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August 1, 2009

high-frequency trading

I've been sitting on this for while, for reasons I'll explain.

A couple days ago, the NYTimes ran an op-ed from Paul Wilmott, the editor of a journal devoted to quantitative finance, sounding the alarm on high-frequency algorithmic trading, helpfully described as:

The idea is straightforward: Computers take information — primarily “real-time” share prices — and try to predict the next twitch in the stock market. Using an algorithmic formula, the computers can buy and sell stocks within fractions of seconds, with the bank or fund making a tiny profit on the blip of price change of each share.

And he's opposed to it.  On one hand, he has faint Promethean worries about reliance on machines and snazzy new AI functionality.  And one the other, he's concerned about misplaced priorities:

Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects.  Maybe it had a product that you liked the look of, or perhaps a solid management team.  Increasingly such real value is becoming irrelevant.  The contest is now between the machines — and they’re playing games with real businesses and real people.

And that's what makes me queasy as well.  I'd propose that the advent of high frequency trading divorces the stock market from its original utility as a market to facilitate access of capital to actual goods/services business interests.  If the profits are being taken in millisecond increments and not over time (or at least in some increment that a stock-issuer can rationally show a change in value), then the stock market solely becomes a mechanism for vampire financial services to suck money out of the market in the form of super-short-term profits, and any traders with an eye on the long term is just another mark to get nickled and dimed to death by an algorithm.

In a sense every market can be reduced to smart greedy people taking money from suckers -- but should it?  Can reckless exploitation of the market interfere with the higher purpose of the market, like, for example, cornering a market, say, in potatoes.  The cornerer will stand to make a whole lot more money, but what of the people that need to eat potatoes?

And if the stock market is there to provide money to business interests for vital useful purposes, does reducing the stock market to a glorified slot machine where the house keeps lowering the odds actually serve anyone other than the house?

And the usual disclaimer applies of my lack of training and practical experience as far as economics strongly applies here -- I'm just trying to apply some of that old common sense to an inscrutable structure.  And this is why I've chewed on it for a longer period than usual (i.e., at all).  It seems to me that the first/most common defense against criticisms like the ones above are, "You clearly don't know what you're talking about, and therefore shut up."  The first part of that is valid, partially -- I don't know as much as a professor, or a career Wall Streeter, or Tom Frank.  But, I feel that the "you are irresponsible for putting forth opinion when others know more than you" argument is a dodge, especially in the sense that I am approaching this as an amateur on purpose.  I'm not arguing some niggling facet of the landscape, I'm proposing that there once was a forest, and now everyone's very protective of their trees.  (And frequently "others know more than you" can be replaced by "your betters", which is the heart of the complaint: theirs, and then mine, in a confirming sense.)  Ultimately, though, if everyone shut up because of a lack of total intimate knowledge, then there would be no speaking at all, and hence no oversight.

And finally, I'm not afraid to be wildly wrong.

Posted by mrbrent at 8:48 AM

July 30, 2009

put me down for the financial services industry backlash

This is getting to be broken-record territory, but maybe it will change some day and it won't be there to write about.  Big story this morning about how lenders are reluctant to help out homeowners having trouble with their mortgages, as Washington would like them to do in light of all the free money they've been given, because the lenders are enjoying the fees that are racking up on the delinquencies.

Galling enough, and we're almost inured to it -- they get rescued and still won't do a solid for all the people that are not too big to fail, I guess.

But just pick your teeth with this, the non-denial denial of Bank of America:

“To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,” said Robert V. James, the bank’s senior vice president for mortgage operations and insurance.  “It’s not the right thing to do.”

Not even it "is" ludicrous, this thing that James is clearly not saying that BoA is not doing, but that it "seems" ludicrous, leaving room for it to not be so ludicrous for all.  They could at least leave cab fare on the nightstand if they're fucking people like that, right?

Posted by mrbrent at 3:55 PM

July 29, 2009

good morning 7.30.09

Here's a suggestion in the interest of self-policing proscriptive behavior: when on the publicity trail for your new book, do not describe either your purpose in writing the book as "helping people out" or some such.  Because, really, if you wanted to be "helping people out", you'd be giving the book away instead of selling it, wouldn't you?

I hate to get all ranty first thing, but twice in literally three minutes I was faced with this trespass.  First in a Gawker post detailing how doughy millionaire Glenn Beck wants you to buy his book so that sending his daughter to Columbia won't dip too much into his $18 million dollars a year.  He also wants everyone everywhere to buy his book so that everyone has some point of reference to start from, so that it is in the interest of public service that he wants sell millions of books.  And we almost fell for it!

And then seconds later there was a shouty feature on 1010WINS (a local newsradio, but totally Dave-Foley-less) on a new book by Mary Jo Buttafuocco, who is shilling a book about "helping everyone identify a sociopath," which is a direct reference to her ex-husband and an oblique reference to the extent that she is willing to mask her naked greed as charity.

Oof.  Good morning?

Posted by mrbrent at 12:32 PM

charles e.f. millard: let's find out how bordering criminal those actions were

I had to kick my memory into gear after reading this story on how Black Rock (a towering financial management firm) and Goldman Sachs (a bad-guy for our times) wined and dined the head of the Pension Benefit Guaranty Corporation in order to snatch some fat contracts.  Memory is something I don't use so much unless mentally reviewing post-punk CDs of the early 90s, or "college things I want to redo", so it took a second.  Because the PBGC is the federal organization that assumes the obligations of private pension funds that are jettisoned by our private business interests as they go out of business or just get sick of paying them -- don't call it a bailout; it's been here for years.  BlackRock and Goldman both got their contracts yanked after a spot of PBGC internal investigation, but that's not what was ringing the bell?

Google is my friend.  It was this from four months ago -- a little nothing of a story about how in the waning days of the Bush Administration, the head of the PBGC, Charles E.F. Millard, had taken $64 billion dollars of PBGC money out of bonds and put it into the stock market.  The coincidence being that Millard is the same fellow who was being wined and dined by BlackRock/GS for the right to make some sick fees off all those funds newly free for investment.

I was up in arms over it at the time because it was a two-for-one transgression -- first, it's gambling with the pension money of Americans, who would be as outraged to have their pensions vaporized, and second, it's another example of the financial services industry sucking up every last nickel they can so that the market can be fueled like one big pyramid scheme.

Come to find out, I should have also been up in arms as another Bush Administration sinecure found a way to grease his palms while performing a public service poorly.

After these weeks of bad publicity, I'll bet that Goldman Sachs is pleased to have Charles E.F. Millard, a man with one too many middle names, taking some of the heat.

Posted by mrbrent at 10:33 AM

permanent brunch bacon bar

This is not an endorsement -- never been to this place, and I'm not sure if I entirely approve of the concept.  But there is a restaurant opening in NYC's East Village called Permanent Brunch, and I think they'll be getting a lot of ink, at least digitally.

The concept is that they will serve a brunch menu around the clock -- that makes it aptly named.  But this is not the concept of which I do not approve, or what will infamize them.  No, that aspect of their business plan is reported to be a "bacon bar" which is offhandedly noted as "serving five varieties".  I'm going to assume that it's exactly what it sounds like.

The uproar will be equal parts bacon-loving and shark-jumping, but I don't see why it won't be uproarious.  Me?  I don't love bacon any less these days, but I don't see a clear need for my access to bacon to be improved at all.  In weird ways, a bacon bar reminds me of what Kurt Andersen is talking about.

Posted by mrbrent at 9:06 AM

July 28, 2009

and pat buchanan shall lead them

The sad thing about the Birther issue is that the most fascinating aspect is rarely discussed -- the heart of the Birther belief system is that a woman would falsify the birth papers of her baby for the purpose of tricking America into voting for him for President four decades later.  Oh, and the baby is fathered by a Kenyan.  In the early 1960s.  That is some high quality crazy, that.  It's just one time machine short of They're Coming To Take Me Away, Ha Ha, and frankly a much more worthwhile thing to discuss than the meaning of "native born" or the provenance of a paper birth certificate.

The sadder thing about it is that based how the GOP behaves as they realize the Birther issue might have "traction", it's only a matter of time that they start to openly pander to that portion of Obama's detractors who are so solely because Obama is not a white man.  Sure, they're racist, but they vote.

Posted by mrbrent at 7:24 PM

and the rand played on

To offset my constant juvenile harping on Galt-going dingbats, I offer as an apology this Mother Jones article by Amy Benfer is a sober and reasoned explanation of the phenomena:
Since [the arrival of "Joe The Plumber"], "going Galt" has become, as the Cato Institute's Will Wilkinson quipped, "a certain kind of libertarian-conservative's version of progressives threatening to move to Canada."  After all, if right-wingers are no longer in a position to shrink government to the point where, as Grover Norquist once proposed, they can "drown it in the bathtub," they can still take their rubber duckies and go home.

Of course, the conclusion reached by Benfer is not entirely incompatible with my assertion that Galt-goers are dingbats, but Benfer arrives there without name-calling or acting childish (like I do).

[Via Maud Newton/Bookforum.]

Posted by mrbrent at 4:00 PM

sarah palin: please don't hire a speechwriter

My favorite part of the Sarah Palin GBCW speech was this one (with her "you" being members of the media):
You represent what could and should be a respected honest profession that could and should be the cornerstone of our democracy.  Democracy depends on you, and that is why, that’s why our troops are willing to die for you.  So, how ’bout in honor of the American soldier, ya quite makin’ things up.

The smarmy self-satisfaction that just drips off her as she says it is fabulous -- it's as if she honest believes that she's the first person to employ a syllogism and there's no way critics will stand up to the righteous might of such a rhetorical device.  It encapsulates why she is at least temperamentally unsound for public office, let alone celebrity.

I'm sure everyone has their favorite moments, but that's mine.  At least until the next one happens, during her stint as guest judge for "America's Got Talent".

Posted by mrbrent at 11:54 AM

good morning 7.28.09

You ever have one of those moments where you know you should be pouring out the words but you just can't figure out what they're supposed to be?  It's not classic writer's block (cuz boy I've had that before), more like a little tiny panic attack that only involves putting words into a fixed state.  And not necessarily creative writing, either -- everything.  Work, FB, Twitter, commenting, this thing here, postcards, letters, bills.  It is not a comfortable feeling.

I took myself a little mental health day yesterday, and I don't think it helped.

In other news, in the past twenty-seven days, there have been seventeen separate instance of someone being directed to this site by searching the phrase "matt taibbi shirtless".  If that's not inspirational I don't know what is.

And with an obligatory, "Enough with me whining," good morning.

Posted by mrbrent at 10:32 AM

July 27, 2009

palin/cuba

Dig this: the day that Sarah Palin heroically and victoriously quit the office of governor is the very same day that is the 56th anniversary of the Cuban revolution.

Both Palin and Cuba are distrustful of the free press, and can't hardly make a lick of sense.  Plus, both Palin and Cuba are rumored to be running for president.  Coincidence?  I DON'T THINK SO.

If only Cuba would quit something, then the correlation would be undeniable.

Posted by mrbrent at 8:38 AM