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And suddenly, HFT

I never knew that Casey Kasem was the voice of Shaggy. But I digress.

CBS recently did a good piece on High Frequency Trading (HFT), a means by which well-connected computers churn the stock markets and skim the cream. 15 minutes, here it is:

But a few things are odd about HFT as a story, or at least noteworthy.

First: the curious absence of government involvement. HFT has been going on for years (Zero Hedge started blogging it in 2009). Where have the vaunted government regulators been, all this time? Answer: Nowhere (until right now, as we’ll discuss in a minute).

The CBS piece praises Brad Katsuyama, a trader who figured out years ago how HFT works and founded a new exchange, IEX, to try to defeat HFT. That’s a great example of private enterprise being ahead of the regulators.

In fact, private enterprise has run circles around the regulators; first by creating HFT, then by being years ahead of government in working to defeat HFT. Could it be that government regulation isn’t effective? (cough)

The mainstream media’s absence from the HFT story until now (2014) is also striking. And that brings us to the second oddity: the timing of the CBS story. As if by magic, within days of its airing, we have also had announcements that the FBI will finally probe HFT. And that Goldman-Sachs will back IEX, the new HFT-free exchange. (Update: And the pr0n-watching SEC finally, also, investigating.)

I’m old enough to recognize a co-ordinated campaign. Granting that HFT is a real story, I still must speculate that the reason why HFT is suddenly on our collective lips, under investigation, etc., is because somebody powerful finds it convenient, at this time. (Where in the previous five years, they didn’t find it convenient.)

Who is that somebody? I don’t know. I did just note that Goldman-Sachs is rolling with the punches, at least. Over at Zero Hedge, they speculate that HFT is now being set up as the scapegoat for a coming stock market bubble-crash. The Federal Reserve is (by its QE, ZIRP and many other policies) the biggest market-rigger of all. The Fed has engineered the stock market bubble of the last five years. And, when that bubble bursts eventually, the Fed will want us all to blame something or someone else.

UPDATE: On CNBC, Katsuyama and a (truly obnoxious) pro-HFT guy get down-n-dirty. Good times.

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4 Comments

  1. Spot on observations, Jeff.
    When I saw it, I thought the exact same things as you.
    I have only become more involved in my investments since I retired and could devote more time to them.
    But I had watched financial news in the AMs when getting ready for work and always noted the first few moments of trading was skewed by computer programed trades.
    This was not new, but it sure became ”a thing,” all of a sudden.

    Comment by Nanny G — April 1, 2014 @ 5:14 pm - April 1, 2014

  2. Thanks NG! 🙂

    Comment by ILoveCapitalism — April 1, 2014 @ 5:24 pm - April 1, 2014

  3. As a geek, I was very entertained by the solution IEX came up with and the spools of optic cable they revealed. It’s only in the competitive environment that these simple solutions are found via the desire/compulsion to beat the other guy.

    “No government will ever be smart enough or fluid enough to perform as well as the natural forces that guide capitalism.” (Richard Bell)

    Comment by Richard Bell — April 1, 2014 @ 8:20 pm - April 1, 2014

  4. The stock market is capitalism in the same way that a poker game is capitalism… money moves around but no wealth is created.

    I’ll be damned if I can figure out how today’s financial “industry” contributes any meaningful value to the economy. It’s obvious that the financial wizards are expert at skimming the money flow to their advantage.

    A coworker observed to me long ago that the way to make big money was to handle money, not to make or do anything useful. I now see what he meant.

    Comment by KCRob (SoCalRobert) — April 1, 2014 @ 9:01 pm - April 1, 2014

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