How the One Percent Is Stealing Your Money in the Stock Market

What happens when you buy shares on the stock exchange? Probably not what you expect. The moment you click “buy” on your broker’s website, you think that the computer sends your order to the exchange with the cheapest seller, thus finding you the best available deal. You think that the broker has your best interest at heart. They are, after all, working for you. You are paying them a commission. And you are living in America, the land of “everyday low prices.”

But you have been misled.

You are not the only one competing for the broker’s attention. Every exchange wants their business. There are multiple exchanges — the New York Stock Exchange, Nasdaq, BATS, Direct Edge, and a handful of others — and almost every stock trades on all of them. So your broker can find a seller for the shares you want to buy on any one of them. Some of them charge the broker a fee for using their exchange, and some of them, like BATS, actually pay the broker. If you were the broker, where would you want to do business?

The only problem is, the exchange that the broker wants to use may not have enough shares to fill your entire order. So you may want to buy 1,000 shares at $30 apiece, and the New York Stock Exchange may have a seller who’s offering 1,000 shares at $30 apiece, but instead your broker goes to BATS, where they get a kickback. This is a problem because BATS only has 100 shares to sell. By the time your broker goes to another exchange to fill the rest of the order, the other traders in the market have seen your first transaction, and they’re guessing that you’re coming back for more, and so they buy shares on the other exchanges before you get there, and they sell them to you at a higher price. These guys are called “high-frequency traders,” and they’ve rigged the market so they see what happens a fraction of a second before the rest of us. Maybe you got 100 shares for $30, but the next 100 cost you $31, and the 100 after that cost $32. It’s as if you walked into Wal-Mart, saw hot dogs for $3 apiece, and by the time you got to the register, they changed the price to $4, and it was too late for you to put them back.

This is the story of Flash Boys, the latest blockbuster book by Michael Lewis, the writer who brought you The Blind Side and Moneyball. Like his previous books, this story is true, and Lewis has the interviews to prove it.

Cost of Wall StreetThis stuff is no better than the traders who manipulated the market with inside information and collusion tactics in the 1920s. Back then, that kind of behavior wasn’t illegal, just like high-frequency trading isn’t illegal today. Back then, it took a Congressional investigation to show the public how the wealthiest among them were defrauding the masses, lying about the investments they were selling and reaping a handsome bonus before it all came crashing down. Today, all it takes is an intrepid reporter with an Internet connection, but the revelation is the same: The market is rigged, and the public has been lied to about the investments they’re making.

Flash Boys is part of a larger story. It is only one of many ways that the richest among us have been siphoning an increasing share of wealth from the masses since at least the early 1980s, if not earlier. It is confirmation of the argument I made in my book Letter to the One Percent, that the “financialization” of America has not been beneficial to most of us, that on the contrary it has taken advantage of our ignorance and our weakness, and that the economic troubles that plague our land — everything from slow growth to low savings to frequent crises — will not stop until the balance of power shifts away from the plutocrats who prey on average Americans like you.

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This op-ed was published in today’s South Florida Sun-Sentinel and Huffington Post.

A Lesson in Power, Courtesy of the Bangladesh Garment Industry

The bodies have been placed in coffins. The mourners have draped themselves in black.

It was one of the deadliest industrial accidents in history. Over 100 people died in that clothing factory.

It made headline news all across the world. Surely you’ve read about it by now.

When they tried to escape, the factory workers found the doors locked. It was standard practice at the sweatshop. The managers didn’t want the workers to take unauthorized breaks.

So they burned alive.

Louis Waldman happened to be nearby when the fire started. He followed the sound of pandemonium until he reached the blazing factory. He told the New York Times what he saw: “Horrified and helpless, the crowds — I among them — looked up at the burning building, saw girl after girl appear at the reddened windows, pause for a terrified moment, and then leap to the pavement below, to land as mangled, bloody pulp. This went on for what seemed a ghastly eternity. Occasionally a girl who had hesitated too long was licked by pursuing flames and, screaming with clothing and hair ablaze, plunged like a living torch to the street.”

You probably think I’m talking about the garment factory in Bangladesh, where 112 people died last weekend. But I’m not.

I’m talking about the Triangle Shirtwaist Factory in Greenwich Village, New York.

The date was March 25, 1911. One hundred forty-six people died that day.

New York City wouldn’t experience another disaster of that magnitude for another ninety years. That date would be September 11, 2001.

It’s hard to believe that such an atrocity happened right here in our own backyard. We’ve become so accustomed to workplace regulations and civil negotiations that we’ve forgotten what factory life was like before the Great Depression.

Back then, labor unions were even rarer than they are today. Most strikes ended at the barrel of a gun. The company would call the governor, and the state militia would send soldiers to force the strikers back to work. It wouldn’t be uncommon for them to kill and imprison dozens who stood in their way.

The history of our great nation is littered with epic labor battles. Hundreds, maybe thousands, of Americans died defending their right to negotiate as one union rather than as helpless individuals.

It doesn’t take a PhD in economics to see that an individual worker doesn’t stand a chance of a fair negotiation with a $237 billion corporation like Wal-Mart, especially when unemployment is high. The corporation has so many applicants to choose from. It has all the power.

It’s that kind of power that allowed the Triangle Shirtwaist Factory to lock the doors and trap its workers.

That sort of thing doesn’t happen in America anymore, but it’s not because corporations had a change of heart. It’s because the Great Depression motivated Congress to stand behind workers who wish to form labor unions. It’s because the federal government stopped sending soldiers and started sending election supervisors. It’s because they investigated factory conditions and created laws to prevent the loss of innocent life.

This is what our government does. It’s what sets us apart from the destitute places of the world, where good, hard-working people have no protection from the warlords and factory bosses.

In the depths of the Great Depression, Americans watched the Congressional investigation of Wall Street with horror, as the wretched abuses of unregulated banks came to light. The great columnist Walter Lippmann summed up the national mood when he wrote, “No set of men, however honorable they may be, and however good their traditions, can be trusted with so much private power.”

Something to remember when the One Percent refuses to pay the taxes they paid in the booming 1990s, or when they blame the demise of the Twinkie on unions who took pay cuts while executive compensation was soaring.

The 99 Percent isn’t asking for a lot. An hourly wage that doesn’t leave their family in poverty would be nice. A guarantee that Social Security and Medicare will still be there when it’s their turn to retire. Maybe a few public schools that aren’t crumbling to the ground.

You know, the things that separate us from the Bangladesh’s of the world.

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This op-ed was published in today’s South Florida Sun-Sentinel.