Sapping the Economy @ LightSpeed

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I believe in the free market system.  That means the market will do whatever it is free to do.  That also means if there are regulations that prohibit it from doing certain things, its not free to do them.  I’m no expert on the economy, but apparently you don’t have to know anything about it to weigh in on it, so here’s my rant:  We’re allowing “flash trading” to sap our economy, we’re even subsidizing it.  We should stop it.  Its un-American.

It used to be that companies succeeded or failed based on their ability to compete and produce quality products or services.  Interested by-standers with lots of money could participate in successful companies success by investing in them, which had the added benefit of rewarding them with more capital to grow and become more successful.  Which made the stock worth more, everybody wins!  What a wonderful system!

Wealthy people (or retirement funds for example) hire Wall Street Portfolio Managers to make sure their money earns them the maximum return on their investment.  OK, nothing wrong with that.  As with everything else these days, we can manage complicated challenges better with computers, right?  We can wire them up and program them to instantly summon up the current standing of any stock or foreign currency.  Nothing wrong with that either, right?

Here’s where the train went off the tracks:  Instant buy/sell trading was taken over by programs.  Granted, people wrote the programs,  but as anybody who has ever worked with computers knows, programs can quite often be really dumb.  So now the global economy is wired together with fiber optics speed, and it never sleeps.  Programs see a sudden pre-determined pattern and instantly buy or sell stocks, often with no basis whatsoever in the inherent value of a company or currency.  The people who make the most money from these “flash trades” are often betting against companies, even the economies of countries, in effect hoping they will fail, and profiting if/when they do.

In fact its often more profitable to bet that everybody will fail than to bet they’ll succeed.  Some companies make so much money doing this that they have located their computers within meters of the various stock exchanges, so that they will have access to changing information nano-seconds before their competitors.  They see the market trending down, they short it and make money.  They see it trending up, they switch horses and make money.  Sometimes hundreds of thousands of shares zip back and forth, sometimes for only a few seconds at a time.  Either way they make money.

As a result, the market takes wild swings, provoked by the slightest ripple in the fragile  global economic fabric.  When the stock market numbers trend upward it is supposed to be an indicator of our confidence in the future.  When they trend downward it is supposed to be an indication of doom and gloom ahead.  And if they go down too fast, the same people who have made out like bandits no matter which way the market goes look to us to “bail them out”.

The Wall-Street protestors have been criticised for not having a clear coherent message.  Business people want to portray them as freeloaders and old hippies looking for a handout.  And in typical media frenzy fashion, every fringe group wants to try to co-opt their movement to advance their agenda.  They’re really just a reflection of an economy thats been sapped of its strength, and many of them are where the rock becomes a hard place.

I’m guessing that the reason flash trading and betting against success are not outlawed is because so many big investment companies make so much money at it, and we all know what happens if government tries to regulate something this complicated. Or this profitable!  There may also be an argument that if we prohibit it then investors will just move to markets that allow it.  That still doesn’t make it right.  No matter how you slice it, betting that a company will fail, profiting from its loss, due in part from the very fact that you bet against it seems un-American to me.

If somebody could figure out how to return investing to what it started out to be – betting on the continued success of a good solid company – I’d vote for them!

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