If the source code is in the wild, Goldman Sachs is forced to stop all related real-time trades, because their strategy is completely exposed, and once somebody exploits it, they will lose money really quickly. (Just imagine how many transactions they can make per second, and imagine every one of those transactions lose some money in average.) That means they get forced to leave the market until they develop a new trading system, or at least, re-develop their strategy. That costs a lot of money because they have to stop doing investments and leave the money some place safe. —…
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Thanks go to twist for passing along this recent NY Post exercise in scare mongering.[1] Well, while Cass is busy ramping up his vasty conspiracy to end free speech in the blogosphere, I thought I’d spend the morning in idle and mischievous speculation about The Goldman Sachs code case. I don’t think the issue is all that complicated.  Looks like some US judge in New York will have to decide between the following two scenarios: Serge Aleynikov was merely uploading the latest fixes to his Open Source fast computer communications libraries — OK, everyone take a Valium; Common Law protects…
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I believe the SEC and FBI must direct a subpoena at all market exchanges for an under-oath answer … If the answer … is "yes" then every market participant who had or has equipment colocated on the NYSE infrastructure must be immediately served with a subpoena for a true and complete copy of all software operating on every machine connected to said infrastructure for immediate forensic investigation to ascertain if any participants were indeed "sniffing" traffic and front-running orders. [1] — author is quoting Denninger The game’s afoot, Doomers.  Look’s like I was correct after all to pick out vets74′s…
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Our story so far … Citadel and GS are two thriving Japanese restaurants.  Lotsa customers.  Opening nights, the stars come in after for the sashimi fugu.  Rolling in dough, so much that the local wiseguys even noticing.  Profitable, yep, but complicated to manage — a real hairball. Citadel’s top knife-wielder, guy named Misha, decides he can do better independently, so he and a couple of his buds leave and start planning to open a competitor called Teza.  Through the grapevine they hear about a pretty good sushi chef across town at GS, name of Sergey.  Teza courts Sergey and he…
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Doomer V, who sent it along, thinks that this has a most fragrant odor to it. We’re not sure what it means that yesterday the Fed started loaning out agencies, but given that the cenbank Agency Debt holdings number we’ve been following here turned into custard 6 months ago it’s highly likely some further mischief is afoot. Meanwhile, the rather quaint post- 9/18 ’08 spectacle of early 1930s Soviet-style central planning by committees of Wall Street financial lobbyists is proceeding as usual. Twist sends this announcement of FHFA’s first Five Year Plan (PDF). This story arc would be funnier if…
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Doomers, I have a really bad feeling arising out of this recent ZeroHedge comment. . . . . . … But there is a potentially nasty side-effect to this strategy: it seems to make the market essentially isomorphic among all asset classes. At this juncture, it does not seem too big of a stretch to assume that there are algorithms A1, …, An trading against each other. Each one has a (probabilistic) trading strategy, say S1, …, Sn. Eventually, they should end up in equilibrium, according to elementary game theory (Nash eq.). … by induction we’ll end up with only…
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Earlier this week, following a rousing celebration of Rorke’s Drift and a moving performance of I Vow To Thee My Country, I found myself 40 feet above a sea of ceremonial weapons and dry ice smoke looking down the long axis of a hockey arena directly into the eyes of Peter MacKay.  Two thoughts: short of mutiny, we’re not really leaving in ’11, are we sir? with a roughly 130-year offset, the post-Hiroshima New Victorian colonials are living out the same classic story arc as our post-Waterloo great-great-great-… grandparents; that places us squarely at the beginning of another post-1873 Long…
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Apologies all around to Doomers who have been putting up with my silly sidebar comments to the sillier stories on the Sergey Aleynikov story to now.  As an excuse, I submit that as an obsolete burned out former techie who wasted much of his career doing things like trying to make MRPG work or (this one mildly successful) adapting Pascal source with MASM exits into an ANSI PL/I program to implement LZW compression on Multics multi-segment files (sorry about that, Mr. Sperry!), I sensed from early on that something important was going to come out of the Goldman IP affair. …
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It’s been a very weird Goldman Sachs day. . . . . . .

Japanese mortgages are recourse loans, meaning the borrower is still liable even after foreclosure. Depending on the state, most banks in America offer nonrecourse loans, which are secured by collateral, usually the property itself. Once they foreclose, the borrower’s debts are gone. If you default on a recourse loan, you’re messed up three times: you lose your home, you lose all the money you sunk into it, and you still have debt. Wait, make that four times — your credit rating is garbage. Wow!  Sounds like Japan doesn’t have to worry about The Danish Model. Doom once again thanks the…
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NEW YORK, June 29 (Reuters) – The New York Federal Reserve said on Monday it will buy agency coupon securities maturing from Jan. 2016 to July 2032 in an open market operation on Tuesday. [1] America’s a great country.  Unique too.  Part of that exceptionalism is that it’s the only decent sized country on the planet that doesn’t actually have a central bank.  If my garbled understanding of US history is any guide, they tried having one a couple of times, but public opinion, driven by Andrew Jackson era populism, made the project impossible.  Then 99 years ago a cabal…
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Igor regrets to inform Doomers that the Versus Gang is Back . . . The above homepage link will provide better quality than the following embed for many viewers. .

“The Fed is reminding the hyperventilating bond market that it needs to relax,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Inflation will be low for some time because the economic weakness will be with us for a time. They are not about to start to thinking about an exit strategy.” [1] The above is an example of jawboning, the term a wonderful allusion to an Old Testament story. That, combined with an inability to actually do anything is what we at the Castle sometimes refer to as Ben’s state of Flexible Paralysis….
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Here’s thoughts on Danish-style mortgages that expand on what I wrote in note [7] to Saturday’s AEI Subprime Danish: (nearly) Complete Annotated Transcript. I originally drafted a version of the following for some private correspondence, but on reflection thought I’d stretch a point on my "retirement" from active comment to share it with Doomers generally. In the March 26th seminar, George Soros associate Alan Boyce described (from appoximately minute :06 to :36 in the transcript) his ongoing efforts to introduce Danish mortgage practice into Mexico, and outlined how it might be applied to the United States. Discussants describe with relish…
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