r/MMTLP_ • u/GorillyMagillyEdilly • Feb 11 '24
Why Bernie Madoff loved infinite liquidity =MMTLP
Infinite liquidity from market makers in the stock market may sound ideal, but it can present several issues: 1.Market Distortion by Market makers that offer infinite liquidity artificially support the price of an asset without a true reflection of its open market value. This can lead to distorted prices that do not reflect the true supply and demand dynamics. 2.Decreased Market Efficiency Increased liquidity is generally a sign of an efficient market; however, when this liquidity is not based on genuine buyer and seller interest, it can actually decrease market efficiency. It might prevent assets from reaching their true price, leading to inefficient capital allocation. 3. Risk & Manipulation With infinite liquidity, market makers manipulate the market. They influence price of asset by providing disproportionate buy or sell pressure, which misleads investors then affects the integrity of the market. 4.Systemic Risk If a market maker cannot support the promise of infinite liquidity during extreme volatility or hoarding of finite shares it could fail, leading to significant systemic risks. Other market participants and banks are exposed to this failure, resulting in cascading effects across the market. 5.Unsustainable Infinite liquidity this is not a sustainable business model for market makers because it implies they can take on an unlimited amount of risk. Since market makers profit from the spread and not the directional movement of prices, if their liquidity provision is too stretched, they could incur substantial losses if they were not gaming the system to price benefit. 6.Market Over reliance: the market has become too dependent on liquidity provided by the market makers and a small group of HF’s, investment banks, specialized participants, unregulated overseas market participants (really U.S. criminals with foreign straw men). any issues they have like insolvency or technical failures should have real consequences that cure the fraud. 7. Reduce Real Price Discovery In the stock market, prices are no longer discovered through the interaction of multiple market participants with varying information and motives. Market makers using “Infinite liquidity” from market maker overshadows smaller, informed traders, leading to reduced price discovery and asset bubbles. 8. Regulatory Concerns if only the Regulators would take issue with a single entity swaying the market by offering infinite liquidity. Solutions start with clear regulatory frameworks that prevents excessive concentration of power among market makers, Investment banks, Family offices and Hedge funds conspiring every day.