Chinese Market Manipulation at Work?
Several years ago I was brought into a secretive U.S. government agency. Senior people there had read my book Secret Weapon; How Economic Terrorism Had Brought Down the U.S. Stock Market and Why It Can Happen Again. They wondered if the mechanisms I had described could be used as a weapon against other nations. If so, how?
It is interesting that there was very little willingness in our government to look back at what had happened in 2008-09 or to examine the truths my team’s research had uncovered. Yet, there has been tremendous interest in examining how the mechanisms I described as being used against us then might be exploited against others as a weapon of economic warfare. Basically, this is a tacit acknowledgment that there was financial terrorism at work. Unfortunately, political agendas demanded that no one look back. I know this because I was warned not to look back. Threatened to be put in jail if I publicly revealed my research. Promised to be fully funded if I agreed to look forward only and not look back at 2008. There are, of course, examples where others have picked up the mantle of warning regarding future economic warfare while denying that any such activity occurred in connection with 2008. Those individuals have enjoyed great success. My opinion has been that the American people deserve the truth. They should know where their money went. And, we shouldn’t ignore the sage advice of Edmund Burke:
A few days ago the following video came to my attention. It features Congressman Alan Grayson from Florida. While I disagree with many of the political leanings of Congressman Grayson, I must say that I was impressed with his efforts to get answers regarding what actually happened in 2008-09. This YouTube clip from 2012 shows him asking the IG of the Fed whether or not she looked into why Lehman was not rescued (causing the crash) as well as what happened to $9 trillion of Federal Reserve money spent (in response to the crash). In short, where did the $9 trillion go? Shockingly, the Congressman discovers that no one was keeping track of all this money.
[By the way, in our 2009 Pentagon report, we outlined some $12 trillion of stimulus efforts including nearly $8 trillion from the Federal Reserve that were planned to fill the holes left by the 2008 collapse.]
All of this shows how little interest the powers that be had in looking backward despite the enormous cost and the ongoing and devastating repercussions. On the other hand, I can share that there was, and remains, tremendous interest in looking forward to the use of the very same weapons.
The Chinese first wrote about “a single, man-made stock market crash” as a new-concept weapon back in 1999. Now, according to press reports, they may be fearing that such a weapon is targeting them. From Reuters:
By Nathaniel Taplin and Samuel Shen July 3, 2015
SHANGHAI (Reuters) – Chinese stocks tumbled again on Friday, taking the week’s losses to more than 10 percent, as the securities regulator said it was investigating suspected market manipulation and announced a slew of measures aimed at heading off a full-blown crash.
After a slump of nearly 30 percent in Chinese stocks since mid-June, the China Securities Regulatory Commission (CSRC) has set up a team to look at “clues of illegal manipulation across markets.”
What weapon is at play? Again, from the Reuters article:
The China Daily newspaper said on Friday that the CSRC was probing investors who used stock index futures to “short” the market – or bet on prices falling.
Now there are some things to recognize. First, short selling had been mostly illegal in China until recently. Without short selling, the markets had created a serious bubble. But now, the bubble appears to be bursting and Chinese authorities are panicking.
We do not know if the declines in China are truly manipulation or the natural result of an overheated bubble beginning to burst. What we do know, however, is that a crashing stock market is devastating to an economy. We also know that man-made market crashes are not just theoretical. They are actual weapons. Whether via manipulative (naked) short selling or altering computer algorithms, crashing a stock market is one of the most powerful ways to take down an adversary with little risk of blowback due to the difficulty of attribution.
Consider this from Automated Trader:
Kristian Kristiansen from QuantAlliance believes algorithmic trading could be weaponized for financial warfare.
29 June 2015
Oslo, Norway – Kristian Kristiansen of Oslo based QuantAlliance said that although cyber attacks in general have been in focus for a long time because they pose a known threat, financial warfare is new and it’s getting more and more attention. Although important financial markets are heavily protected against cyber attacks, he believes there is a very big difference between classic cyber attacks targeting financial markets and financial warfare.
“A classic cyberattack is like a physical attack on a person, ” said Kristiansen, “we can protect against this by wearing armor or by hiding from the attacker. But algorithmic warfare is like trying to protect a person from his own thoughts. Its impossible. You can’t protect a financial market against algorithmic warfare because the attack would be performed by the market itself from within and there is no way to regulate a way out of this.“
The flash crash in 2010 created a loss of almost a trillion dollars in a few minutes and showed how fast a market can be manipulated from within with devastating consequences. What Kristiansen finds scary is that his team of developers would easily be able to build an algorithm with the single dedicated purpose to crash a financial market as in 2010. He states that there are several techniques that can be used to trigger blue chip algorithms with large amounts under management to start selling, and there is no way to protect against this because algorithms follow the market and each other.
The Flash crash in 2010 recovered fast, but Kristiansen says that in a direct attack scenario this could be prolonged or even prevented by manipulating the market from several sources and attacking different markets simultaneously. He estimates this could prolong the crash for hours, days or even longer, and leave a negative psychological effect preventing a recovery as in 2010.
The Chinese are discovering first-hand the implications and devastation possible with a stock market crash. We know they have developed similar weapons to be used against their adversaries. By our government’s ignoring what happened in 2008-09, we have failed to build proper defenses for our markets. On the other hand, there was active interest in developing offensive capabilities.
Our stock market is near all-time highs in the context of an extremely turbulent global economy. Isn’t it time we learned the lessons of history rather than remaining doomed to repeat them?
Originally posted on Global Economic Warfare.