. We cannot expect anyone working inside government to stop this abuse. Only through direct citizen action can any change happen. The recent boycott of BP, in my opinion, should be expanded until BP’s stock is driven down to zero. And if ExxonMobil comes in and takes them over, then the boycott should move over to Exxon.
In a more perfect world, the Federal Reserve Bank should have kept interest rates high enough to deter the market riggers and perception distorters in the vein of Paul Volcker (now marginalized for obvious reasons). In other words, the tools to rectify the economy are within government’s grasp.
The government needs to fight the perception, put out by a complicit media, that doing the right thing is somehow counter productive. America needs to stop worrying about what the rest of the world perceives as its short comings and focus instead on taking the necessary actions required to give markets what they need to restore vitality, transparency, and integrity across all the various trading platforms that comprise the backbone of our economy.