Posts Tagged ‘Flash Boys’

The financial markets on automatic pilot

June 24, 2014

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.