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people clinging to a useless, outdated past.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:
http://www.loc.gov/rr/business/hottopic/stock_market.html
...which, of course, is bullshit.
Cheers,
--Dave.
On Sep 26, 2013, at 6:21 PM, Brian Holmes <[email protected]>
wrote:
> 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
[email protected]
[email protected]
Web: http://dmandl.tumblr.com/
Twitter: @dmandl
App.net: @dmandl
Instagram: dmandl
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