Still wondering why the market has such bizarre action? Why the Mom-and-Pop investor wants little to do with it? Wondering if fear of Flash Crash II runs high? Look no further, High Frequency Trading (HFT) has been indicted in full.

The blog Zero Hedge, one of the most cutting-edge and informative places to get inside knowledge on how the market works, has been pointing to anslysis from Nanex, a market data provider, on how HFT is corrupting markets and trigger May's "Flash Crash." It paints an incredibly disturbing picture of a dysfunctional market rigged by crooked robots.

I won't reprise the entire analysis -- you can wade through the orginal posting on Nanex discoveries yourself, and it's worth a look if only to see the fascinating and bizarre charts.  But I can summarize it: The markets have run amok with diabolical "quote stuffing" programs that try to mine holes in the market system and  fool other computers and markets into coughing up stock quotes at absurd prices.

It was fascinating how the SEC lawsuit against Goldman Sachs precipitated a global selloff in just about everything on Friday: Stocks, commodities, pieces of paper. Its seems to me the mass hysteria was overdone. What gives? After all, the SEC launches lawsuits all the time -- and often fails to win them. What's more, this was a civil suit, not even a more official prosecutorial effort by a real organization, such as a District Attorney. Here's what I think: The markets are dumb. Really. The market is not going to go up or down based on the output of this SEC lawsuit. The markets are going to go up or down based on whether or not there is a strong recovery in the economy. The lawsuit itself has virtually no bearing on this, because it consists of government bureacrats picking over the carcass of a Wall Street disaster that started unfolding nearly 3 years ago. The damage is done. The SEC is looking in the rear-view mirror.

Well, I like to look at the bright side of the SEC fraud charges against Goldman Sachs. At least by the look of the 5-day chart of GS, nobody saw it coming. So we know that the SEC wasn't leaking information and trading on it!

I'm reading through the SEC complaint and many of the news stories about the alleged fraud in a mortgage-backed security called ABACUS 2007-AC1 (it just sounds diabolical, doesn't it?). The complaint  charges that the game was rigged, with Goldman Sachs allowing a hedge fund, Paulson & Co. (which was predominantly short the mortgage market) help select the securities that were in ABACUS, which was loaded with poor-quality mortgages, and then sold it to an unsuspecting client. Now, in Goldman's defense... it was acting as a broker between the two parties. So the question is what material knowledge it should have disclosed to the buyer. The SEC is essentially saying that Goldman was rigging a little time bomb on the declining mortgage market, and did not disclose that it knew the deal was filled with danger and conflict. It says that a Goldman executive, Fabrice Tourre, structured the deal and purposely left out material information about how dangerous the securities in ABACUS were. You can read the complaint here. Here is the Wall Street Journal article. And the Reuters story. If true, this story will confirm what we already knew: that the large Wall Street operators are filled with snake-oil salesmen trying to sell stuff to people to fill up their own bank accounts. What will probably happen? Goldman will get a wrist-slap, and we'll go back to business as usual... The market is currently freaking out with a big selloff. Presumably, this is because we'll now have suspicion about Goldman Sachs and all of Wall Street and it will be harder for them to mint money churning trades onto unsuspecting fools. The market is possibly also selling off because this will impact Paulson & Co., one of the largest hedge funds on earth, may have to liquidate some positions or be investigated itself. Have we learned anything?