Wall Street’s Big Fugly Secret Revealed

When the ship starts to sink, the rats begin to think only moments ahead. The big picture falls by the wayside. Surviving until tomorrow is all that matters. Next year is lifetimes away.

There are a few places in the world you can see this happening in real-time.

One such place is Wall Street.

Case in point:

The flash boys are hitting a dead-end.

Bloomberg has just reported on a strange real estate buy in Chicago. A tiny group of stock traders purchased 31 acres of undeveloped land for $14 million, twice the going rate… just to plop down an antenna.

Looking at the paperwork, the antenna is owned by World Class Wireless, an affiliate of Jump Traders.

And here’s why…

Just across the street is the building for the CME Group — the world’s largest futures exchange.

“The high tech microwave antenna,” ex-Wall Streeter Dr. Fly writes in his iBankCoin blog, “is able to intercept data coming out of the CME before it makes its way to the east coast — creating an arb situation that last microseconds. It is the definition of cheating, rich, powerful people using their position to jimmy rig trades in their favor, all but guaranteed. It’s like having a time machine that can go a microsecond into the future and see prices and then trade off of the knowledge using very sophisticated high speed quants.”

McKay Brothers LLC, another trading firm, is getting in on the action as well. It just won approval to build a tower a little closer than its last one.

Webline Holdings, too. Webline’s plans to intercept the signal from CME Group before it reaches the Nasdaq center in New Jersey.

And here’s the best part…

“This could all be negated,” says Dr. Fly, “if the CME simply placed a microwave antenna on their roof — all but rendering nearby antennas meaningless. But for some odd reason, they continue to relay data to nearby microwave antennas outside of the data center, which is then stolen by the aforementioned companies above, all for the purposes of rigging markets.”

The cannibals are forced to eat their own.

“It tells you how valuable being just a little bit faster is,” Michael Goldstein, a finance professor at Babson College in Babson Park, Massachusetts, tells Bloomberg. “People say seconds matter. This is microseconds matter.”

So the story goes…

When the Wall Street cannibals eat up all of the commoners, all that’s left is to eat each other.

For you, it should serve as another sign to ditch this antiquated system for something better — before the market is forced to adapt. (There’s a system in place that’s set to replace the status quo very soon. Banks are beginning to embrace it with open arms. We’ll go into it next week with an exclusive interview from someone on the inside of this tiny company. Stay tuned.)

If you’re not quite convinced it’s time, pay heed: there’s more.

To rustle your legacy banking system jimmies further, we invite Simon Black to reveal the big hidden secret of the banking system — coming from a guy who started his own bank.

It’s a good and worthy read. Check it out below.

Simon Black

After so many run-ins with the bitter incompetence and bureaucratic indignity of the banking system, I decided once and for all that I would start my own bank.

I probably should have had my head examined, but instead I called one of my attorneys to talk through the options.

Had I known then what I know now, I think I still would have made the same decision… but in total honesty I was completely unprepared for the torrential shit storm I was about to enter.

The deeper I went, the more overwhelming my discoveries of how shockingly inept, obsolete, and out of touch the industry is.

It’s one thing to read about it in the headlines. It’s quite another to experience it first hand as an insider.

Here’s a great example: you know how it seems commonplace these days to hear about banks getting hacked? Well, there’s a very good reason for that.

Every bank runs on something called “core banking software”, which is sort of a central financial database that keeps track of all accounts and transactions.

Anytime you deposit or withdraw funds, the core banking software updates its records.

And whenever you log in to your bank’s website to check your account balance, the server relies on the core banking software for that information.

Core banking software is the most critical component of any bank’s technological infrastructure.

Yet ironically, the software that many of the most established banks use was originally written in either Fortran or COBOL, both 60-year old programming languages that date back to the late 1950s.

Back then banks were very early adopters of technology and jumped on the chance to automate their core functions.

As technology improved, banks continually patched and updated their systems.

But they eventually ran into limitations in terms of how much they could modernize the software.

In the software industry, developers recognize this limitation.

That’s why from time to time they stop supporting obsolete versions of their applications and reengineer new versions with the latest technology.

But that didn’t happen across most of the banking sector. Instead, banks kept patching and upgrading outdated software.

Simply put, the most important functions in the banking system are powered by decades-old technology.

Perhaps nowhere is this more obvious than with domestic money transfers.

Within the domestic US banking system, most banks rely on the ACH payment network to send and receive financial transactions.

If your paycheck is direct deposited into your bank account, or mortgage payment automatically deducted, these typically use ACH.

What’s completely bewildering is that ACH payments typically take 48 hours to clear.

That’s completely insane given that any domestic bank transfer is simply an internal transfer from the sending bank’s account at the Federal Reserve to the receiving bank’s account at the Federal Reserve.

It’s utterly astonishing that in 2017 such a simple transaction actually takes two days, as if they have to send a satchel full of cash cross-country via the Pony Express.

But this is a reflection of the pitiful technology that underpins the banking system.

It doesn’t get any better internationally either.

If you’ve ever dealt with international financial transactions you may have heard of the SWIFT network.

SWIFT is a worldwide banking network that links allows financial institutions to send and receive messages about wire transfers and payments.

Anytime you send an international wire, it’s customary to enter the receiving bank’s “SWIFT code” as part of the wire details.

SWIFT is absolutely critical to global banking and handles billions of transactions and messages each year.

So you can imagine my surprise when I found out that SWIFT runs on Windows Vista an obsolete operating system that Microsoft no longer supports.

When my bank received its SWIFT code, we were told that we had to have a computer running Vista in the office in order to connect to SWIFT.

It was such an absurd exercise to find an obsolete computer running an obsolete operating system to connect to the supposedly most advanced and important international payment network in the world.

Unsurprisingly, SWIFT has been hacked numerous times, both by the NSA as well as private hackers who have stolen a great deal of money from their victims.

Last year a bunch of hackers famously penetrated the SWIFT network and stole over $100 million from the Bangladesh central bank.

And that was nowhere near an isolated incident.

This is the big hidden secret of banking: despite the shiny veneer of online banking, the institutions that literally control your money are run on outdated, inefficient, obsolete technology.

But this technology issue only scratches the surface of how pointless and anachronistic modern banking is.

[Ed. note: This article originally appeared on the Sovereign Man blog here.]

Simon Black
Sovereign Man

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