The financial markets on automatic pilot

flash-boys-jkt_1In a well-ordered economic system, financial markets provide a means for business enterprises to obtain financing and for investors to judge the worth of a business.

Flash Boys, the latest book by Michael Lewis, tells how far the financial markets have gotten away from that purpose.

His subject was high frequency trading, a method of skimming money from other peoples’ financial transactions.  Enormous expense and ingenuity has gone into perfecting high frequency trading.  But from the standpoint of social good, the only question is to what degree it is extremely dangerous, moderately harmful or  merely useless.

High frequency trading is done by computers, because human beings are too slow.  Computer trading accounts for about two-thirds of transactions on U.S. stock exchanges.  There is even a venture capital company that has a computer algorithm on its board of directors.

The science fiction writer Charles Stross wrote about futures in which artificial intelligences incorporate themselves in order to gain legal standing as persons, and in which computers and robots have created a fully functioning society while human beings die out or are sidelined.

I don’t expect this to happen, of course, but it is a good metaphor for what is going on.   Putting such a large part of the financial system on automatic pilot is reckless, especially in an economic recovery that is fragile to begin with.

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Click on Scalpers Inc. for a review of Flash Boys by John Lancaster in the London Review of Books.  Hat tip to Steve Badrich for the link.  I haven’t read the book myself.

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One Response to “The financial markets on automatic pilot”

  1. informationforager Says:

    Thanks. This was very interesting.

    I’ve always said that there are really only two things for sale in the world. The product itself(cars, boats, oil, computers) and access to the product.

    For instance John Rockefeller didn’t sell just oil(anyone could do that) He also controlled the railroads, the oil barrels, the oil haulers, and the pipelines and people who ran them.

    Bill Gates and Windows has never sold one computer. Everything they do sell is access to my own computer. This is why it was a great idea to initially “package” every newly sold computer with Windows. Eventually it became Windows that was important, not the computer.

    Then there is the controlling of physicists, scientists, and inventors by corporate America. Incorporate them and give them security and a steady paycheck. This is why very few people had heard of Robert Kearns and Philo Farnsworth, This why Tesla has been relegated to a second rate status to the American born Edison.

    Examine it on your own and you will see that controlling access to the product is the best game in town.

    Like

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