High frequency trading on Wall Street- and why it should worry us all

On the average day on Wall Street these days, more trades are executed than the sum total of trades in 1960. Sure, technology has made trading easier- but, as far as I know- the rules of investing haven’t changed that much.

Investing is supposed to be how you make money on Wall Street- that’s why our pensions, our insurance, and our monetary system are centered on the markets.

However, the people who run Wall Street and spend a lot of money buying politicians have transformed what was once an honest and honorable business into a high stakes casino, with our collective wealth as their play-toy.

We knew about “programmed trading” where computers were moving large amounts of stock in order to take advantage of the price fluctuations that moved with the large trades, and now- the new opiate of the powerful comes to light- “high frequency trading;”

High-frequency trading. Lots of buying and selling in micro-seconds. Speculation is that’s one of the reasons Goldman Sachs posted such out-of-this world profits last quarter… there’s no question the use of super-fast computers to make trades has been on the rise….

High frequency traders use computer programs to buy and sell stock extremely quickly. They can send out thousands of orders in the blink of an eye. It means there’s almost always someone to trade with if you want to buy or sell a stock….

Jamie Selway is managing director of White Cap Trading…

Selway doesn’t think high speed traders are that toxic. But critics say the firms are notoriously secretive. And their lightning fast trades can leave slower investors…like maybe your mutual fund provider…out in the cold.

Analysts say high frequency firms represent anywhere from 40 to 70 percent of trading on a given day.

via Is high-frequency trading fair and safe? | Marketplace From American Public Media.

Trading at this speed takes rational business value evaluation totally out of the picture. We no longer need to look at P&Ls or balance sheets- it’s all about manipulating markets and realizing profit from playing with paper. Paper just like playing cards at a poker table. The transformation from financial tool to casino game is almost complete- except they are really playing with your assets, not their own. How do you feel about that?

While we’ve been given every dog and pony show about what got us in this financial mess, the reality is- it’s all smoke and mirrors to distract us from the grandest theft of all time. Trillions of dollars have “disappeared” as the markets have disintegrated, yet, the people with the loot at the top, still have loot- and are now paying themselves bonuses with your tax dollars after we bailed them out.

Why do I continue to write about this on a site that is mostly read by local readers? The same games that are played by the big boys on Wall Street, are being played in backrooms here in Dayton, Ohio. The attempt to quickly raise the hotel tax by the County Commission to build an ice arena we didn’t know we needed for a team that didn’t exist? The influence of the political parties, special interest groups, labor, political action committees on local campaigns has been making sure that the people in power, stay in power- as long as the hands that feed them their campaign chest keep getting elected so they can continue to play with your money for their supporters’ benefit.

It’s time for a rational rethinking of how we evaluate campaign finance and our election process. It’s time to wake up and see that to follow the votes, one only has to follow the money.

It’s time to take the money out of politics before we don’t have any money left.

I’ve seen enough people worried about “socialism” – yet, those people haven’t even a clue. It’s the return of a monarchy we should be fearing. The people with money controlling and squeezing those without.

Until we see mandates on the market that force a return to investment instead of gambling (forcing the holding of stock for at least a year) we all are at deep risk of seeing our economic rebound- bouncing back at us, with another clean picking of our wallets as the new kings laugh their way off into the sunset.

Please note: I will not take cash donations from any group or organization.

If you enjoyed this post, make sure you subscribe to my RSS feed! If you wish to support this blog and independent journalism in Dayton, consider donating. All of the effort that goes into writing posts and creating videos comes directly out of my pocket, so any amount helps!

Leave a Reply

4 Comment threads
0 Thread replies
Most reacted comment
Hottest comment thread
3 Comment authors
David LauriIce BanditIn the 'Burg Recent comment authors
Notify of
In the 'Burg
In the 'Burg

I saw the same thing in an article on Huffington Post last week, talking about how Goldman Sachs outmaneuvers their competitors by milliseconds because they can afford faster computers.
Didn’t comment because I figured it was old news.

The Daily Show must not read HuffPo.

Ice Bandit
Ice Bandit

…and rich frat guys had newer cars, better wardrobes and superior dental work than the Old Bandito in their shared pursuit of getting inside the Levis of fey college girls. So what? The Bandito just had to work harder (pun intended) faster (again, pun intended) and smarter (that’s pure boast) then the brothers of Ro Ro Ro. The big guys have an advantage and always will. But as many self-directed investors will testify, the internet have given them the research power to actually cut the advantage the moneybag boys had years ago, when one needed a broker (what an appropriate name) to enter the arena of stocks, bonds and annuities. The last time the Old Bandito was in Vegas, one of his homies by the name of Larry Flynt was wagering big dinero at the blackjack table. Agreed Hustler Larry had a greater chance to win the Bonanza Motherlode at the table, but he also had to greater oppotunity to lose……………

David Lauri

Read an interest article in BusinessWeek by William Lazonick called “The Buyback Boondoggle” in which he criticizes corporate stock buyback programs, saying that there’s “no sound economic rationale for these investments” and that they primarily benefit “CEOs receiving stock-based compensation.” The article is available online at: http://www.businessweek.com/magazine/content/09_34/b4144096907029.htm
Of course, if I were a free market libertarian, I’d disagree completely with Lazonick and would say that it’s completely up to stockholders whether the companies in which they own stock do stock buybacks.  Stockholders who disapprove of stock buybacks could not invest in companies that do them, they could speak out at companies’ annual meetings, etc., etc.
But free market libertarian is hardly a label I’d apply to myself.  It doesn’t seem unreasonable to me that some restrictions be placed on how or if companies may do stock buybacks.

David Lauri

Wired had an interesting article on this subject yesterday, “Automated Stock Trading Could Speed Up Your ISP — No, Really,” which points out:

Regardless of where you stand on high-frequency trading, it’s clear that the massive amount of money being spent on extreme computing will help the rest of us eventually. Investments in the cutting edge nearly always end up making the lower end cheaper — and it’s been that demand that for the last half-century has powered Moore’s law, which posits that the number of transistors on a chip will double every two year.