Tuesday, July 8, 2014

High-Frequency Déjà Vu

If you are a believer in “free-markets” and laissez-faire, perhaps an excursion beyond Milton Friedman (& company) might prove useful.

Here is one suggestion:
Flash Boys: A Wall Street Revolt by Michael Lewis © 2014
In trying to unravel a Wall Street mystery, several people, hired and headed by Brad Katsuyama of RBC (Royal Bank of Canada), pursued the threads of evidence and history. One of those pursuers was John Schwall who went “digging around the Staten Island library” looking at other Wall Street scandals. Here is how Lewis describes it:
Several days later [John Schwall had] worked his way back to the late 1800s. The entire history of Wall Street was the story of scandals, it now seemed to him, linked together tail to trunk like circus elephants. Every systemic market injustice arose from some loophole in a regulation created to correct some prior injustice. “No matter what the regulators did, some other intermediary found a way to react, so there would be another form of front-running,”[1] he said. … He’d learned several important things, he told his colleagues. First, there was nothing new about the behavior they were at war with. The U.S. financial markets had always been either corrupt or about to be corrupted. Second, there was zero chance that the problem would be solved by financial regulators; or, rather, the regulators might solve the narrow problem of front-running in the stock market by high-frequency traders, but whatever they did to solve the problem would create yet another opportunity for financial intermediaries to make money at the expense of investors. ... (p. 103)
So, here is a suggestion for those who “worship at the altar of the free-market”2 (like conservative Gerry Nicholls2). Please: open your eyes and ears to the high-frequency déjà vu of the faux-free, faux-efficiency, faux-self-correction, faux-hype, etc., etc., surrounding corporate capitalism.

from office.microsoft.com
1. “Front running is the illegal practice of a stockbroker [or high-frequency trader, et al.] executing orders on a security [or buying/selling] for its own account while taking advantage of advance knowledge of pending orders from its customers [or other investors, buyers, sellers, or brokers.]. …” quoted from  http://en.wikipedia.org/wiki/Front_running
2. Quote from conservative Gerry Nicholls at minute 9:50 on CBC “The Current”: episode titled, “What is the Future of Public Broadcasting in Canada?” broadcast May 14, 2014.) http://podcast.cbc.ca/mp3/podcasts/current_20140514_13102.mp3

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Déjà Vu ~ Times blog by SMSmith is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 United States License.