Why the markets sank?

http://bit.ly/7XwAG

On 6th of February 2009 Morgan Stanley’s Commodity Trader David Redmond at the ICE exchange in London went a whopping $10 million short in oil futures in a post lunch session of two and half hours by selling once every seven and a half seconds. He was reported to be under the effect of alcohol, though the clean operations of shorting and hiding positions at the end of the day, showed that he was in full control of his faculties. Interestingly he was not only able to hide his position, but come back the next day to square up with a small profit.

Though Redmond was suspended and later dismissed for reckless punting, he showed the tricks of how to cover one’s tracks and more-importantly on how to profit from seemingly hopeless situations. The $ 16 billion short of Proctor and Gamble was probably a large scale model of Redmond’s pilot run.

The clue to the consortium who indulged in the trade will come from the buyers of Proctor and Gamble Shares after it reached the bottom, as it is unlikely that the punters or their associates could have resisted the temptation to recover their losses or even make a quick buck on the upswing as well. It is well known that such operations are no longer performed by individuals but by a consortium of hedge front operators to cover up the tracks of retreat....but still clues remain.

A few weeks before this incident , Mathew Sebastian Piper, a Morgan Stanley Trader was fined GBP 105,000 for mismarking positions on his trading books, by manipulating volatility marks for those positions as Morgan Stanley made a negative adjustment of his marks to the tune of $120 million.

FSA fined Morgan Stanley GBP 1.4 million for their failure to control Piper but since the fine was just 1% of the fraud amount, it was too lenient a step to be taken seriously. Usually the most lax and indulgent amongst regulators worldwide, the FSA is one of the reasons why commodity punting thrives unrestricted at the London’s ICE exchange.

Shorting of the Euro, of the sovereign bonds of Greece and other Euro-zone nations, the sudden uncontrolled drop of stock indices following a 16 billion short on blue chip P&G are not unconnected events, after the Goldman investigations began. We have seen it in several occassions as above that such malfunctions are not accidental but are cleverly engineered . This instability will continue and increase, unless firm and bold steps are taken immediately by the US and EU jointly.

EU still does not understand the gravity of the situation or the power of hedgefunds and their operators who have earned over $100 billion in the past one year by just shorting bonds and pushing up commodity prices. No wonder it's belated EMF is a visualised as a small fund instead of a $ 1000 billion fund, like the US TARP funds that would have been more appropriate. It is time the US steps in to make the fund adequate, broadbased and effective to counter the pressure of the junk bond barons.