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Thursday, August 09, 2012

Why we need a Financial Transaction Tax to stop the Wall St nano trading casino

This terrifying article on the dangers of High Frequency Trading on Wall St provides all the reason why we need a Financial Transaction Tax and need it now...

Chart of the day, HFT edition

What we see here is relatively low levels of high-frequency trading through all of 2007. Then, in 2008, a pattern starts to emerge: a big spike right at the close, at 4pm, which is soon mirrored by another spike at the open. This is the era of traders going off to play golf in the middle of the day, because nothing interesting happens except at the beginning and the end of the trading day. But it doesn’t last long.

By the end of 2008, odd spikes in trading activity show up in the middle of the day, and of course there’s a huge flurry of activity around the time of the financial crisis. And then, after that, things just become completely unpredictable. There’s still a morning spike for most of 2009, but even that goes away eventually, to be replaced with sheer noise. Sometimes, like at the end of 2010, high-frequency trading activity is very low. At other times, like at the end of 2011, it’s incredibly high. Intraday spikes can happen at any time of day, and volumes can surge and fall back in pretty much random fashion.

It’s certainly fair to say that if you take a long, five-year view, then you can see a clear rise in trading activity. But it’s also fair to say that there’s something quite literally out of control going on here. Just as the quants at Knight found themselves unable to turn off their machines for 30 long minutes last week, the HFT world in aggregate seemingly has a mind of its own when it comes to trading patterns. Or, to put it another way, if there’s a pattern here, it’s one incomprehensible to human minds.

Back in 2007, I wasn’t a fan of a financial-transactions tax; today, I am. And this chart shows better than anything why my opinion has changed. The stock market is clearly more dangerous than it was in 2007, with much greater tail risk; meanwhile, in return for facing that danger, society as a whole has received precious little utility.

High frequency trading firms account for 73% of all U.S. equity trades, yet they represent only 2% of the approximately 20,000 firms in operation. Wall St is now an electronic black box scam which has grown to unregulated dominance in only a decade. Watch for them to dominate the market and make it painfully obvious how much a scam they have managed to get away with as the last strands of faith in the blessed 'free market' are shown to be the empty and hollow lies they were in 1929.

The growth model consumer capitalism demands is flawed not just in that it destroys our environment, it is also utterly economically unsustainable. Watching National adopt tax cut, deregulation, free market neo liberal domestic policies to respond to the problems caused by the tax cut, deregulation, free market neo liberal global policies seems like an act of desperate Milton Friedman acolytes who have nothing to offer but privatization dogma.

Through High Frequency Trading, Wall St has become a rigged Casino and our obedience to the Washington Consensus seems nothing less than corporate mafia capitalism.

Meanwhile the NBR rich list grows as 250 000 NZ children live in poverty.

If you're not angry, you're not paying attention.



At 9/8/12 9:14 am, Blogger Rich said...

You don't think that FTT might just be a very sneaky plan by some very sneaky people?

The megarich have probably realized that people are getting antsy and there might be a need for some sacrifices. Convincing governments to introduce an ineffective and easy to evade tax would come at the top of these.

What's the easiest thing to tax? land - you can't move it, you can't hide it and you need government to acknowledge ownership.

Complete opposite end of the scale is financial trading on a computer, that can take place in any of 250 countries, silently and invisibly with minimal government intervention.


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