Financial markets rise and fall based on the perceived value of the products being sold. But there are occasions when market value is affected by the condition of the marketplace itself, and whether the infrastructure that supports the market is structurally sound. This is the situation investors are now facing. There is rottenness apparent in even the largest and most trusted markets, like the US Treasury market, and investors are beginning to question how safe their funds are, or whether the protection being bought is worth anything. Private money is nervous, or it is fleeing the markets altogether. When so many different markets are afflicted by the same creeping structural weakness, it is no surprise that the average investor begins to ask whether Financial Armageddon may be upon us.

There are a number of recent cases where the “system” did not work the way investors expected, especially in the case of the collapse of MF Global, and the less-publicized ruling that banks would not have to pay out the protection they sold investors who bought credit default swaps covering a potential Greek government default. Before we turn to these specific and highly consequential events, we should look at the some of the precedents which reveal a history of rule-changing by banks and regulators that inevitably has worked against the interest of investors.

Rules Can be Changed for the Benefit of the Market Makers