Krugman op-ed 'Three Expensive Milliseconds' and a reply

Why would Krugman write, "It’s the whole financial industry... that’s undermining our economy and our society"?  Maybe if he can get put the blame there, it will justify "comprehensive reform" type of legislation to control every aspect of the 'whole financial industry'?  Just a guess.

What a waste! Slugman seems to have identified a huge misuse of resources and wealth in our quasi-capitalist system.

Still, there's a freedom solution to this problem -- if it is a problem. That's because there's a freedom solution to every problem. Freedom is 100% good in theory, and 100% good in practice. There are no exceptions. Tyranny or philosopher-king welfare statism is never the answer -- never the best solution. But it's often hard to figure out the factually-correct answer to these type of public issues in the abstract, and off the top of one's head, and for every single issue. It's also boring as hell. And rather pointless -- since it won't convince the welfare statists at all. And they're the only ones (perhaps) worth convincing. If you win this debate, they'll just come up with another rare, tricky, bizarre, or esoteric conundrum you can't instantly, expertly dissect and explicate to their satisfaction. Or even to yours.

This is where the value of principle or theory arises. One needs to understand things in a fundamental or theoretic way which is sound, strong, and covers all bases.

Without my thinking about it too much, or even being willing to, maybe the answer here is for the various respectable stock markets to refuse to allow ultra-high speed trading -- since it may be inherently fraudulent, or at least biased. Or else maybe there's a need for honorable company owners and traders to equalize the trading speeds of all, such as by only allowing trades to be processed on the hour, or every five minutes or so, with all transactions taking place simultaneously.

Slugman does seem to have identified a problem in our mixed socialist/capitalist system. But more gov't regulation and coercion -- which is his answer -- isn't the correct solution. We know this because it never is. If you examine them closely you can see that gov't programs and regulations and economic/social/personal "help" has an unbroken 100% failure rate.

The rule and principle is simple: Political freedom (and justice and individual rights) is 100% good in theory, and 100% good in practice. This applies to economics and society and personal behavior. No problems, weaknesses, inefficiencies, paradoxes, dilemmas, contradictions, defects, limitations, etc. ever result. There are no exceptions to be found in all of human history. Not one.

This needs to be conceptually and theoretically established, once and for all. And this pro-freedom belief, position, and policy isn't a matter of faith or extremism. It's a matter of fact and of well-established human experience.

True arbitrage serves a purpose; a mechanism to equalize market prices among different markets.    OTOH, how many people have that on their list of things to do today, or worry about?

As in ... so what if the price of some complex instrument is higher or lower on the London exchange than it is in Chicago or New York?

Put that question aside, and consider driving a car.    If you drive the car by looking up ever hour and then adjusting speed and direction, you have a control problem.   Your control is lagging your feeback so much that you will soon carreen out of control.    But this depends on how fast you and others around you are driving.  I mean, trading.

The fact that there is high speed trading, in a way, is what enables day traders.    And the fact that there are day traders, in a way, is what enables folks who move into and out of the market infrequently but, when they do, they want to move into it and out of it.

So that is being the devil's advocate.      But here is being a devil.

I am extremely suspicious of the 'free' day trader console software handed out to day traders by the major brokerage houses.    Please tell me that regulators are smart enough to detect/understand how all the data from those 'free' consoles are being used by the broker houses.   I'm sure there are all kinds of 'rules' in place, and I'm also sure that crooks have long ago figured out that these 'free' consoles are a self-subscribing data collection platform that, when tied into HFT systems, provide an enorumously attractive source of bleeding just enough to make a guaranteed killing.

It's one thing for HFT guys to compete with each other and try to predict short term trends based on models of how news is percieved differently in different markets.    Whoever can correctly analyze real time news and predict the future soonest can get out ahead of the other guys staring at the same news, and win enough of those and you are making a killing doing ... something, I guess.   But it is another thing to tip the scale by wiring up day traders with 'free' trading console s/w and using them as extremely slow moving bait in the water.  As well, it is yet another thing to be putting on a pony show pretending to do the former, when what you are really doing is the latter.      Does anyone think that Wall Street folks are above this?  On what basis?

Beyond complex.  No way that SEC regulators are all over the market and all the gaming going on(little of it having anything to do with actually creating value.)   

Maybe can be slowed down by making everyone parse FpML, but ... not for long.

regards,

Fred

Merlin:

Yes -- so you see the potential problem, if HFTs are in some way wired up to the slow moving day trader 'free s/w' consoles.    That is an enourmous potential for very crude automated front running.    As in,  folks putting on a great pony show of pretending to deal in high concept algorithms that predict differential market reactions based on real time analysis of news feeds, when all of that is just a smoke screen to hide the crude automated front running occuring by being wired up into slow moving day trader consoles.   HF noise to hide the slow as molasses same old same old going on somewhere off in the tangled mess of not even racks of servers and wires anymore on the floors below.

The in someway is the key.   How subtly can that be accomplished?   How astute are the regulators eyes(off doing things like safely twiddling with what must be in FpML till their heart's content, looking busy and getting paid?)   How solid are the conceptual firewalls?

In the old days, they could at least point to a room full of racks of servers and wiring and tell some poor guy to have at it, knock himself out looking for the dirty connections; ha, as if.    But never mind...where is all that interconnectivity today?

Ripe for gaming.   Tell me you think Wall Street has refrained from the opportunities.    It is quaint to even think that.

No doubt there must be 'rules' and firewalls between the data 'oozing' in from those 'free' day trader consoles to broker houses, and the HFT silicon, to shortcircuit automated front running.

OTOH... such automated front running could be made subtle;  down in the noise of small differences where HFTs live.

As in... hey, does anyone mind if we start dealing in prices down in the third decimal place?

I'm willing to bet that the small print in those 'free trading console' s/w packages makes for some interesting reading.

But never mind the small print; folks will sometimes do what they can do, not always what they may do.

I'd be flabbergasted if this isn't widely occurring; what suddenly ethical species is this?

Gaming of the gaming; creating no value whatsoever, parasitically siphoning actual value off of economies that do.  Because they can.    Not in a small way, like a leech on a living beast, but in a large way, like a horde of leeches on a carcass.

Mankind's naked sweaty ape bent for criminal enterprise has totally dominated our economies; this is just one example.

The horde of leeches can't believe it; there is seemingly no end of how far beasts of burden will struggle, even covered with leeches.

It is a conceptual problem, not a problem of technology.   All it takes is someone who wants to do that, period, and the species is expert at delivering up examples of same.

The real conceptual problem is for advocates of freedom; does freedom embrace the freedom to unleash a horde of leeches?  Are there wide reaching side effects of this that are a hard to see form of forced association-- side effects that over time eat that very freedom?

regards,

Fred

A book that comes quite right for this series of posts is "The Criature of Jekyll Island," where G. Edward Griffin provides sufficient proofs that governments and high-finance, of which Krugman is a prominent part, work heavily to impose a collectivist world government on humanity.