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A Rebound Without Recovery

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Posted on Jul 28, 2009
Collage: Flickr / david.nikonvscanon and Staples.com

By Marie Cocco

    So is there good news, or bad? Are we poised for an economic rebound or are we perched on the edge of another unnerving cycle in which Wall Street analysts—along with politicians with a huge stake in talking things up—try to chat us out of our funk?

    Goldman Sachs, fresh from returning the $10 billion infusion of taxpayer money that helped keep it afloat during last fall’s credit crisis, posted a record-breaking $3 billion profit in the second quarter. That’s enough to dedicate nearly half the firm’s revenues to compensation—that is, to the eye-popping salaries and obscene bonuses that we’ve been led to understand were one cause of the financial and economic meltdown. Nonetheless, Goldman’s good fortune is good news for New York limo drivers, landscapers, bartenders, nannies, real estate brokers and home-improvement contractors. Sometimes a torrent really does trickle down.

    Meanwhile, Wall Street analysts are raising profit forecasts for U.S. companies at a pace not seen since April 2007, according to the Bloomberg financial news service. So things are looking up if you’re an executive who can boast of achieving those fatter profits, or even if you are a middle-class investor worried about your retirement portfolio.

    But then, there’s Staples.

    The office-supply chain sent me an e-mail advertisement just the other day boasting that it is offering 25-cent specials on some back-to-school supplies. Glue, pencil sharpeners, erasers, pens, pencil cases—a quarter is all it takes.

Advertisement

Square, Site wide
    As a leading economic indicator, I’m going with Staples.

    Nothing deflates irrational exuberance like retailers who are practically giving stuff away to get people into their stores. This is how things look in the real economy, the one in which unemployment is 9.5 percent—the highest in 26 years—and is expected to rise. This is the economy of pay cuts and freezes, reduced hours and workers whose employers who have stopped contributing to 401(k) retirement plans.

    Those upgraded profit forecasts that are such good news for investors are based on analysts’ views that business costs have been reduced so much that profits can rise. But the “costs” that have been pared amount to far more than free coffee in the break room. The cuts have come directly from layoffs, reduced work hours, pay freezes and benefit reductions that are going to continue dragging down the economy.

    That’s why the arithmetic of this recession still looks pretty dismal, and why the politics and psychology of it are starting to become disconnected from reality in a scary way. Scary because we seem ready again to declare that everything is hunky-dory—or soon will be—because certain elements of a rebound, notably those tied to investments, are becoming visible. This should really worry us.

    Because during the past decade, a recovery was declared successful even as it was detached from the larger mission of building an economy based on rising productivity and, most crucially, rising incomes, across a broad swath of society. For years it was a “jobless recovery’’—an upturn in overall economic activity that wasn’t based on job creation but relied heavily on more spending by those who already have jobs.

    Meanwhile, we seem poised for continued income stagnation among most workers. Even when the economy starts producing jobs, it is unclear whether business will hire back the same number of workers. The slack labor market will depress incomes, as workers eager for employment will accept lower pay and stingier benefits than those they may have enjoyed in the job they lost in the downturn.

    Where, after all, will even the most skilled autoworker earn comparable pay and benefits to those that were lost? Nowhere.

    From 2000 to 2007, households with working-age adults made no income gains at all, according to an analysis by Lawrence Mishel of the Economic Policy Institute. It’s the first time on record that there was an economic expansion that didn’t revive incomes. This contributed mightily to the credit crisis—as incomes stagnated, more and more people turned to riskier and riskier borrowing to fill the gap between what they earned and what they wanted to buy.

    It’s true there was an unacceptable cultural expectation that you can live beyond your means. But even in the era of 25-cent specials and two-for-one restaurant deals, families need a means to live. Only when we have that again can you believe anyone who says our economic nightmare is over.
   
    Marie Cocco’s e-mail address is mariecocco(at)washpost.com.
   
    © 2009, Washington Post Writers Group


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By ardee, December 23, 2009 at 4:10 am Link to this comment

For oldhip

During the Depression unemployment reached 25%. The figure you cite, 8%, would have seemed a miracle recovery.

http://ingrimayne.com/econ/EconomicCatastrophe/GreatDepression.html

http://wiki.answers.com/Q/What_was_the_unemployment_rate_during_the_Great_Depression

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By Cynthia J., July 30, 2009 at 10:46 am Link to this comment
(Unregistered commenter)

All this dissection and dissembling of the known facts about our Government’s compliant role in the duping of 90% of Americans doesn’t change one damn thing.  Look at the big picture, People, we are so screwed and it’s only going to get worse.  There’s no way the Economy can truly recover with this same old rape, scrape and steal model of dishonest Corporations owning every damn thing, including the American Public.  Unfortunately, most Americans are clueless to the injustice.  And, when they do, finally, get a clue, this poor Country will turn into total chaos and anarchy.  The Rich won’t suffer.  They’re alreading buying “compounds” all around the world.  We’ll be left to “eat our own.”  Scary, very scary!

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By oldhip, July 28, 2009 at 10:15 pm Link to this comment

During the “Great Depression” our unemployment was 8%... It is, right now, approaching 10% in 15 states… as of the last report I saw earlier this month.  (proof link 1)

But flush with our taxpayer trillions, given without restrictions or any controls at all, the bankers of course call It a “recovery.”  (proof link 2)

Why does my nation keep proving the thieves correct about us…?  (proof link 3)

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By G.Anderson, July 28, 2009 at 9:19 pm Link to this comment

It’s much cheaper to pretend that things are getting better, than actually making them better.

It’s also much cheaper to re inflate the bubble, than to actually, fill in the empty spaces with something real.

Pretty soon maybe people will believe that everything is ok again, and it’s time to spend money like there’s no tomorrow.

But believing in dreams is always easy, because it dosen’t take any guts to believe in them, no risk, no effort, delusions are real cheap.

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By Night-Gaunt, July 28, 2009 at 8:40 pm Link to this comment

New technology won’t do us any good if we can’t actually purchase it. However the racket in lease/buying seems to be working. You pay and pay and if you do actually purchase it the price is many times more than its actual worth. And if not you just give it back and the company still has made a profit. A win/win for them and lose/lose for us.

It isn’t a ‘rebound’ without a recovery. It is a shrinkage made to sound like a win. False in very way.

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By frank1569, July 28, 2009 at 7:28 pm Link to this comment
(Unregistered commenter)

GSachs took our $10 billion, bet on black, won, then returned the $10 billion.

So where’s our cut? Are we the dumbest loan sharks ever? At least a 50/50 split, right? Plus the vig?

We take all the risk and reap none of the profits? Oh, wait, right: “Frankly, they own the place.” Forgot, sorry.

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By ardee, July 28, 2009 at 7:07 pm Link to this comment

And Ardee, it’s past 4:20 and I have been smoking something good
...............................

Damn, I miss it sometimes!

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By pragmatic realist, July 28, 2009 at 6:57 pm Link to this comment
(Unregistered commenter)

I think you are very right to focus on the psychology and the disconnect these supposed “realists” have opened between themselves and any truthful vision of reality.

I have found some insight by changing my assumptions about the people in charge of the financial world. Instead of bankers, traders, economic scientists, think of them as addicts.

Last year they were hitting bottom, out of money, out of tricks and going into withdrawal. They conned their old doting Uncle into selling off the family farm and letting them have the money to invest in a sure thing, and they got a fix. Now they are high again, on top of the world.

We know what is going to happen again soon. The problem is that the farm has been sold and their sucker Uncle Sam doesn’t have any more money to give. What then?

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By Chris, July 28, 2009 at 5:57 pm Link to this comment
(Unregistered commenter)

“This contributed mightily to the credit crisis—as incomes stagnated, more and more people turned to riskier and riskier borrowing to fill the gap between what they earned and what they wanted to buy.”

What a stupid thing to say. If I wanted to look for people blaming the working class for trying to get by I would just go to Fox or CNN. All those greedy minimum wage earners wanting to eat, have clothes to wear, and somewhere to live make me sick.

Here is an idea people are forced to use credit because they can’t afford the things they NEED. Choose your words wisely, because this makes you look really stupid.

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By hippie4ever, July 28, 2009 at 4:45 pm Link to this comment

BillW, thanks for the info on unemployment stats—I’ve assumed the government undercounted but good to know there are other measures.

Ardee, I also hope for a “new technology” turnaround, but am more pessimistic because the infrastructure is not in place, shipping is being subsidized by corporations sometimes at a loss, and American labor has learned that hard work does not pay. I know the ruling class will pull out some new tech (remember how the VCR and microwave ovens helped pull us out of the recession in the early 1980s?) but unlike past scenarios, I only see Americans installing and operating such green innovations coming our way—low paying service economy jobs.

But I hope for everyone’s sake that you are right, Ardee, and with rising fuel costs and a debased society, maybe the power elite will throw a few more crumbs our way.

And Ardee, it’s past 4:20 and I have been smoking something good.

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By P. T., July 28, 2009 at 4:35 pm Link to this comment

The problem is even worse than Marie Cocco describes.  A lack of income for ordinary people means insufficient demand and therefore a shortage of profitable investment opportunities in the real economy.  So capital gets pumped into speculative bubbles, which eventually burst with consequent economic damage.

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By CHris Fretwell, July 28, 2009 at 4:35 pm Link to this comment
(Unregistered commenter)

The Politicians created a powerfull anastetia ; Food stamps , SS and welfare subdued the “working stiffs” while they raped America of it’s true intrinsic wealth and replaced it with the unstable untrustworthy economy we have based on keeping American greatly in debt. It was planned and the sheep fell for it.
America was to dumb and greedy to say ‘You can stick those programs up your ***’ and give us livable jobs so that we don’t become pathetic beggars.

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By ardee, July 28, 2009 at 12:52 pm Link to this comment

hippie4ever, July 28 at 11:27 am #


The prime reason the recovery isn’t creating jobs is due to the mass exodus of manufacturing and light industrial in the U.S. to China, India, Indonesia. Until those jobs come back the depression will persist. If the jobs never return, welcome to the world’s largest banana republic.

...........

I think chances are rather good that these manufacturing jobs are gone forever. I believe we are in the midst of a new industrial revolution of sorts, one tied to the emergence of third world nations into the manufacturing age. How can American labor compete with ten cents an hour wages, no benefits and no particular emphasis on safety or environmental hazards? To mourn the loss of these jobs is to delay the way forward I think.

Two points more if you dont mind:

1. The US will move away from an industrial base and on to an economy based upon the creation of new technologies. This will entail the retraining of our former factory workers certainly and a new emphasis on education as well, but it will certainly come. The real question is how much hardship will we endure before our leaders follow us?

2. The transfer of industry to these nations will help level the playing field that has for far too long seen the Wests’ artifically inflated lifestyle achieved on the poverty and misery of the rest of the world. Further, after some time, unionism will emerge in these newly industrialized nations as it did in the West, and wages will rise there in conjunction with new emphasis on the environment and the world will emerge a better and fairer place for all.

...and no, I am not smoking anything…..

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By Night-Gaunt, July 28, 2009 at 12:38 pm Link to this comment

“This is how things look in the real economy, the one in which unemployment is 9.5 percent—the highest in 26 years—and is expected to rise. This is the economy of pay cuts and freezes, reduced hours and workers whose employers who have stopped contributing to 401(k) retirement plans.”

Now figure in the real numbers like in the way the 1930’s was done and it is in the 16-22% range and has been for years! Now that is a Depression. Even a Great Depression though they are still good at hiding just how bad it really is. People reduced to hunting, killing and eating raccoons and squirrils in their neighborhood! Tent cities outside of normal conurbations and rarely reported on—Bushvilles. Expecting another “jobless recovery” which is another way of saying a permanently shrunk economy. Just like in 2001. Some of us never “recovered” from that! The rich get richer and the rest of us become poor or stay that way. Capitalism at its finest.

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By Tom Semioli, July 28, 2009 at 11:43 am Link to this comment
(Unregistered commenter)

The media can ballyhoo the so-called recovery as much as they like - or as much as viewers will tolerate. However no economy can survive without productivity. I think the tipping point will arrive when the dollar loses its status as the reserve currency.

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By Bill W., July 28, 2009 at 10:59 am Link to this comment
(Unregistered commenter)

Dear Marie Cocco…

    I so wish our press would get it right about “unemployment figures.”

    You write:

    “This is how things look in the real economy, the one in which unemployment is 9.5 percent—the highest in 26 years—and is expected to rise. This is the economy of pay cuts and freezes, reduced hours and workers whose employers who have stopped contributing to 401(k) retirement plans.”

    Well, “unemployment is 9.5 percent” is just plain inaccurate. There is no “IS” about it. You could say, accurately, that:

    “The Bureau of Labor Statistics’ surveys for June (the most recent available until the 1st Friday of August) declares (asserts, avers) that ‘the official unemployment rate is 9.5 percent.’ That is what the BLS calls ‘U-3,’ or ‘the official unemployment rate’.

    “We have not independently verified that figure. But the BLS also publishes unemployment/underemployment figures U-4, U-5 and U-6. This last figure was 16.5% for June. The BLS describes this figure as:

    ” ‘Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

  ” ‘NOTE:  Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.  Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job.  Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.  For more information, see “BLS introduces new range of alternative unemployment measures,” in the October 1995 issue of the Monthly Labor Review.  Updated population controls are introduced annually with the release of January data’.”

    In my view, this last number, U-6, is a far more accurate reflection of what is going on for real people in the job market—how “real people” are experiencing things at the grocery store, bank, trying to pay bills, afford sickness-care insurance, keep a family in food, clothing & shelter.

    And these numbers are only estimates, derived from surveys & statistics. Everyone knows, for example, that just because someone’s unemployment insurance benefits have expired (U-3) does not mean that they have found employment, for example. So let’s use the “more representative of reality figure, U-6,” when we report on the state of the economy and on under-employment or “unemployment”.

    Please.

(Just bookmark this URL and hit it the first Friday of every month to get the updated figures.

http://www.bls.gov/news.release/empsit.t12.htm)

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By Folktruther, July 28, 2009 at 9:57 am Link to this comment

Ardee is on a roll, right again about this being the new America.  And the reason is precisely as Hippie4 states, US corporations are going abroad to manufacturre because the wages are cheaper.  Abetted by governement which is controlled by the plutocracy.  Inducing enormous economic inequality in the US, icluding the destituion of the unemployed which is vastly greater than the fraudulent unemployment figures.

This class inequality, predicted by Marx, cannot be maintained without turning the US from a bourgeois Democracy to a military-police state.  The economy is increasingly restricted to the Educated classes while the population must increasingly scrabble for the leavings.  those who object, deviate, steal, or are Different, well that is what prison Justice is for.

And the American people have been deluded by the truth media to prevent us to unite and resist effectively.  And racism appears to play a big part in dividing us.  I am afraid that the near future does not appear awfully bright in the US.

However, Asia and particularly China is very rapidly by historical standards gaining world power, and may help stablize the world while the US and the Western tradition decays. China and the US are currently engaging in Big 2 talks which may help ease the power transition.  So things look moe hopeful for the world than for the US. 

Becuase of this economic policy under Bush-Obama, US power poliices, legitimated in articulate, moderate, civlized tones by Obaama, remains bloodthirsty, violent and barbaric.

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By katydid, July 28, 2009 at 9:30 am Link to this comment

I am afraid of the rioting that is going to happen in this country if this situation with no jobs continues on or gets worse. 
  There have been a lot of different people try to explain why guns and ammo are disappearing off the store shelves.  I can only tell you why my husband and I decided on that course of action, and it isn’t because we were afraid Obama was going to take away our guns. 
  It has been stupefying and frightening to see the descent of this country the last 30 years.  Particularly the last 10.  When the peons and peasants (middle class and poor) finally decide the bread and circuses they have been fed all this time is just that, there will be rioting in this country. 
  And that alone is the reason we have decided to arm ourselves.

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By freepressmyass, July 28, 2009 at 8:33 am Link to this comment
(Unregistered commenter)

The big lie about banks paying us back is the failure to mention the sweet secret deal Geitner gave them. Remember we were told how taxpayers would actually make money on the TARP deal?  All lies.  And then they have the gall to boast
about recovery and huge profits. It’s more sleight of hand by Obama, Geitner, and Wall St.

The fact is we lost money. Geitner allowed the banks to pay us back .60 on the dollar.  So, now we owe the Fed the original hundreds of billions in TARP loans, plus the balance of what the banksters haven’t paid back, plus interest.
We’ll never recover when the Obama administration keeps digging taxpayers an enormous hole, deeper and deeper in order for their buddies to saddle us with their debts.  It’s incredible.  Americans keep paying taxes to pay off debts of the uber rich. 
When alleged journailists talk crap and perpetuate false Treasury claims that the banks have paid us back, said journalists don’t deserve any space to spew their crap.

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By hippie4ever, July 28, 2009 at 8:27 am Link to this comment

After Katrina the Old French Quarter resumed “life as usual” because the flood waters abated. All areas around the French Quarter remained flooded for weeks and resulted in destroyed homes, businesses, entire neighbourhoods. Can we assume that the flood is not over for the homeless of New Orleans? Isn’t this economic “recovery” much the same? The rich are once again making billions, while ordinary people live on unemployment and food stamps.

The prime reason the recovery isn’t creating jobs is due to the mass exodus of manufacturing and light industrial in the U.S. to China, India, Indonesia. Until those jobs come back the depression will persist. If the jobs never return, welcome to the world’s largest banana republic.

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By Hulk2008, July 28, 2009 at 8:13 am Link to this comment

If no other lesson can be learned from our own history, it should be that the US is now and always has been a “work in progress”.  Even those who insist on a purist constitutional approach must acknowledge that the forefathers (and mothers) allowed for changes - amendments - over time. 
    For generations the wealthy have crawled up the financial ladder and sawed off the rungs behind them - they set up Wall Street and regulations and banking and the tax structure to favor themselves.  The deck is tricked in their favor - at least until the rest of us can somehow regulate them to back down.  Anyone who no longer has a pension but has some phony artifice like a 401(k) can tell you how vulnerable we are among the rank-and-file. 
  We are at their mercy until REAL changes occur. (Watch V for Vendetta.)

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By Jean-David, July 28, 2009 at 7:27 am Link to this comment
(Unregistered commenter)

“a recovery was declared successful even as it was detached from the larger mission of building an economy based on rising productivity and, most crucially, rising incomes, across a broad swath of society.”

There are two ways to raise productivity: produce more for the same cost, or produce the same for less cost. Productivity these days seems to be a euphemism for firing employees. And those fired employees cannot buy things. So the economy goes down as a direct result of rising productivity. Productivity, as the term is now used, is just a game.

The ultimate productivity would result when all industry is automated, and once a day, the King would push a button to start the production of everything, and when enough stuff had been produced for the day, he would turn it off.

Then what? Unless all the stuff were given away free, the kingdom would collapse.

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By Eric L. Prentis, July 28, 2009 at 7:21 am Link to this comment

The political ruling class and the Wall Street elites want the humble, know-nothing,  little-people taxpayers, who are paying for the mess that the powerful racketeers in league with the politicians have brought upon us, that rosy perceptions bring home the bacon,……., hot flash bigwigs, THEY DON’T.

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By Fredric Dennis Williams, July 28, 2009 at 7:00 am Link to this comment
(Unregistered commenter)

Those who project the economy based on anecdotal evidence (the Staples come-on) are unlikely to have much real skill as clairvoyants. My own view is that businesses are doing mighty little to attract customers—just the same old standard fare that they have always offered.

This might be from a perception that loss-leaders will simply lower the stores income without generating much traffic in a recession, or it might be that the lack of credit has forced retailers to husband their goods and ask top dollar.

My own anecdotal evidence would suggest that there are not a lot of “going-out-of-business” sales. That doesn’t mean housing won’t continue to pull us into the whirlpool and down the drain, but I wouldn’t worry much about Staples.

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By Jim Yell, July 28, 2009 at 6:38 am Link to this comment
(Unregistered commenter)

For some decades now our political leaders have worried more about their opportunities to inflate their incomes, even though the public gives them a good salary and great benifits.

Everyone in the management class are measuring their income by an inflated measure which has only been achieved by depressing the wages of the lower half of the working class and stagnating the wages of the rest of the working class.

The rich involved in the investment and banking community are doing what they have always done feeding off the rest of us. Manipulating the government and the economy to give themselves un-earned wealth at the expense of everyone else.

We need a mixed economy including elements of socialism and capitalism. Neither system is good without some rules, rules that are enforced. Capitalism will poison everyone if profit is to be enhanced, mostly prefering poisons that don’t kill right away. Like all parasites that are successful you don’t kill your victum right away, you just destroy its health and abilities.

You don’t need to know anything else to understand why our health care is in the hands of a group of people that aren’t dedicated to health care but to profit at any cost, as long as the cost is born by someone else.

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By fariybrbara, July 28, 2009 at 4:10 am Link to this comment

After a long time i read a nice article.i am not a expert but i like your views and i appreciated your work.

Dazzle White

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By godistwaddle, July 28, 2009 at 3:57 am Link to this comment

As long as the stock market is rising, ALL americans are doing well, according to the out-of-touch rich, who REALLY should be swinging from lamp-posts across the country.

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By ardee, July 28, 2009 at 3:20 am Link to this comment

“Nonetheless, Goldman’s good fortune is good news for New York limo drivers, landscapers, bartenders, nannies, real estate brokers and home-improvement contractors. Sometimes a torrent really does trickle down.”

...Obviously this is the new America, wherein the ninety nine percent of us await the crumbs from the one percent who actually own the country. I am so proud!

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By knobcreekfarmer, July 28, 2009 at 2:16 am Link to this comment

Goldman Sachs, how are the making soooo much money when everyone else is down to pulling the couch cushions out to look for -Obama’s- “change”?

Front-running trades. Done with Nasdaq. Info on trades is held back a fraction of a second from public view, while the data is sent to privileged subscribers who execute programmed micro-trades before the rest of the world makes a move.

Now that’s some really big “change!”

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