Matt Taibbi had another fascinating article in Rolling Stone this past month, this time concerning how the giant media conglomerate Thomson Reuters seems to have been helping some giant hedge funds and other powerful financial companies cheat by selling them economic survey data earlier than their regular customers.
According to a July 8 story in the Los Angeles Times, Tomson Reuters and the University of Michigan jointly conduct the Survey of Consumers, the results of which are publicly released twice a month at 10 a.m. However, they’ve also been selling access to the survey results to subscribers that allows them to access the data five minutes early. Further, however, and this is where it gets dicey for Tomson Reuters, they’ve been further selling access to a select band of 16 heavy financial hitters that arrives two seconds earlier than it does to their other paying customers.
Now, five minutes advanced notice doesn’t sound like much, and two seconds sounds like even less. However, in this day and age of computerized stock and bond trading, getting any jump at all on the competition concerning consumer confidence could mean billions in profits.
As CNN put it:
“In the milliseconds before the survey is released to other paying clients at 9:55 a.m. ET, trading volumes can soar up to 20 times their normal levels. By 9:54:59 a.m. ET, long after computers have acted on the number, volumes have already returned to normal.”
New York Attorney General Eric Schneiderman was not amused, taking the sensible, though seemingly far from universal, position that:
“The securities markets should be a level playing field for all investors and the early release of market-moving survey data undermines fair play in the markets,”
Schneiderman threatened to sue; Tomson Reuters backed off and said they’d start releasing the data to all their subscribers at the same time; but now it appears the story was even worse than originally thought.
It’s a very big deal. Time will tell, however, whether any actual legal action will take place, especially given the general immunity from investigation and prosecution the financial sector enjoys these days.
The interesting historical aspect of this story, to me at least, is that something very similar was taking place back in the early 1800s, leading the U.S. Post Office to institute Express Mail delivery in an effort to level the economic playing field. And please note, this was decades before that publicity stunt called the Pony Express was a gleam in William Russell’s eye.
In fact, the U.S. Post Office itself ran a much more effective and heavily used Express Mail service that connected much of the nation during the 1830s than the Pony Express ever did. And interestingly enough for those of us in Illinois, one of the branches of the Express Mail connected Dayton, Ohio with St. Louis, passing through Vandalia, Ill. on the National Road.
Express Mail differed from regular mail in that it was carried by a single man on horseback who hurried to make the best time possible. Unlike regular mail contractors, Express Mail contractors could lose their contracts if they were late or missed a delivery.
Express Mail service had been sporadically and temporarily established many times during the nation’s early history. Private express riders, for instance, carried messages during the colonial period. After the Revolution, most expresses were part of the nation’s military communications network.
But the need for fast, universally available long-distance communications service finally became apparent in the spring of 1825. New York cotton merchants, learning that prices on the London market had skyrocketed, bribed the contractor carrying mail between New York and New Orleans to delay the price news. Meanwhile, the merchants rushed their buy orders to New Orleans ahead of the news, making a hefty profit by buying low from uninformed sellers and selling high on the international market.
Postmaster General John McLean, vowing such a thing would never happen again, prohibited mail contractors from carrying private messages “outside the mail,” and also established an Express Mail to follow the Great Mail route from New York to New Orleans. McLean’s expresses, however, only traveled a few times a year.
In 1835, President Andrew Jackson was forced to fire his Postmaster General, William T. Barry, ostensibly for corruption, but also for mismanagement. During his four years as the first cabinet-level head of the post office department, Barry had driven the financially healthy agency into bankruptcy.
In May 1835, enter Amos Kendall—our county’s namesake—who instituted a wide range of reforms. Kendall’s reforms, combined with a nationwide financial boom created huge postal surpluses. Kendall decided to spend his newfound surplus cash on a comprehensive Express Mail service.
Regular mail was carried along the Great Mail route by the express at three times the normal postage. Newspaper slips (described as “small parts of newspapers, cut out, or strips specially printed…to convey the latest news, foreign, and domestic”) were carried free of charge from town to town to spread the news as quickly as possible.
President Jackson signed the bill creating the Express Mail in July 1836, and service began that autumn. Within a few weeks, another express was added from Philadelphia to Mobile, Ala.
Then in 1837, two Missouri legislators prevailed upon Kendall to establish a branch of the Philadelphia to Mobile express from Dayton, Ohio to St. Louis, following the old National Road through the Illinois state capital at Vandalia.
Starting on Oct. 1, 1837, and each day thereafter, express riders quickly pushed their horses from Dayton to Richmond, Ind. and on to Indianapolis. From Indianapolis, the route ran 72 miles to Terre Haute, Ind. Two months later, on Dec. 10, 1837, the route was extended across the 99 miles of prairie to Vandalia, and from there, 65 miles to St. Louis.
The daily expresses made a considerable difference in the time it took for news to make its way west. In 1835, it took letters an average of 11 days and 15 hours to get from New York to Vandalia. Thanks to the Express Mail, that time was cut by almost two-thirds to just 4 days 15 hours. And that made a huge difference in the lives and economic circumstances of those living on what was then the western frontier.
But by late 1838, the days of the Express Mail were numbered. By then, thanks to the accelerating pace of railroad construction and major road improvements, the regular mail was nearly as fast as the express. As a Louisville, Ky. newspaper put it in 1838: “The rapidity with which the ordinary mail now travels from New York…makes it practically an express without the charge of triple postage.”
It never ceases to amaze me the way we keep seeing aspects of history repeating themselves. With the recent story in Rolling Stone, we see that the predilections on the part of dishonest financial manipulators to cheat remains unabated, even in this modern computer age when two seconds advanced notice are apparently as valuable as a few days used to be 188 years ago.