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Re: <nettime> The secret financial market only robots can see
David Mandl on Sat, 28 Sep 2013 21:21:13 +0200 (CEST)

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Re: <nettime> The secret financial market only robots can see

To restate what Brian wrote, in five times as many words:

I think it's easy (and *usually* reasonable) to say, "This thing that's happening now, and the backlash against it, is just like such-and-such a thing that happened 100 years ago, and all that fuss turned out to be very silly."

So, whenever someone says, "Everything used to be so wonderful (especially when I was young). The whole world's going down the toilet now!" it's a good idea to point out that people in Chaucer's and Plautus's times were saying the exact same thing. People in the Old Testament got all teary-eyed for the good old days.

One contemporary example is the ever-popular "buggy-whip manufacturer," an analogy loved by Libertarian types. "Science matches on! There will always be people clinging to a useless, outdated past. We've seen this again and again. Deal with it--and learn HTML5."

Another is GMOs, where some people make the argument that, when you get right down to it, inserting pig genes into a tomato is really not all that different from transplanting a bean plant with a pair of household scissors. (This is a deliberately extreme example. No need to point that out.)

Another might be the sexualization of children. If I note that explicit videos, sexting, and all the rest are bad for kids you could make the argument that this is no different from the fuss about Elvis or women wearing dresses above the knee, and we all know how ridiculous those controversies turned out to be.

But is it possible that the thing happening now might really be qualitatively different from the "identical" thing that happened 100 years ago? I think it's important to leave that possibility open, though we know that being "objective" about the world we're immersed in is basically impossible. Maybe 999,999 times out of a million you're just being old and crabby. But there can be that one time where things really did take a permanent turn for the worse, and being able to spot that, or at least try to, is crucial. Did all the supposed horrors of Reaganism turn out to be a big nothing in light of Bushism? ("Reagan would be considered a liberal Democrat today!") Is what's happening now with financial markets, income inequality, and the rest of it the same old thing we saw in the late 19th century and the 1920s--both of which we "recovered" from?

I'd at least entertain the possibility that what's going on with financial markets now is qualitatively different and in some ways irreversible *given the corporate and government structures in place today*. And btw, I also think sexualization of kids in the early 21st c. is a very real and frightening problem (and I'm allegedly a Reichian).

So getting back to the subject at hand, I think algorithmic trading was destined to "fail" in the long term, the same way interest-rate arbitrage and early program-trading in the '80s eventually "failed." By definition, the way these things work is: (1) I come up with a formula that takes advantage of some "inefficiency" in the financial markets; (2) I and a few other early adopters print money for a few years trading on that; (3) everyone else catches on, and an arms race begins; (4) that inefficiency disappears because everyone's doing the same thing; (5) a bunch of people take a bath--perhaps taking the economy down with them, but that's another story; and (6) we dump this losers' strategy, go back to (1), and start again.

I think a lot of what's happened in the markets recently really is qualitatively different, and algorithmic trading is an example of that. Super-complex derivative products are another. Whether traders eventually abandon those things and move on doesn't matter much, IMO. The way markets work now is rigged in various extreme ways, such that only a small group of people with very esoteric technology or human capital can make money at all, and most other people will get shafted as never before. I'm not talking about a Golden Age of capitalism--I'm saying any microscopic cracks or safe havens that might have existed before are now gone. Think of the way that so many workers in the US have had unions, welfare, etc. to at least protect them from starving. Those things will be gone soon if a certain of group of people has its way. And no, I'm definitely not saying things are hopeless, just hopeless under the system we have now, whatever you want to call it.

BTW, I've worked with complex derivatives and high-speed trading systems. The people behind them would say (publicly) that they're simply "providing liquidity to the market." They think what they're doing is essentially the same as what happened under the Buttonwood Tree in the late 18th century:


...which, of course, is bullshit.



On Sep 26, 2013, at 6:21 PM, Brian Holmes <bhcontinentaldrift {AT} gmail.com> 

> Hi Chad -
> First off, not to worry, I recall good interactions with you and I 
> respect you as well.
> On 09/26/2013 02:40 PM, Chad Scoville wrote:
>> The conversation should be less emotional about the implications of
>> this systemically, and instead how much novelty gets generated in
>> culture as a afterimage of electonic market making. Robots trading
>> was a forgone conclusion when NYSE SuperDOT came on the scene.
>> Earlier, Reuter revolutions infomation arbitrage with the uilization
>> of passerger pigeons to exploit data leakage between markets.

Dave Mandl
dmandl {AT} panix.com
davem {AT} wfmu.org
Web: http://dmandl.tumblr.com/
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