Cloak of Darkness
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By the summer of 2008 it was becoming clear that the halo of protection around the quant portfolios was not impenetrable. Still, their abilities were vast. They had successfully banished the regulators from the credit desks. (Not from equities however, as discussed.)
But this latest piece of magic was really impressive. They made the entire banking system disappear! From financial textbooks, from theories of economics, and even from popular media. The quants had placed an entire industry beneath a cloak of darkness. It was an awesome display of power.
Outside of Wall Street, no one was asking questions about the real banking system because they didn’t know there were any questions to be asked. They didn’t know there was anything to ask questions about.
On CNBC they would often cut to the New York Stock Exchange trading floor as if it was the center of the action. But the reign of the NYSE specialist market makers had ended years prior. By this time, the NYSE floor was in fact little more than a TV set.
On those shows they would talk about the companies and how investors allegedly felt about them, but they would never talk about the trading sectors of the financial system. They would never talk about how brokers, prop traders, or the hedge fund industry actually operates.
Sometimes they would talk about the futures markets, but that was really just a way of having something to discuss first thing in the morning before NYSE and NASDAQ opened. And you could watch CNBC around the clock without ever acquiring a hint as to what was really happening in the futures market, or its more secretive, alluring cousin; the market for options on the “volatility index” known as VIX.
The actors on CNBC were pretending that we were still living in Grandpa’s stock market. They would talk about business models and earnings and pontificate over whether those earnings would increase in the future.
They were pretending that picking stocks based on fundamentals was still a thing.
But it was all just a show.
