"It’s Time for Major Wealth Redistribution — Yes, I Mean It."

[Swammerdami]

And the income of Wall St. traders is a better target than the income of top surgeons and entertainers. NOT because Wall St. traders are "evil", but simply because their activities do not benefit society.

Why do you believe that? Of course their activities benefit society. Deployment of resources away from immediate consumption in favor of increasing productive capacity and thus of increasing long-term consumption happens because Wall St. traders make it happen.

Every time a country gets rid of its investor class, production plummets; curiously, this seldom if ever causes people convinced investors are parasites to question their own articles of faith.

Do you think "trader" and "investor" are synonyms? To illustrate the difference, let's start with the example of "high-frequency trading." Perhaps you will explain how HFT benefits society.

Because light travels nearly 50% faster through air than glass, it takes about one-third less time to send data through hollow-core fiber than through the same length of standard fiber. The difference is often just a minuscule fraction of a second. But in high-frequency trading , that can make the difference between profits and losses. HFT firms use sophisticated algorithms and ultra-fast data networks to execute rapid-fire trades in stocks, options and futures. Many are secretive about their trading strategies and technology.

Hollow-core fiber is the latest in a series of advances that fast traders have used to try to outrace their competition. A decade ago, a company called Spread Networks spent about $300 million to lay fiber-optic cable in a straight line from Chicago to New York, so traders could send data back and forth along the route in just 13 milliseconds, or thousandths of a second. Within a few years the link was superseded by microwave networks that reduced transmission times along the route to less than nine milliseconds.

HFT firms have also used lasers to zip data between the data centers of the New York Stock Exchange and Nasdaq Inc., and they have embedded their algorithms in superfast computer chips. Now, faced with the limits of physics and technology, traders are left fighting over nanoseconds.

Yes, yes, we all understand that "specialists" are traders who enhance liquidity and help with price discovery. Do you honestly believe that speeding up price discovery by a few milliseconds with the $300 million cable from Chicago to New York, soon obsoleted, was necessary for smooth market operation?

 

[Jayjay]

Same question I always ask. Sounds good, how exactly do you enact it and who sets how it is redistributed.

A worse case scenario was the Chinese Cultural Revolution.

The Russian and Chinese communist attempts at forcing an equality failed catastrophically. Large scale famine in both cases.

In practcal terms what is a quantifiable definition of redistribution? What is the endpoint? Without tat it will just be anoter slippery slope into the unknown.

The problem with progressives is they are never able to precisly articulate details. It ends up being political sound bites and propaganda.

No mystery at all. Basically fairer pay scales and social security systems in place (leave no one too far behind). Scandinavia, Norway, Finland, etc, reportedly the happiest people on Earth.

There is an idea that I bumped into recently, that coordinated market economies like the Scandinavian countries are actually only able to afford their social systems because there are liberal economies like the USA that are doing all the "hard" innovations on their behalf. It's much easier being a follower than a leader. If the United States were to enact same kind of programs, it would crash not only the economic output of Americans, but also those in the countries that are piggy-backing on its success.

 

[Jayjay]

Do you think "trader" and "investor" are synonyms? To illustrate the difference, let's start with the example of "high-frequency trading." Perhaps you will explain how HFT benefits society.

Because light travels nearly 50% faster through air than glass, it takes about one-third less time to send data through hollow-core fiber than through the same length of standard fiber. The difference is often just a minuscule fraction of a second. But in high-frequency trading , that can make the difference between profits and losses. HFT firms use sophisticated algorithms and ultra-fast data networks to execute rapid-fire trades in stocks, options and futures. Many are secretive about their trading strategies and technology.

Hollow-core fiber is the latest in a series of advances that fast traders have used to try to outrace their competition. A decade ago, a company called Spread Networks spent about $300 million to lay fiber-optic cable in a straight line from Chicago to New York, so traders could send data back and forth along the route in just 13 milliseconds, or thousandths of a second. Within a few years the link was superseded by microwave networks that reduced transmission times along the route to less than nine milliseconds.

HFT firms have also used lasers to zip data between the data centers of the New York Stock Exchange and Nasdaq Inc., and they have embedded their algorithms in superfast computer chips. Now, faced with the limits of physics and technology, traders are left fighting over nanoseconds.

Yes, yes, we all understand that "specialists" are traders who enhance liquidity and help with price discovery. Do you honestly believe that speeding up price discovery by a few milliseconds with the $300 million cable from Chicago to New York, soon obsoleted, was necessary for smooth market operation?

HFT is actually harming price discovery, because it limits the traders who can operate in the market. It makes sense to impose artificial limits on how fast trades can be executed, for example, but the idea is to make markets more efficient, not to redistribute wealth.

 

[Swammerdami]

When an HF-Trader sees an order to buy Acme Widgets for $90, he may leapfrog ahead to buy it for $89.99, resell it a few milliseconds later and make a penny profit (Never mind the details!). How do you think brokers can afford to give zero commission anyway? They aren't making you click on ads!

Not only do HFT activities serve as hindrance rather than help, as Jayjay points out, and not only do they "steal" ( ;-) ) money from other traders, but with high-speed computer programs competing with other computer programs — there can be no human in the loop at these speeds — there is a risk of a software flaw leading to a breakdown which impacts the general market. (Don't feel sorry for Wall St. when billions of $$$ are lost in the next such fiasco — the taxpayers will step up and bail them out.)

I do not know why Bomb#20 is defending this sort of activity. Bomb#20?

HF Trading is just one of several trading practices that (a) offer no benefit to the public, (b) do not "increase productive capacity" (LOL!), (c) can be described as "stealing", and (d) add to the market's systemic risk. I saw a very interesting YouTube (since taken down) in which a trader shows how he deduced that an HF trader was "conning" other HFTs by placing orders and then canceling them moments later. (This may be technically against the rules but very hard to prosecute — if regulators even became aware of it, which evidently they didn't. "Uh, Your Honor: During that millisecond my AI obviously reassessed the fundamentals of Acme Widget and decided it wasn't a Buy after all!"

Many of these abuses can be sharply reduced by imposing even a teensy-tiny transaction tax. This would discourage much of this "hyper-efficient" trading, reduce systemic risks, and lead to better allocation of society's brainpower.

Yes, some day traders losing an average $300 per day would quit their day trading in a huff when they learned they'd be losing $302 on average due to the teensy-tiny transaction tax; but I could live with that.

 

[Elixir]

Has anyone suggested 'tearing down?'

The OP does. You just don't recognize the destruction you're asking for.

I think it is YOU who don't recognize the "destruction" that is asked for.
Reducing multi-billionaires to mere billionaires doesn't destroy anything of value. And if it enables millions of people to rise above the poverty line, it's well worth it.
Of course that is a big "if". IF, for instance, all it does is put billions into political action committees to enable them to spread Big Lies, then no - it's not worth anything.

 

[Canard DuJour]

There is an idea that I bumped into recently, that coordinated market economies like the Scandinavian countries are actually only able to afford their social systems because there are liberal economies like the USA that are doing all the "hard" innovations on their behalf. It's much easier being a follower than a leader. If the United States were to enact same kind of programs, it would crash not only the economic output of Americans, but also those in the countries that are piggy-backing on its success.

Which is almost certainly bollocks. Growth in the US economy, all OECD economies and the global economy were all markedly higher during the co-ordinated market Bretton-Woods era of low inequality when the US economy was much more like the European social democracies.

 

[ZiprHead]

 

[laughing dog]

And the income of Wall St. traders is a better target than the income of top surgeons and entertainers. NOT because Wall St. traders are "evil", but simply because their activities do not benefit society.

Why do you believe that? Of course their activities benefit society. Deployment of resources away from immediate consumption in favor of increasing productive capacity and thus of increasing long-term consumption happens because Wall St. traders make it happen.

I agree that Wall Street traders may benefit society, but I think their contributions are highly over-rated. Trading equity does not necessarily increase productive capacity either directly or indirectly. Second, the decision to save (i.e. deploy resources away from immediate consumption) are usually made for reasons independent of the stock market. In my opinion, to the extent that stock market activity either induces more saving in total or generates more returns than in other pursuits is the measure to which it benefits society. High frequency trading seems much more like a redistribution of funds than increasing the productive capacity of the economy.

 

[steve_bank]

Same question I always ask. Sounds good, how exactly do you enact it and who sets how it is redistributed.

A worse case scenario was the Chinese Cultural Revolution.

The Russian and Chinese communist attempts at forcing an equality failed catastrophically. Large scale famine in both cases.

In practcal terms what is a quantifiable definition of redistribution? What is the endpoint? Without tat it will just be anoter slippery slope into the unknown.

The problem with progressives is they are never able to precisly articulate details. It ends up being political sound bites and propaganda.

No mystery at all. Basically fairer pay scales and social security systems in place (leave no one too far behind). Scandinavia, Norway, Finland, etc, reportedly the happiest people on Earth.

The economy in terms of suppl and demand is a comolex interaction where wags and demand for lbor vary
When you start tinkering with which has evolved for 200 years there will be unpredicted consequences.



A minor example. Around here handicapped workers were given jubs at lower wages in part as make work. When required to pay tjm min wage there was a reduction .

In the end it is what the people are willing to pay. Higher wages at the bottom mean higher prices for goods and services.

We have a bizarre patchwork of work arounds and Band-Aids for health care and the economy.

It has been reorted that a percentage of full time Amazon workers get govt assistance evwith the extreme profits of the company.

What is really driving the issue is costs of health care and housing.

NYC had rent control for a long time. One result was a la k of maintenance by owners. Apartments were kept in families for generations with little or no rent increases.

We focus on big corporations, but what about artists and pro atheles who get rich? How much should they contribute to redistribution?

It is obvious the old paradigm's are failing. The economy was meant to be laissez faire with no guarantees for anyone.

At this point there is no need to work 40 hours with all our computer automation for factory and office. 20 hour work weeks and two people for one job.

What is killing us is the modern obsession with efficiency and profit.

Perhaps minimum wages tied to local cost of living. When Boeing expanded to the east cost the local wages for engineers were a lot lower than Seattle, but the local cost of living was a lot lower. People who transferred got a boost in income.

The current push for a $15 min wage nationally does not take into account local conditions. Should a grocery store pay a min living wage for a part time high school student?

Point being it is too complicated for a simple 'redistribution of wealth' without specific details. That is probably why progressives chant the mantra but know they can not really do anything.

Here in Seattle attempts were made to enact a head tax on employers with revenue above a certain level to pay for homeless and low income housing.

The problem is in the nature of the economic model, globally. Free market capitalism may be reaching its ending. Maximize profit by minimizing labor in a growing global population.

Part of it on the west coast is illegal immigration. Immigration has always served to keep wages low at the bottom. It gave us an abundance of cheap food. How much are you willing to pay for food if migrant workers are all paid a living wage?

 

[Bomb#20]

Do you think "trader" and "investor" are synonyms?

Um, pretty much. How do you figure a person can invest without trading, or vice versa? To invest you trade your money for some stock. When you make a trade, the stock you buy is an investment. (Even if you're one of the small minority of traders who're into short-selling, sometimes you lose your bet and the stock goes up; then you're going to have to invest in order to cover your position.)

To illustrate the difference, let's start with the example of "high-frequency trading." Perhaps you will explain how HFT benefits society.

Dude! You didn't say HFT's activities do not benefit society. You said Wall St. traders' activities do not benefit society. If you meant your accusation only to be about HFT, you should have said HFT's activities do not benefit society.

But that said, yes, of course HFT benefits society. Do you know what a "bid-ask spread" is? It's the gap between what people are offering to sell a stock at and what people are offering to buy it at. Every time some investor wants to join or leave the set of shareholders of a company, she loses a little bit of her investment in order to cross the spread; it's sort of like paying "points" on a mortgage. HFT has substantially reduced bid-ask spreads across the whole market.

Yes, yes, we all understand that "specialists" are traders who enhance liquidity and help with price discovery. Do you honestly believe that speeding up price discovery by a few milliseconds with the $300 million cable from Chicago to New York, soon obsoleted, was necessary for smooth market operation?

"Necessary"?!? Using computers at all to keep track of trades isn't "necessary". Not even using ticker-tape is "necessary": stock markets already worked way back in the 1800s when they were just some guy standing in front of a chalkboard erasing the old price and scrawling a new one while traders shouted at him. No, speeding up price discovery by a few milliseconds isn't necessary; but since it helps make bid-ask spreads smaller, it's desirable.

Is the incremental amount of bid-ask-spread reduction from those few milliseconds large enough to justify paying $300 million for it? I don't know. Frankly, I doubt it. What of it? If somebody's willing to spend his own money to make it happen, why should I object to that any more than if he spends $300 million betting shoppers will buy a new flavor of breakfast cereal?

When an HF-Trader sees an order to buy Acme Widgets for $90, he may leapfrog ahead to buy it for $89.99, resell it a few milliseconds later and make a penny profit (Never mind the details!). How do you think brokers can afford to give zero commission anyway? They aren't making you click on ads!

Not only do HFT activities serve as hindrance rather than help, as Jayjay points out, and not only do they "steal" ( ;-) ) money from other traders, but with high-speed computer programs competing with other computer programs — there can be no human in the loop at these speeds — there is a risk of a software flaw leading to a breakdown which impacts the general market. (Don't feel sorry for Wall St. when billions of $$$ are lost in the next such fiasco — the taxpayers will step up and bail them out.)

I do not know why Bomb#20 is defending this sort of activity. Bomb#20?

Come again? Remind me where I defended out-of-order trade processing. If there's a subtlety in the current mechanism for executing orders that creates an opportunity to game the system, well, it wouldn't be the first time. That's why we have an SEC, to look into problems. If the regulations need to be tweaked again to keep up with the latest technological advances, they should get right on that.

HF Trading is just one of several trading practices that (a) offer no benefit to the public, (b) do not "increase productive capacity" (LOL!),

Sure it does. HFT is simply good old fashioned arbitrage, ramped up with technology; you might as well say making cars on assembly lines instead of in mechanics' home workshops offers no benefit to the public.

(c) can be described as "stealing",

This business of leapfrogging you describe sounds like a form of insider-trading, which means it's probably already illegal or would be but for some loophole in the regulatory wording. Then again, maybe there's an innocent explanation for it that someone more knowledgeable than you or I would be able to provide.

and (d) add to the market's systemic risk.

Now that might be a serious issue. A lot of things that aren't harmful in isolation can start to do damage when they grow to become a significant fraction of market volume; buying on margin and short-selling are in that category too.

Many of these abuses can be sharply reduced by imposing even a teensy-tiny transaction tax. This would discourage much of this "hyper-efficient" trading, reduce systemic risks, and lead to better allocation of society's brainpower.

And I wouldn't object to that in principle, or for that matter a moderate tax on buying on margin and short-selling, as long as the estimates of systemic risk and the amount of the tax are decided by someone who's competent. But Canada put a tax on HFT a few years ago and their bid-ask spreads rose 9%. That's not doing a favor either to regular investors or to the economy.

 

[Treedbear]

...
Perhaps minimum wages tied to local cost of living. When Boeing expanded to the east cost the local wages for engineers were a lot lower than Seattle, but the local cost of living was a lot lower. People who transferred got a boost in income.

The current push for a $15 min wage nationally does not take into account local conditions. Should a grocery store pay a min living wage for a part time high school student?
...

Would a national $15 min wage apply to grocery store clerks? I think there are certain types and sizes of business it applies to. Like minimum $500K per year in government contracts and/or interstate commerce. So maybe not to your local maid service and restaurant worker. Republicans say it would drive MacDonald's out of business or raise the price of burgers to $25. On the other hand some of that business might go to the local guy running the corner diner.

 

[Swammerdami]

Dude! You didn't say HFT's activities do not benefit society. You said Wall St. traders' activities do not benefit society. If you meant your accusation only to be about HFT, you should have said HFT's activities do not benefit society.

Oh my. If you don't understand the qualitative difference between trading a stock (selling it hours, seconds, or even milliseconds after you buy it) and long-term buy-and-hold investment, this is going to be hard; but I will try.

And the second sentence above is floundering pedantry. If I meant investment, I would have written "investment." Isn't it best to give fellow TFTers the benefit of the doubt? Or does it amuse to misconstrue others' remarks into the worst possible light?

I gave HFT as just one example of Wall St "hyper-efficiency", which in turn is just one area where Wall St. activities are counter-productive for society, but since you're eager to defend HFT we'll stick with that.

But that said, yes, of course HFT benefits society. Do you know what a "bid-ask spread" is?

I've already pointed out the benefits of "specialist" traders. Did you even read my post? And I asked rhetorically why brokers offer zero-commission services. Did you think about that? If you honestly believe HF traders "discover" a price a millisecond earlier, you'll have to explain how that helps me. It takes me much more than a millisecond to click on the boxes when I'm making a trade.

Is the incremental amount of bid-ask-spread reduction from those few milliseconds large enough to justify paying $300 million for it? I don't know. Frankly, I doubt it.

Let's stop right here. Do you think the firm that spent $300 million spent it stupidly? Answer Yes or No, so we can move on. Spoiler:

Show

They wouldn't have spent it if they didn't already know they could recover the money and more. Duh.

Whether they spent it wisely or not, the fact that they did should be meaningful. Where do you think the $300 million in revenue needed to recover this cost was supposed to come from? Make a serious answer, please, to prove you're serious.

(c) can be described as "stealing",

This business of leapfrogging you describe sounds like a form of insider-trading, which means it's probably already illegal or would be but for some loophole in the regulatory wording. Then again, maybe there's an innocent explanation for it that someone more knowledgeable than you or I would be able to provide.

Wrong again. The "leapfrogging" is not a man-in-the-middle attack (although it almost sounds that way). The cable transmits information already available to brokers in Chicago, but sending it to New York faster than the other guys did. (Recall the legend that the Rothschilds used carrier pigeons to send news of the Battle of Waterloo hours before anyone else. The cable shaved off milliseconds instead of hours. Note that there already was adequate capacity; tunnels were literally dug out to keep the cable almost perfectly straight and shave off microseconds!)

I am NOT complaining about the cost of the cable. That's just symbolic of how valuable such fast data was. And, since trading is a constant-sum "game", for an HFT firm to get a Million $ profit — or a Billion $ — someone else would have to lose that money.

Now that might be a serious issue. A lot of things that aren't harmful in isolation can start to do damage when they grow to become a significant fraction of market volume; buying on margin and short-selling are in that category too.

Are you backing away from your previous misconception? Or did you agree with me all along?

But Canada put a tax on HFT a few years ago and their bid-ask spreads rose 9%. That's not doing a favor either to regular investors or to the economy.

The spread rose 9%, not the price. In other words, I might pay $90.17 for a share that otherwise might have cost $90.16. I could live with that. I'm curious what material effect you think that would have on the economy. Reduction in the demand among traders for tranquilizers?

 

[Bomb#20]

Why do you believe that? Of course their activities benefit society. Deployment of resources away from immediate consumption in favor of increasing productive capacity and thus of increasing long-term consumption happens because Wall St. traders make it happen.

I agree that Wall Street traders may benefit society, but I think their contributions are highly over-rated. Trading equity does not necessarily increase productive capacity either directly or indirectly.

"Necessarily"? Sure, some individual trade may well not do any good; but that isn't the issue. Trading equity in aggregate increases productive capacity. If there weren't a secondary market where you can get your money out of an investment when your situation changes and you find you need it, people would be far more reluctant to invest in production in the first place. Investors wouldn't buy into IPOs except with money they were sure they wouldn't need for years. We'd revert back to the 1700s, when to start any major undertaking you needed an angel investor to back it.

Second, the decision to save (i.e. deploy resources away from immediate consumption) are usually made for reasons independent of the stock market.

To some extent, yes; but a stock market makes it a lot easier. And since it offers better returns than the primary alternative -- lending your money to a bank -- it changes the balance of considerations that go into the decision. I.e., people will save more money if they're getting 6% returns than if they're getting 0.6%.

 

[DBT]

Same question I always ask. Sounds good, how exactly do you enact it and who sets how it is redistributed.

A worse case scenario was the Chinese Cultural Revolution.

The Russian and Chinese communist attempts at forcing an equality failed catastrophically. Large scale famine in both cases.

In practcal terms what is a quantifiable definition of redistribution? What is the endpoint? Without tat it will just be anoter slippery slope into the unknown.

The problem with progressives is they are never able to precisly articulate details. It ends up being political sound bites and propaganda.

No mystery at all. Basically fairer pay scales and social security systems in place (leave no one too far behind). Scandinavia, Norway, Finland, etc, reportedly the happiest people on Earth.

There is an idea that I bumped into recently, that coordinated market economies like the Scandinavian countries are actually only able to afford their social systems because there are liberal economies like the USA that are doing all the "hard" innovations on their behalf. It's much easier being a follower than a leader. If the United States were to enact same kind of programs, it would crash not only the economic output of Americans, but also those in the countries that are piggy-backing on its success.

Things were better for workers decades ago, except maybe those on minimum wage, yet the US economy did not crash, the world did not fall apart because many workers enjoyed relatively better pay and conditions.

The stagnation and decline in income for workers in the last four decades even while the top few percent enjoy ever increasing wealth is clearly not a necessary condition for a healthy economy or society.

 

[Swammerdami]

My last post was almost insulting. I apologize to everyone especially Bomb#20. I feel that my intelligence is insulted and respond in kind, but escalating steeply and irrationally.

I'm not much better even when I'm at my best, but I'm not at my best right now. We have sharp personal worries here and I have hardly been able to sleep at all for the past three days. If the Mods think it best, please feel free to suspend my account for a week or two.

 

[Bomb#20]

Oh my. If you don't understand the qualitative difference between trading a stock (selling it hours, seconds, or even milliseconds after you buy it) and long-term buy-and-hold investment, this is going to be hard; but I will try.

And the second sentence above is floundering pedantry. If I meant investment, I would have written "investment." Isn't it best to give fellow TFTers the benefit of the doubt? Or does it amuse to misconstrue others' remarks into the worst possible light?

...says the guy who just equivocated between "investment" and "long-term buy-and-hold investment" in order to paint my remarks in the worst light. A traditional brokerage that buys a supply of a stock in order to make a market in it for filling the day's anticipated orders is investing in that company too, even if it sells it hours after it buys it. The difference between trading and investing is much like the difference between kilowatts and kilowatt-hours -- it's the same phenomenon, but looked at either instantaneously or integrated over time.

But that said, yes, of course HFT benefits society. Do you know what a "bid-ask spread" is?

I've already pointed out the benefits of "specialist" traders. Did you even read my post?

Yes. What, are you claiming that "specialist" traders help reduce bid-ask spreads but HFTs don't? What evidence do you have for that?

And I asked rhetorically why brokers offer zero-commission services. Did you think about that?

Um, in order to attract customers away from other brokers? This is not rocket science. (Not that the traditional brokers are charging high commissions any more. Ain't competition wonderful?) If you mean, where are they making their money, presumably they're getting a cut of the bid-ask spread.

If you honestly believe HF traders "discover" a price a millisecond earlier, you'll have to explain how that helps me. It takes me much more than a millisecond to click on the boxes when I'm making a trade.

Sure thing: the same way it helps you when a HF trader offers his secretary a dental package. It's simply one more arena of competition. Discovering a price a millisecond earlier lets a broker identify arbitrage opportunities between (say) New York and Chicago a few milliseconds before his competitor. If the broker can make money on a risk-free arbitrage he can afford to cut commissions; and he'll do it to keep you from taking your business to his competitor. Competition between sellers of the same service is good for customers.

Is the incremental amount of bid-ask-spread reduction from those few milliseconds large enough to justify paying $300 million for it? I don't know. Frankly, I doubt it.

Let's stop right here. Do you think the firm that spent $300 million spent it stupidly? Answer Yes or No, so we can move on. Spoiler:

Show

They wouldn't have spent it if they didn't already know they could recover the money and more. Duh.

Strike "know". They thought they could recover the money and more. That sort of expenditure is a gamble. There are plenty of cases of HFTs making losing bets. But that's not even the issue. What I said I doubted was whether the benefit to the public was worth $300 million. (The public is who benefits from bid-ask spread reduction.) It could have been smart for the firm even if the public benefit was negligible -- that would just mean their competitors made $300 million less. I'm okay with that -- I don't expect Coke to trouble itself about its strategies hurting Pepsi's profit margin either.

Whether they spent it wisely or not, the fact that they did should be meaningful. Where do you think the $300 million in revenue needed to recover this cost was supposed to come from? Make a serious answer, please, to prove you're serious.

Presumably, from the price differences between New York and Chicago that the traders are trying to inform themselves about a few milliseconds faster. This is how bid-ask spreads get shrunk: a would-be buyer in Chicago now gets a lower asking price than he would have back in the 20th century because now New York sellers are competing with Chicago sellers to sell him their shares.

Wrong again. The "leapfrogging" is not a man-in-the-middle attack (although it almost sounds that way). The cable transmits information already available to brokers in Chicago, but sending it to New York faster than the other guys did.

In which case, why do you describe it as "stealing" when an HF-Trader sees an order to buy Acme Widgets for $90 in Chicago and sees somebody selling it in New York for $89.99 so he buys from one and sells to the other? Who's he supposed to be stealing from? The Chicago buyer and the New York seller? Why? Because they could otherwise have dealt with each other directly and saved a penny? They could have done that even with the HFT in the picture -- nobody forced them to deal with him. They could wait out the milliseconds, discover each other when the other guys send the news to New York, and cut out the middleman. If they choose to take the first available offer instead of waiting to see what other offers might roll in, that's their choice -- presumably the certainty of having the trade completed as soon as possible is worth a penny to them. That's not stealing; that's payment for service rendered.

I am NOT complaining about the cost of the cable. That's just symbolic of how valuable such fast data was. And, since trading is a constant-sum "game", for an HFT firm to get a Million $ profit — or a Billion $ — someone else would have to lose that money.

What makes you think trading is a constant-sum game? People normally trade because both parties benefit. If I buy a hundred shares of XYZ Corp. for $1000 it's because the stock is worth more than $1000 to me. If the guy I buy it from sells it its because the stock is worth less than $1000 to him. That's not constant-sum; that's getting stock into the hands of the person the stock's worth most to while getting money into the hands of the person money's worth most to. That's positive-sum.

Why is the same stock worth more than $1000 to me and less than $1000 to him? There could be any number of reasons; typically it's because of different personal situations, different discount rates, different levels of risk aversion, and different diversifications in our respective portfolios.

Now that might be a serious issue. A lot of things that aren't harmful in isolation can start to do damage when they grow to become a significant fraction of market volume; buying on margin and short-selling are in that category too.

Are you backing away from your previous misconception? Or did you agree with me all along?

The hell are you talking about? What previous misconception? To quote myself from the previous thread, "Nobody here is arguing short selling should be unregulated."

But Canada put a tax on HFT a few years ago and their bid-ask spreads rose 9%. That's not doing a favor either to regular investors or to the economy.

The spread rose 9%, not the price. In other words, I might pay $90.17 for a share that otherwise might have cost $90.16. I could live with that. ...

Um, [quickly works the numbers] you're saying the bid-ask spread on a $90.05 stock was 11 cents?!? Yippee!!! Let us all thank our lucky stars that HFT was invented, for making the market so liquid it has brought adequately diversified stock portfolios within easy reach of the common man.

 

[Bomb#20]

There is a vast difference in power, position and leverage between movie and sports stars, etc, and and an ordinary worker who has virtually none, which leaves him open to exploitation and minimum pay. Is exploitation a form of stealing? Is paying a worker less than their market value

We've been through this before. Workers are not paid less than their market value; "market value" is a phrase that means how much other people in the market pay for their labor. But you use the phrase in a funny way to mean something else, something you can't explain how to measure.

and input into company profit

How do you measure input into company profit? When a company's profit goes up faster than an employee's wage, how do you know whether the profit rise was caused by the employee doing better work or by some other factor unrelated to that employee? When a company's profit goes up faster than employees' overall wages, how do you know whether the profit rise was caused by the employees doing better work or by the managers doing better managing or by the owners providing better capital or by the customers liking the product better or by...?

just because you are legally able, a form of theft?

I once input millions of dollars into my employer's profit with about an hour of work. It happened like this: a bunch of us at this big electronics company were going through the slush pile of recent college grads' resumes, and I saw something in one of them that caught my eye and made the guy stand out to me. He looked like nothing special to the other supervisors, but I gave him a phone interview, and then we brought him in for in-person interviews. Long story short, we hired him; I was his boss for six months; then he was promoted from underling to co-worker. A few years later he was promoted again: he was my boss. Not for long, though -- he became my boss's boss. A few years after that he was a VP. The guy made millions for the company over his career; and I did that. Did the company pay me millions for my extraordinarily productive hour's work? They did not. They just paid me my regular salary. Does that mean they stole millions from me? It does not. Our bargain was they paid me a fair salary to do good work for them, and judging resumes for them was just me doing my part of the bargain, and they did their part of the bargain.

 

[DBT]

We've been through this before. Workers are not paid less than their market value; "market value" is a phrase that means how much other people in the market pay for their labor. But you use the phrase in a funny way to mean something else, something you can't explain how to measure.


How do you measure input into company profit? When a company's profit goes up faster than an employee's wage, how do you know whether the profit rise was caused by the employee doing better work or by some other factor unrelated to that employee? When a company's profit goes up faster than employees' overall wages, how do you know whether the profit rise was caused by the employees doing better work or by the managers doing better managing or by the owners providing better capital or by the customers liking the product better or by...?

just because you are legally able, a form of theft?

I once input millions of dollars into my employer's profit with about an hour of work. It happened like this: a bunch of us at this big electronics company were going through the slush pile of recent college grads' resumes, and I saw something in one of them that caught my eye and made the guy stand out to me. He looked like nothing special to the other supervisors, but I gave him a phone interview, and then we brought him in for in-person interviews. Long story short, we hired him; I was his boss for six months; then he was promoted from underling to co-worker. A few years later he was promoted again: he was my boss. Not for long, though -- he became my boss's boss. A few years after that he was a VP. The guy made millions for the company over his career; and I did that. Did the company pay me millions for my extraordinarily productive hour's work? They did not. They just paid me my regular salary. Does that mean they stole millions from me? It does not. Our bargain was they paid me a fair salary to do good work for them, and judging resumes for them was just me doing my part of the bargain, and they did their part of the bargain.

We've been through it before, time and time again...and I pointed out over and over again that the main obstacle for workers improving their lot is a power imbalance between individual workers and management, that their pay often has nothing whatsoever with the market value of their labour or the wealth they help to generate for the company.

Management pay what they need to, be it minimum wage or rates sufficent to attract applicants in certain sectors .

Workers do better under collective bargaining, simple as that. They do better because they increase their leverage. In some cases from virtually zero leverage.

 

[Loren Pechtel]

Has anyone suggested 'tearing down?'

The OP does. You just don't recognize the destruction you're asking for.

Redistribution is not necessarily a case of 'tearing down' or making the rich poor. If done properly, productive work, fair pay for all, it is a means of improving society, the economy and the human condition. A positive thing. A building up.

You're tearing down the capital that drives innovation.

 

[laughing dog]

"Necessarily"? Sure, some individual trade may well not do any good; but that isn't the issue. Trading equity in aggregate increases productive capacity. If there weren't a secondary market where you can get your money out of an investment when your situation changes and you find you need it, people would be far more reluctant to invest in production in the first place. Investors wouldn't buy into IPOs except with money they were sure they wouldn't need for years. We'd revert back to the 1700s, when to start any major undertaking you needed an angel investor to back it.

My point was I think the "increase in productive capacity" benefit is vastly over-rated not that it does not exist. I don't think it is obvious that that the empirical benefit of the increased productive capacity exceeds the empirical costs of the concentration of wealth and power and corruption of society. Unfortunately, I have not seen any attempts to measure this.

To some extent, yes; but a stock market makes it a lot easier. And since it offers better returns than the primary alternative -- lending your money to a bank -- it changes the balance of considerations that go into the decision. I.e., people will save more money if they're getting 6% returns than if they're getting 0.6%.

While it is certainly reasonable to think that an increase in a risk-adjusted after-tax return induces more saving, it is surprising that there is not much definitive evidence to support that conclusion (at least that is my understanding of the empirical research - which may be incomplete). My understanding is that we really don't understand what motivates much saving behavior.