Friday, May 7, 2010

"Investors," High Frequency Trading, and Market Melt-downs

Okay. Even assuming that all of Greece's economic troubles were caused by a bloated, inefficient public sector and counter-productive social programs, I'd still get a real kick out of all these nameless "investors" who want to make sure that the Greeks endure a really, really punishing austerity program, and who are withholding their money from Greek, Portuguese, Irish, Italian, and Spanish bonds out of fear that these countries' finances are unsustainable.

Because, as "rational" actors, shouldn't these "investors" be able to understand that if Greece implodes, so will those other countries, and then, so too will the big French, German, and British banks that hold their debts? Shouldn't these "rational' "investors" realize that they'd best go easy on the Greeks and play along to get along? Or else the entire world financial system will again descend into crisis, requiring still more massive public-sector bail-outs? (Or is that the hope? Bail-outs mean higher public debts everywhere which equals more excuses to call for austerity throughout the OECD, which means an even more devastated working class?)

As it is though, Greece's problems are not solely (if at all) the result of profligate spending on the needs of the majority. Non-collection of taxes (especially on the wealthy) is a huge contributing factor to Greece's debt-to-GDP ratios.

But how about those "rational" "investors" 'eh? Apparently the world's "investors" were thrown into a temporary panic yesterday as the Dow Jones Industrial Average plunged 1,000 points in 15 minutes, wiping out between $800 billion to $1 trillion in value world-wide. Wow! Even $800 billion is a LOT of money! So, how did it happen? Well, it turns out that these "rational" "investors" don't know.

When I was a kid, my mom gave me ten bucks to pick up some groceries on the way home from music lessons. I remembered about the groceries when I was almost home and turned around to go get 'em, but as I was looking for the ten dollars I couldn't find it! I was mortified. Ten bucks was a lot of money in the 1970s and we didn't have a lot in those days. I tried and tried to think about what might have happened, but I never found out. My mom was pissed, but not overly so.

I expect more accountability from the world's "investors" than from a ten-year-old. This is goddamn ridiculous. Especially when these idiots speculate as to what might have happened:

Speculation on the drop ranged from computer glitch to a so-called "fat fingers" error to automated trading that was triggered somewhere around 10,600 for the Dow.


Business Insider's Joe Weisenthal said rumour was "big fat fingers" caused the crash.

"Major US bank had an order to sell $15 mln of S&P e-mini contracts. Accidentally sold $15 bln…," he wrote on his blog.

Evidently though, it probably wasn't a "fat-finger" that caused it, but more likely automated, High Frequency Trading algorithms. (But the mere idea that it's a possibility for a ONE-TRILLION-DOLLAR MISTAKE just shows how completely out-to-lunch the thinking within the world's financial markets is.) These automated trading algorithms base their actions upon rough clues from the world's financial markets. They're describing this computerized-meltdown as a glitch. But maybe it isn't just a glitch. Maybe with the economic recovery being fuelled by deficit spending, stock-market speculation based on public funds, increasingly indebted households, and with "investors" behaving like suicidal vultures looking to attack countries that should be clawing out of a recession, maybe the computers are more "rational" than we give them credit for.

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