The University of Michigan

Careful readers may remember that while I have studied at many institutions, none of them were the University of Michigan or Michigan State. They hate each other with the white hot passion of a thousand burning suns. The only things they have in common is, well… Michigan of course, a mutual hatred of Ohio State that exceeds their disdain for each other, and Leonard Falcone.

Well, perhaps I should amend the above because I was a student of his in a summer music program at Michigan State (he thought, correctly, I was hopeless) but I’m sure my schadenfreude about any U of M misstep is transmitted genetically through my parents, Richard and Emily, who met at State. Go Spartans!

The back story goes something like this- the University of Michigan School of Economics has for years produced a highly influential consumer sentiment survey. I’ll let Bill Black take it from there.

Bloomberg Tells Michigan Grads They Must Defeat Bernie’s Plan to Jail Wall Street Felons
by William Black, New Economic Perspectives
May 3, 2016

Michigan (University of) secretly sold its reputation for a pittance by rigging one of its crown jewels – the consumer-sentiment survey. This survey is known to move financial markets. Michigan sold early (by five minutes) access to the data to its partner’s clients.

The partner was Thompson-Reuters, one of Bloomberg’s chief rivals, … Bloomberg was so fixated on preventing Bernie being elected that he passed on an opportunity to embarrass a rival because doing so would have demonstrated Wall Street’s corrupt culture.

The folks that were buying the early access to Michigan’s survey (I’ll call them the “bishops”) were looking for a rigged system that would let them abuse customers and counterparties. What they often did not know was that the system had a second-level of rigging. The secret rigging was that a group that paid an even higher fee to Michigan’s partner (the “cardinals”) was given the report five minutes and two seconds before it was released to the public. The bishops did not know that the system that they thought was rigged in their favor was also being rigged to allow the cardinals to skin them alive. (In the article a market participant’s metaphor is that the bishops would be “flattened” by the cardinals.)

If you think that two second(s) cannot allow much abuse you really do not comprehend modern finance and high velocity and frequency trading. A study found that the cardinals were able to take advantage of the rigged system within 10 milliseconds. That means that the cardinals were using algorithmic systems that were able to machine rea and analyze the market price implications of the Michigan consumer-sentiment survey, choose the trading strategy that would maximize profits given those market price implications, and execute the trades in time increments normally discussed in science fiction.

The Michigan officials involved in negotiating this disgusting rigging of the system did not need any special training in ethics to know that what they were doing was immoral and sure to humiliate the University if it became public. The additional fee they obtained for traducing the University’s reputation by agreeing to double-rig the financial system was trivial in economic terms. They too were treated as suckers by Wall Street. Here is sad rationalization presented for a public university aiding the rigging of the financial system. It is a fine example of the oxymoron that passes for ethics among orthodox economists.

You all remember The Wire Con from The Sting don’t you? I guess I’ll have to add to add ‘and corrupt con artists’ to ‘turtle shell rattling Shamen’ the next time I talk about the psuedo ‘Science’ of Economics and those who claim to be practitioners.

Read the whole thing, there’s much more to it, but that part satisfied me.