How markets are rigged against you

Every day, trillions of dollars are exchanged by buyers and sellerson trading floors across the world. The places where that happens are colloquially known by the faceless moniker of the markets" butevery time somebody buys a barrel of oil, a shipment of potash, a Royal Bank share or a Japanese yen, theres a real person behind that transaction.

• WATCHAmanda Lang's piece on how the system is rigged against you onThe National on Monday night. It airs tonight at 9 and 11 p.m. on CBC News Network, and at 10 pm on CBC Television

Historically, the system works because people have confidence in the rules and believe they are treated the same as anybody else.

But its getting harder and harder to ignore the stories of powerful people cheating the system for their own gain. As the bad apples add up, it gets harder and harder to ignore a troubling realization everything is rigged.

Thats what financial journalist Matt Taibbi says in an interview with Amanda Lang airing on Monday night's The National. After years of reporting on some of the best examples of Wall Street stacking the deck in its favour, Taibbi has concluded that the entire system underpinning the global economy is rigged in some form or another. And its not just financial markets that are at stake. The real economy, with factories, services, goods and jobs for real people, is under threat.

Certain people always win and certain people always lose.- Matt Taibbi, financial journalist

Theres a few smaller, inside actors who always seem to win, he told Lang. They have more information than anyone else.

Everything from the price of food, to currencies, financial transactions known as swaps and interest rates are implicated, he says.

Weve got a lot of work to get it back to some place where its at least close to fair.[Right now] it seems certain people always win and certain people always lose.

Case study:Detroit

Detroits best known today as a case study in what happens to a declining manufacturing base. But the city was also home to a type of financial fakery thats becoming all too common.

Investment bank Goldman Sachs has been accused of creating an artificial shortage of aluminum by buying warehouses in the city tostore the metal, and then intentionally causing delivery delays to create artificial profits.

• Why a Detroit-style bankruptcy is unlikelyin Canada

Through a subsidiary, Goldman owns 27 warehouses around the city, housing 1.5 million tons of aluminum, for customers who pay to store it there.

The longer its there, the longer Goldman can charge its customers. But some started to complain that Goldman was making money by shuffling the metal between its warehouses instead of out to its owners and charging them more rent in the process.

The story drew the eye of New York Times journalist David Kocieniewski.

It used to be a six-week wait for metal and now its 16 months, what happened? Kocieniewski asks.

You hear their explanations there arent enough trucks [and] forklift drivers but Detroits unemployment rate is 25 per cent, so that seems kind of implausible. It was clear it was something that they were doing, he says of the sudden scarcity.

The bank claimed it was working feverishly to deliver the metal to its eager customers. But in one video posted online by a warehouse worker, all you could see wasaluminum stacked to the rafters, but not a single employee working to move it anywhere.

One of the drivers who moved the metal said well we just move it from one place to another, once we get one warehouse filled up we close it down and its a merry-go-round, Kocieniewski said. Every hour that metal is sitting there Goldman is just collecting money on it.

And that gets passed on to consumers by increasing the price of real goods like aluminum foil, pop cans and the siding on your house.

Goldman Sachs declined to make anyone available for an interview, but emailed CBC News a statement saying they deny the allegations.

Case study: inside information

New Yorks Wall Street is a place where rigging has become sadly too commonplace.

One of the biggest recent examples was at New York hedge fundGalleon, run by a man named Raj Rajaratnam. Insider trading is one of the oldest and least sophisticated ways of rigging a market, and Galleon is one of the most egregious recent examples. Under Rajaratnams watch, Galleon would routinely pay corporate insiders for information about their companies ahead of when they were disclosed to others. (That way the fund could trade in advance on any good news or bad news to come.)

What was so shocking about Galleon was the brazenness how employees were caught on tape rigging the system, and not seeming to care. Rajaratnam was eventually found guilty of insider trading and sentenced to 11 years in prison but even today, some people involved still dont seem to quite see the problem.

The bottom line was to make money and if you werent adding to the end goal you were kind of useless, says Turney Duff, a former trader at Galleon whos written a book about his experiences there.

I didnt feel like we were going to get caught. You know, it felt like jaywalking- Former hedge fund employee Turney Duff

Im not making excuses for my behaviour, he says in the piece. I made a lot of mistakes and a lot of the decisions that Imade [weren't]based on right or wrong it was based on [lack of] consequences.

I didnt feel like we were going to get caught. You know, it felt like jaywalking.

That mentality may be part of the problem that theres insiders at the top of a pyramid who feel they have the right to set prices and profit wherever they see fit, Taibbi and others say.

The basis of all these problems that weve had in the last decade or so is that its a very insular community, this financial community. Its a very small group of people making very, very weighty decisions and I think these guys, to them, its not real. Its just a bunch of numbers on a paper, Taibbi said.

Case study: rigging LIBOR

One of the most serious examples of rigging might be the London Interbank Overnight Rate or LIBOR which has apparently been manipulated by a handful of trading firms for their own profit. Trillions of dollars of real things like mortgage rates and student loans payments are priced off LIBOR.

• WATCH Why the complex LIBOR story deserves your attention

LIBOR is set today the same way it has been for more than a century via phone calls between traders, telling each other what rates they were giving out and taking in that day. In retrospect, it was gapingly open to abuse.

In a series of wiretapped phone calls unearthed by British regulators, traders could be heard doing favours for each other, lying to officials about the rate in order to meet their targets. It was a game to them, but one where people in the real world economy were the losers.

Conclusion: new tools needed

Theres a sense among the general public that nobody seems to be maintaining the integrity of the system. Bart Chilton, the head of U.S. regulator the Commodities and Future Trading Commission, says his office is committed to maintaining the systems integrity. But, he says his office isnt given the tools he needs to properly do the job.

They dont have enough people to do this stuff, Chilton says. [Washington] doesnt care about about this, and unfortunately Congress and government is very reactive.

He notes that his office has 158 agents to police more than $5 trillion worth of financial contracts per year.

In contrast, the more well-known Securities and Exchange Commissionhas more than 100 agents assigned to its investigation of baseball pitcher Roger Clemens alone.

Until the powers that be make levelling the playing field a priority, the system is likely to remain skewed. And the people doing the rigging getting caught will be the exception, not the rule.