Frankenstein’s Monster

Posted on 06/02/10 3 Comments

Colin Barr has covered finance for Fortune.com since November 2007.  Colin was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and the Writers award for “The Five Dumbest Things on Wall Street,” and for Dow Jones Newswires.  Colin pinned an excellent article on May 7th, High frequency trading: Why the robots must die. Here are the more interesting quotes from this award winning writer’s article:

“The regulators and the major exchanges have drifted from their original duty: to run a market that gives small companies a way to raise capital and mom-and-pop stock buyers a way to invest for the future on fair terms.

Colin Barr goes on to say:

“Instead, they have created a Frankenstein’s monster that churns away for the sake of volume itself, lining the pockets of nimble, technologically savvy hedge funds, giant investment banks and other players – at the expense of market stability.”

I have raised similar points about financial services a number times on this blog, but Colin Barr says it much better and more creatively.   So here I sit, in strong agreement with Colin Barr, award winning author for Fortune.com who calls the current market situation a “Frankenstien’s Monster” and Colin Clark, a financial services entrepreneur who has boycotted this blog, in part, because I sided with the New York Times in Stock Traders Find Speed Pays, in Milliseconds.

So according to Colin Clark and the other software vendors and consultants who work in this area, if you agree with the NY Times and award winning authors of Fortune.com over people who work selling to financial services, we are not worthy of their “respect” anymore.  This leads me to believe that it must have been the same way in the Wild, Wild, West.  We can easily envision Jessee James and other gangs of gun slingers basically living according to the their moral code, “the person with the fastest gun wins” and “we respect no others.”

This is also similar to what many of us see living as an expatriate in developing countries. For example, in Thailand you can drive down the road in your car for 30 minutes and you will literally see 100s of traffic violations that would result in revocation of licenses in the US and other modern, developed countries.  When I asked my friend why people drive so bad he said that most drivers in Thailand consider that if they pull out in front of you, or cut you off, or zoom around from behind and overtake you by crossing the double yellow lines, or the myriad other violations we see on the streets and highways, that proves they are “better drivers than you” because they gain advantage over you by their superior driving “skills”.

Driving in most busy cities in Thailand is like a nightmare out of a horror movie.  Each day I get into my car I fully expected I will be hit or intimidated my some “skillful” cowboy.   In the past 30 days I have been hit twice and vandalized twice.   It is basically a non-stop nightmare on the roads.  It seems that trading in stocks is about the same for your “Average Joe”, as the “big boys” simply run over everyone with their “superior skills” and “daring abilities”.

The stock market has become a Frankenstein’s Monster, as Colin Barr wrote, because the technologically savvy hedge funds, giant investment banks and similar players have developed a similar attitude as the drivers on the roads in Thailand.  Basically it is dog-eat-dog and every-man-for-himself and if you lose, then that just proves how inferior you are.

When DARPA originally funded universities to advance the state-of-the-art in event processing they were seeking ways to level the playing field because of the deeply imbalanced situation in cyberspace.  The opportunists were at a significant advantage over the monitors, police and regulators.  This situation still exists today and we are seeing little progress.  Unfortunately, folks in financial services have taken the concepts that were developed to attempt to level the playing field and used them to further take advantage of others in the financial markets.

I agree completely with Colin Barr that the stock market has become a Frankenstein’s Monster.  The old saying used to be that “it is easier to steal money with a pen than a gun”.  In the age of computers and computer trading, perhaps it is time to revisit that old saying?

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3 Comments

  1. Tim Bass says:
    Thursday, June 3, 2010 at 4:37am

    Here is a other great article, High Frequency Trading Is A Scam

    http://market-ticker.denninger.net/archives/1259-High-Frequency-Trading-Is-A-Scam.html

    Excellent commentary on this problem.

  2. peter lin says:
    Thursday, June 3, 2010 at 4:57pm

    That is a good article that gives a nice non-technical explanation. It’s definitely better than the technical explanation I got from a trader back in 2003.

    Unfortunately, America is the best government business can buy, so I have doubts about effective regulation getting past the lobbyist.

  3. Tim Bass says:
    Thursday, June 3, 2010 at 5:44pm

    Regarding CEP, what I found compelling was one of the final statements in that Denninger story, where he says:

    “The unfortunate reality is that there is no mechanism available to prevent computers from exploiting asymmetric information.”

    !!!!! Bingo !!!!!

    This is what DARPA started funding CEP-type studies to mitigate, the exploitation of asymmetric information capabilities in cyberspace.

    No wonder Colin says his financial services colleagues had all decided long ago to boycott my blog, LOL. I keep trying to point out that that instead of creating a technology for “the greater good” folks are using the technology ideas created “for the great good”, for “evil” for a lack of a better word.

    This “ain’t Kansas anymore”… it is a Frankestein’s Monster for the people the stock market was created to serve.