Out With A Bang

As we all sit and wait this weekend to discover what electoral system can be made to best fit our growing conception that a new, networked world might be afoot - Clue: 660 silos into one, collaboratively-attuned, X-Factor-literate populace doesn’t go – this caught my eye.

Courtesy of Mike Riddell. One of Addiply’s friends ooop north.

http://bit.ly/d2kOjx

It is the story of the sudden, near-instant and – as yet – unexplained ‘dip’ in the New York stock exchange last Thursday.

It sent the markets into a potentially fatal tail-spin, from which they just about recovered… albeit at the expense of 000s and 000s of little investors from SmallTown, MidWest getting their fingers burned as they had little or no time to react to such wild fluctuations.

Just as – the claim goes – certain airline pilots have little or no time to react to the on-board computer when it decides to go for a dive… the automatic pilot automatically – and instantly – reacting to flawed pieces of data with tragic consequences for the individuals on board.

The individual named by the LA Times as being aboard the NYSE on Thursday was a musician from Phoenix. She won’t be flying again. 

‘The free fall spooked individual investors such as Roxy Lopez, a Phoenix musician, who took three-quarters of her money out of the stock market in 2008 after losing tens of thousands of dollars during the bear market that took hold during the recent financial crisis,’ the LA Times noted.

‘Lopez had been preparing to boost her stock allocation but has now changed her mind.

“The irony is that I was just starting to feel comfortable again and I was just starting to buy some individual stocks again over the last two weeks or so,” she said. “But now with this, I don’t think I’ll put any more of my money in there. It’s too volatile and I just don’t trust the market.”

The two words that, for me, scream out are ‘trust’ and ‘the market’.

Because as you read on, it becomes increasingly obvious that Ms Lopez is quite right not to trust ‘the market’ - it has long been skewed against the individual by certain Masters of the Universe within the system. People aren’t playing fair. Technology is inserting a complexity into the system that denies any one individual investor the chance to play on a level playing field.

In this case, it is boys and their big toys – or rather, HFT firms. You begin to wonder whether or not ‘high-frequency trading’ might soon join such phrases as ’sub-prime mortgages’ and ‘collatorised debt obligations’ in the markets’ lexicon of shame.

CDOs were, of course, the vehicle of choice for traders buried deep with Goldman Sachs as we – the hapless owners of RBS – were left with an $800 million cold. 

http://www.guardian.co.uk/business/2010/apr/20/goldman-sachs-now-under-formal-investigation-by-city-regulator

But this suspicion that HFTs could be behind the kind of near-catastrophic node-dive that spooked ‘the markets’ on Thursday is worth a better understanding; cos someone – again – is playing fast and loose with our fortunes here; above all, thwarting the individual’s presumed right to compete on a level playing field.

I say ‘presumed’. No doubt, someone would suggest that given the laws of the jungle and the Ascent of Wall St Man, we - as individuals – have no right to presume we enact our lives on a level playing field. Its the boys with the biggest toys that make the biggest killing.

Or in this case ‘swashbuckling traders on souped-up computers’.

The danger, of course, is that letting big boys play with big toys in a largely-unregulated and as yet unchallenged market place can have unforeseen consequences. In that… ‘the slightest error can send the market reeling before human overseers can detect anything amiss…’

Cue another little beast in this jungle – the ‘flash order’. Not something, you suspect, that Ms Lopez was ever aware of.

What are ‘flash orders’? According to the LA Times, ‘flash orders’ are ‘a controversial practice in which high-frequency traders get a leg up by getting an early glimpse of incoming orders from other investors…’

Like Ms Lopez.

“No longer do we rely on people shouting on the exchange floors to transact business,” said Mary Schapiro, chairwoman of the SEC.

“Instead, we rely on computerized trading whose speed has accelerated from seconds to milliseconds to microseconds. And for some, that isn’t fast enough,” she said.

“But … just because technology is progressing and trading platforms have proliferated — fairness must remain the underpinning of the market.”

And therein lies the key… fairness.

Because with the march of technology comes complexity and with complexity – if you are not all-too careful – comes obscurity. And it is when such mighty institutions as Goldman Sachs, the New York Stock Exchange and, indeed, the UK electoral system start to become ever-less accountable; their inner-workings ever-less transparent to the individuals without, that their foundations start to shake; that the calls for fundamental, societal change grow ever more louder.

At the risk of sounding like a stuck record, evidence of Clay Shirky’s ‘collapse to simplicity’ is ever more compelling…

http://www.shirky.com/weblog/2010/04/the-collapse-of-complex-business-models/

Big is in danger of going bust. Or rather has in the case of the Greek economy. Or Lehman Brothers.

Our future is – in every likelihood – small, simple, open and accountable. In fairness, we might have no choice; we might all have to start from scratch again – and build new communities of trust and trade from the street up.

How Messrs Cameron, Clegg and Brown ever get this elegant Shirky-esque circle to square with 150 years of Parliamentary two-party privilege is something that – I suspect – will prove beyond them. There are too many a vested interest at work to prompt instant reform; just as the bonus culture of The City and Wall St ensure that the current Masters of our Universe will survive for a while longer.

But there is a mood for change afoot. Just not the one prescribed by the Tory party.