Sympathy For The Devil?

In our recent report, Banks Are Evil, we pulled no punches in making the accusation that the financial system is the root cause of injustice in today's society.

It's a good blood-boiler. You should read it if you haven't already.

Its main premise is this:

In my opinion, it's long past time we be brutally honest about the banks. Their influence and reach has metastasized to the point where we now live under a captive system. From our retirement accounts, to our homes, to the laws we live under -- the banks control it all. And they run the system for their benefit, not ours.

While the banks spent much of the past century consolidating their power, the repeal of the Glass-Steagall Act in 1999 emboldened them to accelerate their efforts. Since then, the key trends in the financial industry have been to dismantle regulation and defang those responsible for enforcing it, to manipulate market prices (an ambition tremendously helped by the rise of high-frequency trading algorithms), and to push downside risk onto "muppets" and taxpayers.

Oh, and of course, this hasn't hurt either: having the ability to print up trillions in thin-air money and then get first-at-the-trough access to it. Don't forget, the Federal Reserve is made up of and run by -- drum roll, please -- the banks.

With their first-in-line access to this money tsunami, as well as their stranglehold on the financial system that it all runs through, the banks are like a parasite feasting from a gusher on the mother-lode artery.

It should come as little surprise that, with all this advantage they've amassed, the banks have enriched themselves and their cronies spectacularly. They have made themselves too big to fail, and too big to jail. Remember that their reckless greed caused the 2008 financial crisis, and yet, in 2009, not only did bankers avoid criminal prosecutions, not only did the banks receive hundreds of billions in government bailouts, but they paid themselves record bonuses?

And the bonanza continues unabated today. By being able to borrow capital for essentially free today from the Fed, the banks simply lever that money up and buy Treasurys. Voila! Risk-free profits. That giveaway has been going on for years.

Couple that with the banks' ability to push market prices around using their wide arsenal of unfair tactics -- frontrunning, HFT spoofing and quote stuffing, stop-running, insider knowledge, collusion, etc -- the list is long. James Howard Kunstler is dead on: we don't have a free market anymore. Instead, we have rackets, run by racketeers. The rest of us are simply suckers to be fleeced.

But all is not roses if you're a banker these days. Even within the evil machine, there is great disparity in how the plunder is being divided.

Bad Times For Bankers?

A guy I've known since childhood works on the 'sell side' (investment/commercial banking, stock brokers, market makers) and has been telling me how cutthroat things have become over the past few years. The pay structure and job security have deteriorated notably. And he says the same is true for many of his colleagues on the 'buy side' (hedge funds, asset managers, institutional investors), too.


Even with enjoying the "unabated bonanza" described above, even with the markets back partying at all time highs, things are getting worse for many bankers?


And while I personally can't conjure any sense of empathy for these poor devils, it looks like things are going to get even harder for them.

So what's going on here?

Well, it's mostly a story of the banking system's plundering ways coming back to bite it.

Capital Is Fleeing From Active To Passive Funds

First off, by flooding world markets with over $12 Trillion since the Great Recession, the central banks have pretty much destroyed "alpha".

Alpha is the "excess return" that fund managers' fees are based on -- i.e., "you're paying more for a smart guy like me to 'beat the market'". But when a tsunami of liquidity rises all boats at once, it's that money flood (i.e. the central bank money printing) that drives valuations. And its influence is so much larger than any other factor that it's really the only factor that matters. Great and crappy companies alike rise in price -- the "fundamentals" that fund managers use in their analysis become useless.

Which is why 66% of large-cap active managers failed to top the S&P 500 in 2016, and why 90% missed their benchmarks over the past 15-year period.

So it's no wonder that investment capital is fleeing from actively-managed funds to passively-managed ones. If the passive funds have much lower fees AND they perform better than the actively managed ones, why the heck shouldn't money flow into them?


A buoyant start to the stock market in 2017 couldn't stop investors from ditching actively managed funds.

The trickle away from stock pickers and toward indexes has turned into a flood, with more than half a trillion dollars heading into passive funds over the past 12 months, according to Morningstar.

Active management in total saw $13.6 billion in outflows for January, mitigated only by net inflows to bond funds, Morningstar said. U.S. equity saw $20.8 billion in outflows, bringing passive management closer to parity when it comes to domestic stock funds.

By contrast, passive management saw just shy of $77 billion in inflows. U.S. equity funds, which track broad indexes like the S&P 500 and its sectors and subsectors, pulled in $30.6 billion for the month.

Overall, actively managed U.S. equity funds now hold $3.6 trillion in assets while their passive counterparts hold nearly $3.1 trillion. All classes of passive funds have seen inflows of $563 billion over the past year, while active funds have suffered $325.6 billion in outflows.

"The massive exodus from actively managed U.S.-equity funds continued in January," Alina Lamy, Morningstar's senior analyst for quantitative research, said in a statement. "The tidal wave is showing no signs of stopping, threatening all but a select few and making active investing a dangerous ocean to swim in."

The result of this is tremendous mounting pressure for active managers to reduce their fees. Lower fees being charged on shrunken fund pools obviously affords fewer asset managers, who in many cases are now working for less compensation.

Keep in mind, between just the ECB and the DOJ, nearly $200 Billion of additional liquidity has been -- and continues to be -- injected into world markets each month(!). So, as the above article says, don't expect the tidal wave of capital fleeing actively-managed funds to stop while the central banks' liquidity spigots are still flowing.

The White-Collar Cost Of Automation

Finance was one of the first industries to embrace the automation boom, given the obscene profits that could be made. In his book Flash Boys, Michael Lewis described how the arms race of high frequency algorithms literally changed the game in terms of how financial instruments are traded -- and made $billions upon $billions of unfair profits for the big banks that invested in the technology.

Well, many of the bankers who cheered the boost the machines gave to their annual bonuses aren't cheering so much now. You know what algo-driven markets don't need? Human traders.

Below is photo of the UBS trading floor from 8 years ago, contrasted with one from this year (source: Zero Hedge):

8 Years Ago


Per the Wall Street Journal:

Technology is replacing people on trading floors and in the middle and back offices where trades are checked, confirmed and settled. Some of this is to give investors an edge in markets with computer-driven tools such as algorithmic and high-frequency trading.

But technology also means more work can be moved offshore or to cheaper locations. More reliable internet links with India, for example, mean people can work together on the same documents or files in real time.

The total number of people employed by all kinds of banking in the U.K. has fallen 22% from its precrisis peak in 2008, or by about 120,000 jobs, according to data from Britain’s statistics office.

Here's another stark example:

Goldman Had 600 Cash Equity Traders In 2000; It Now Has 2

For the dramatic impact of technology, and specifically trade automation from algo, quant and robotic trading  on today's capital markets, look no further than Goldman's cash equities trading floor at the firm's headquarters which, according to the MIT Tech Review, employed 600 traders its height back in 2000, buying and selling stocks for Goldman's institutional client clients. Today there are just two equity traders left.


As warned of in our earlier article Automating Ourselves To Unemployment, jobs lost to automation don't come back. More than that, the technology itself lowers the cost structure, ultimately lowering industry profits as other competitors invest in similar tech and the margins are competed down:

Structural changes to the equities business over the last several years, such as the rise of electronic trading, have knocked off around $15 billion from the equities fee pool, according to a report from Morgan Stanley and management consulting firm Oliver Wyman.

Electronic trading has dramatically increased trading volumes, while making the cost of trading much cheaper.

Oliver Wyman partner Christian Edelmann, who co-authored the report, does not see those revenues coming back. "Once the equities model has become technology driven, that's not going to change," he said.


A Cultural Shift To Cost-Cutting

And the jobs cuts aren't just related to technology. As profit margins are squeezed, players in the financial industry are looking for any and all reasons to cut costs. 

A current victim of this trend is equity research. For decades, sell side firms like the investment banks offered their clients "expert analysis" from their research departments. Historically, that was bundled into the bank's overall fee it charged its clients.

But now, increasingly cost-conscious clients are demanding to know how much that research is costing them. Especially since almost all of that research doesn't even get read. A recent Reuters article showed that of the 40,000 research reports produced every week by the world's top 15 global investment banks, less than 1 percent are actually read by investors.

It's long been a poorly-kept secret that the research departments were a dependable vehicle for investment banks to bilk their clients for unnecessary profit. Now it looks like that ruse is over. And billions in revenue per year along with it:

Banks have already been trimming their research budgets. Spending on research at the top investment banks fell by just over half to $4 billion in 2016 from $8.2 billion in 2008, according to Frost Consulting.


An industry long known for its "Wolf of Wall Street" culture of excess is now counting its pennies. That's a very significant perception shift.

A Sign Of The End

What's important about all this is not sympathy for the poor bankers who have to accept lower wages or a pink slip. Consciously or unwittingly, they've been foot soldiers for a cabal that's done the greatest evil towards global human rights and prosperity over the past century. Personally, I'll happily take a front row seat, open up a bag of popcorn, and delight in the schadenfreude of watching that industry collapse on itself.

What is important is what all this tells us about where we are in this story. We are now getting close to the end.

For decades and decades, more and more sharks found their way into the financial industry. And for decades and decades, there was plenty of prey for them all to feast and fatten on.

But now we're at the point where there's much less to prey on. So the biggest sharks are now turning on the smaller ones. Those at the top of the industry are trying to preserve their share of the pie -- and if they have to do so by cannibalizing those below them on the org chart, so be it.

It has now become a shark vs shark world.

That's important. 

This is happening, mind you, at a time when the banks are in their 8th straight year of enjoying practically-free money from the world's central banks, which is essentially a great wealth transfer from the public's coffers. And at a time when financial assets have been re-inflated to all-time highs.

If things have reached this cutthroat a state when Wall Street is booming, imagine how much more gruesome this "eating their young" dynamic can/will become during a market downturn.

We're at the point where those at the apex of power are becoming increasingly desperate to maintain their unfair advantage. And as the economic pie refuses to grow due to the twin overload of too much debt and declining net energy, these apex predators will turn on each other -- first to maintain their spoils, and then simply to survive.

Things will get nasty in a hurry during that stage, as we warned about in our recent report: Positioning Yourself For The Crash.

While you still can, you want to make sure the bulk of your investment capital is positioned for safety, and you want to make your lifestyle as resilient as possible so that, no matter what jarring developments the future may bring, you and the ones you love are least impacted by them.

Click here to read the report (free executive summary, enrollment required for full access)

This is a companion discussion topic for the original entry at

I’m on the buy side and agree with almost all of this. But don’t think for a second that sell side market makers are viewed with respect within the industry. They have been considered blue collar for years by higher ups.

It was inevitable the infighting would start when we are in a depression. The scary thought is how much has been automated via computers using linear algorithms. No bid crash upcoming. Markets will close for months.

After looking through Zero Hedge this morning (Saturday), I find myself joining you Adam with another bag of popcorn -
The French Presidential Election tomorrow - despite all the prognostications about Macron winning comfortably this time and Le Pen winning in 2022, what happens if they are not right?
The effect may be pretty catastrophic for the Euro, but what about sovereign debt? The European Bankers? Other bankers? (Which as you point out, are having a hard time and barely keeping it under control as it is.)
Oh dear.
(P.S. Already gone through the resiliency list and completed as much as possible.)

When the computers do all the trades there will be just numbers going back and forth no profit to be made, oh how the mighty will have fallen.

When it comes to the rank and file workers of the banking system, I’d imagine they are largely ignorant to the goings on up above, like most others.
For the executives and central banksters however, perhaps they might find sympathy somewhere between shit and syphilis in the dictionary?

Check to get an idea of what it feels like when your bank goes down.
I don’t know if this bank is a canary or a domino, but I do know I don’t ever want all my eggs in one basket.

As odious as the banking sector is, and it’s pretty bad unless you are a fan of parasites that have not yet evolved to the point of understanding the limits of their host, the health-care racket is possibly even more evil.
To take sick people, under duress, and gouge them to the maximum extent their personal bank accounts can manage and then toss them into the bankruptcy dumpster is beyond odious, it is immoral and sociopathic.
Today’s fun fact involves the number 130 million:

In the wake of Congressional Republicans’ failure to drum up support for their health plan last month, the White House is negotiating to put repeal of the Affordable Care Act, or ACA, back on the table. While the previous proposal would have already driven up health care costs and stripped millions of coverage, the new proposal is rumored to include provisions that would undo protections for the more than 130 million Americans who have a pre-existing health condition. (Source)
I can only assume that the "pre-existing condition" involved here is "something left in their bank account." How is it even possible that the new health care plan includes driving up costs for nearly everyone? We've already endured 25% to 60% increases each of the past three years, depending on which state you live in. Janet prints up money and hands it directly to the wealthiest bankers and well-connected members of society and then Congress turns around and shafts the the lower and middle classes every time it passes a bill that more deeply enforces whatever racket is involved. So my question is; are they trying to start a civil war? Because, if not, they are laying dry wood around a monument labeled 'social unrest.'

Aloha! I would like to see certain occupations of the Kakocracy listed as “pre-existing psychotic conditions” … like banker and career politician!
On another note … where do we draw the line? So this makes all 320mil Americans “pre-existing”! At what point do we look in the mirror? Or can I qualify to have a “behavioral health disorder” by saying I voted for Trump? Half the country would say … YES!

As a society we are in deep trouble once other people’s money runs out!

Great article once again Adam. Thank you. Very informative. I do have a question however. You mention in the article that central banks are privately owned. That sparked my interest. We know this to be a fact for the US Federal Bank but what about other central banks around the world? Who owns them. A quick google research yielded numerous sites that claim they are owned by the Rothschild’s or some other wealthy family/cartel. However these claims are not backed by solid evidence from what I can see. And one reason why I like so much is because it is grounded on facts. So do you have any evidence on the ownership of other central banks around the world? At least the most important ones Japan, Canada, France, England, Swiss, China, etc. I know that the Bank of Canada (or at least I think I know), my own country’s central bank is a crown corporation which I believe means that it is owned by the Canadian government and thus the public. ( Now whether the bank is managed for the greater good or to line bankers pockets is another question) but again where if anywhere can one find reliable information about the ownership of other central banks? And if any Canadians out there know better about our own CB, (what does being a crown corporation really entail? to whom do you answer and by which mechanism? please feel free to enlighten me but please using solid facts and references.
Cheers to all and may this grotesque mascarade which parades as the truth hopefully ends sooner than later. I am getting exasperated of waiting.
PS. I would be more than glad to hookup with other Peakprosperity minded folks in the Quebec city area (Canada) if there are any out there for moral support for one, constructive exchanges for another and finally to see what kind of actions we could collectively start doing to get the public conversation going in a new direction and start experimenting on new ways to build healthy, sustainable, human-centered communities.

Maryland’s largest insurer Carefirst is requesting a 50% increase on individual policies for 2018.Cigna health 37.36% and Kaiser of the Mid-Atlantic States is requesting 18.08%.According to the Baltimore Sun one third of residents purchase individual policies.I live in the North East and the numbers haven’t been run yet…Kinda like the art of the deal.throw it all against the wall and see what sticks…

If we are to get anywhere in resolving the care of illness then this country [USA] has to decide if this is a personal or social responsibility. Physicians are expected to ‘do no harm’, but they are no longer in direct relationship with their patients. Having the financial aspect (whether insurance private interests or socialized public interests) between the provider and the patient lets both doctor and patient off the hook. Doctors are expected to provide the best care money can buy since the patients are removed from financial pain, and the patients don’t have any financial incentive for preventive habits.
As long as the corporate financial interests are between the two parties the racket will continue. If we expect our great Uncle Sam to be the money source then we must also be willing to let others (some board or bureaucrat) to decide what constitutes good health care.

In addition to is other “wonderful” provisions, the proposed healthcare legislation removes the caps on CEO compensation. You can’t recruit sociopaths to run your companies unless they can get obscene amounts of money doing it.

Indeed it is.
speculation: If there is ever a way to end the racket I think there will be many retired and semi retired doctors and nurses who would go back to work in a more ethical system where they can help people and not the bottom line/corporate system.
The pre-existing condition clause used to require a 1 year period of no coverage for pre-existing conditions if there was a gap in coverage. Getting rid of that was one of the true gifts of the ACA. Bringing that back could leave the majority of us without coverage for quite a while so your point is well taken.
Expect more senior clinicians to leave clinical practice because they will be in the impossible position of being unable to help people when they’re supposed to care for them. And their hands will be tied. We bought into managed care in the 80’s and that was the real trap. And as much as people don’t like it most physicians and nurses really are trapped in the system. Not blameless as a group but trapped.
Anecdote: Some people may think it is good to have fewer doctors. The ones I know who have mostly dropped out in their 50’s are the ones you want to see stay. Family docs who are smart, aggressive and compassionate. Neonatal specialists who are dedicated to patient care. The kind of people who fight for their patients. A pity.

SNB goes on buying spree and loads up on Apple, Alphabet, Microsoft stock.

[W]e are long beyond the point of debating the central bank intervention in equity markets (we do want to remind readers that until several years ago, it was considered "fake news" to even mention it, and those who accused central bankers of manipulating stock markets were said to be paranoid tinfoil basement dwellers), we want to point out that unlike the BOJ, which at least keeps its capital markets distortion local, the SNB, which likewise creates money out of thin air (then sells it for dollars in an attempt to keep the Swiss franc depressed) is actively resulting in even greater price distortions in the US.
The chart above may also explain why Goldman is bullish on the Nasdaq 100: after all, when a central bank can and does create money out of thin air, then splurges on the company [Apple] that accounts for 12% of the weight in the Nasdaq, pushing the Nasdaq and all indices higher, what is the point of even talking about "risk"?
----And a favorite comment below the article from "I woke up":
How to get people to agree to go to war. Central banks inflate portfolios by directly buying stocks. They coordinate pulling the plug, blame it on the Russians or Chinese. CB's rob everyone blind and the wrath of the people goes to whoever the media deems the culprit

OK, I must admit that I’m a big fan of the Comedy Channel’s South Park. Does that make me a perverted Baby Boomer? I would love to see them do a full-fledged movie where their Satan character is a Wall Street bankster who is at war in hell with his one time boyfriend, Sadam Hussein. The creators of the show would somehow have to work in how Iraq was invaded by the US (owned by WS banksters) because Hussein wanted to switch from the dollar to the euro. It sounds like it would be a challenge to make it funny, but I think those comic geniuses could pull it off.

My esteemed Senator…Mazio Hirono (D), just finished a “town hall” meeting on Kauai, broadcast on our community radio station (Yeah,!), and was asked about 15 questions. I would have reamed her on her answer to every single question asked of her- all questions were thoughtful and concerned, most showed hopeful ignorance. All answers by her were drivel- Citizens United “is not sustainable for communities” what ever that means. When asked twice about the Sick Care Bill, no one thought to ask her how she felt about HER current policy. Pity. Aloha, Steve.

So America is definitely a sick country. If the Republicans pass this monster, and it does indeed raise costs for everyone (and/or it freezes people into their existing jobs because they can’t change - to change means to have to be accepted under the new company’s insurance policy), then I predict the destruction of the Republican party as it exists today.
Seriously. The only reason they won is because people kind of forgot what they were like, and the hope was that Trump might be different. Once they are seen as the “cartel harvesting machine”, that will be the end of them.
We really need public healthcare. People with pre-existing conditions should not be in the “insurance” market, any more than someone who has a house that’s on fire should be able to get fire insurance. Insurance is to protect against something that hasn’t happened yet.
The core problem is that the “cash” medical pricing system is absurd. In other countries, I go into a hospital, and they have list prices for tests, procedures, and whatnot. It’s not some mystery how much things will cost. I can comparison-shop. (I’ve actually done this). But that’s not possible in the US, because prices are top secret. And so as a consumer, either your insurance pays some secret amount, or you end up bankrupt. So the entire focus of everything is making sure your insurance pays.
Bottom line: the desire to cover pre-existing conditions is really a desire for some mechanism that protects people from our current predatory sickcare system with its sociopathic pricing models. The real fix is to require public, consistent pricing for every procedure so we can have competition, and at the same time provide a basic level of public healthcare for citizens to cover the common things that go wrong, like having babies, broken arms, and auto accidents.
Trying to fix this thing through the insurance mechanism is wrong, I think. You can’t insure a house that’s on fire for a very good reason: everyone will game the system - nobody will get fire insurance until their house actually catches fire.
Every other industry requires that participants charge consistent prices for all their customers. Secret pricing is illegal. But not in sickcare. We should start by fixing that.
Public healthcare would absolutely gut the insurance industry. They’d be forced to actually compete. People could live lives without them, because basic healthcare would be provided, and “extra care” would be provided for a “list price” that you could shop around for. The focus on making sure “insurance” will cover all those pre-existing conditions would vanish.
I’ve actually seen this work in other countries.

Wouldn’t it be novel if you knew what something costs before you bought it? Conversely, wouldn’t it be great if you had some idea of the value of a particular medical procedure before considering if you would subject yourself to it. I’ve always like the ancient Chinese model of doctors being paid when people are healthy, and not paid when people are sick. Perhaps free access to marijuana, Oxycontin and Prozac would reduce the number of medical complaints and be a far cheaper approach to self-medication?
There are better “health care” systems in this world if Americans want some suggestions.

Max Keiser recommended that film. It’s a bit dry, but details the control mechanism used to derail prosecution of the “too big to fails”. A bit of an inside view of how the banking cartel operates. I put this in the morbid curiosity category.
I agree with the opt out policy, I think that it is the most powerful action we can take. As Catherine Austin Fitts recommends, get the banking warfare tapeworm out of your life. But leave all options on the table, especially local activism. couldn’t agree more with the comments about the medical racket. The ACA was written for and by the insurance industry, which is why it is structured the way it is. They did throw a few bones to the poor guy on the street, but not enough to keep the thing from sinking under its own weight.
We are definitely living the curse of “living an interesting life”.