Skip to main content

Wall Street Arms Race Makes for a Shoddy Infrastructure Plan

Felix Salmon finds an interesting fact:
File under “unexpected societal benefits of high frequency trading”: it’s doing wonders for building IT infrastructure. Sebastian Anthony and Jeff Hecht both have good overviews of the three — count ‘em — fiber-optic cables being laid deep below the arctic sea floor, all in a $1.5 billion attempt to shave 60 milliseconds, or less, off the amount of time it takes to get digital information from London to Tokyo.
Ok, fair enough, that's pretty cool. But one wonders if this is really the best way to go about this. To clarify, if a trader hears a bit of public information about a stock, and executes a quick trade or two before it's widely known, then she can make a quick buck. That's been true since the dawn of stock markets. But now that we have computers, people have been writing programs that do this automatically, and buying big servers to run the programs as fast as possible. The obvious result of this is that Wall Street and its equivalents across the world now involved in a massive IT arms race to win at this "high-frequency trading."

The thing about this is that it's zero-sum. There's only so much information out there, and every bit of increased money derived (groan) from increased trading speed on one side necessarily comes out of the profits of the other firms. It's a market failure, in that everyone would rationally prefer if someone could put a hard limit on this practice because it's pointless, but will never stop absent some kind of outside force coming in.

In addition, there are enormous opportunity costs here. Not only is the financial sector sucking up huge gobs of IT equipment, they're sucking up huge gobs of the smartest engineers and programmers, who are doing the social equivalent of trying to beat each other at Tetris. (Not to mention the fact that these programs, which do most of the trading these days, can create near-instantaneous stock market crashes before the traders can even reach the off switches.) If that gets some cables built between continents, that's a nice benefit, but it seems to me the optimal policy would be to clamp down on this market, like with a financial transactions tax, and use the proceeds to just build the cables ourselves.

Comments

Popular posts from this blog

Why Did Reality Winner Leak to the Intercept?

So Reality Winner, former NSA contractor, is in federal prison for leaking classified information — for five years and three months, the longest sentence of any whistleblower in history. She gave documents on how Russia had attempted to hack vendors of election machinery and software to The Intercept , which completely bungled basic security procedures (according to a recent New York Times piece from Ben Smith, the main fault lay with Matthew Cole and Richard Esposito ), leading to her capture within hours. Winner recently contracted COVID-19 in prison, and is reportedly suffering some lingering aftereffects. Glenn Greenwald has been furiously denying that he had anything at all to do with the Winner clusterfuck, and I recently got in an argument with him about it on Twitter. I read a New York story about Winner, which clearly implies that she was listening to the Intercepted podcast of March 22, 2017 , where Greenwald and Jeremy Scahill expressed skepticism about Russia actually b

Varanus albigularis albigularis

That is the Latin name for the white-throated monitor lizard , a large reptile native to southern Africa that can grow up to two meters long (see pictures of one at the Oakland Zoo here ). In Setswana, it's called a "gopane." I saw one of these in my village yesterday on the way back from my run. Some kids from school found it in the riverbed and tortured it to death, stabbing out its eyes, cutting off its tail, and gutting it which finally killed it. It seemed to be a female as there were a bunch of round white things I can only imagine were eggs amongst the guts. I only arrived after it was already dead, but they described what had happened with much hilarity and re-enactment. When I asked why they killed it, they said it was because it would eat their chickens and eggs, which is probably true, and because it sucks blood from people, which is completely ridiculous. It might bite a person, but not unless threatened. It seems roughly the same as killing wolves tha

The Conversational Downsides of Twitter's Structure

Over the past couple years, as I've had a steady writing job and ascended from "utter nobody" to "D-list pundit," I find it harder and harder to have discussions online. Twitter is the only social network I like and where I talk to people the most, but as your number of followers increases, the user experience becomes steadily more hostile to conversation. Here's my theory as to why this happens. First is Twitter's powerful tendency to create cliques and groupthink. Back in forum and blog comment section days, people would more often hang out in places where a certain interest or baseline understanding could be assumed. (Now, there were often epic fights, cliques, and gratuitous cruelty on forums too, particularly the joke or insult variety, but in my experience it was also much easier to just have a reasonable conversation.) On Twitter, people rather naturally form those same communities of like interest, but are trapped in the same space with differe