David Priestland, a historian, on matters of finance

HFT generates huge profits for financiers and stock exchanges, but many blame it for market volatility and crashes. The most recent victim was the American firm, Knight Capital, which almost collapsed last month when a computer malfunction cost it $440m. More serious was the \”flash crash\” of 2010, when these technologies briefly sent American shares plummeting and threatened market panic.

HFT also reveals a deeper problem with the economy of the last few decades: finance\’s extreme short-termism, and the funnelling of resources into trading rather than investment and jobs.

HFT doesn\’t generate huge profits. It\’s a very, very, low margin activity. As with other types of trading, it reduces price volatility in markets.

Knight Capital did not almost go bust because of a \”computer malfunction\”. It almost went bust because of gross stupidity. They had a new piece of software and instead of testing it out and playing with it in a sandbox (an entirely artificial market where you don\’t actually trade anything so you can test your software) they let it loose on the public markets without having tested it. Yes, we do want people who do such stupid things to go bust.

Finally, the flash crash. Seriously, we want to ban a legal technology because it made Wall Street\’s finest soil their knickers for a couple of hours? I think we might need greater proof of a problem before we take that sort of action, eh?

London cannot be both a merchant city state and the capital of a nation state.

Then I suggest moving the capital rather than destroying the market.

9 thoughts on “David Priestland, a historian, on matters of finance”

  1. From what I can make out, Knight Capital thought they were in the sand box. A simulator was throwing test orders into the real market, trying to accumulate a position, and its live counterpart was seeing the positions and trying to clear it up… a feedback loop started. By the time a human realised what was going on, it was too late.

  2. But you CAN generate huge profits from “very, very low margin activity” : you just have to do the activity often enough, eg supermarkets, it’s how the Sainsbury or Walton family became billionaires.

    HFT – from its very name – sounds like it is doing it often enough to make huge profits.

  3. blingy city state with a southeastern hinterland, attached to an impoverished north and west. A disaffected Scotland may leave.

    “We have no money. Let’s declare independence.”

  4. “London cannot be both a merchant city state and the capital of a nation state.”

    It has managed to be so for centuries, very successfully.

  5. Rob>

    Yes, but we’re supposed to pretend that the regions aren’t vassals, so in turn that means pretending London isn’t a city-state.

  6. ohdearieme>

    Not that old chestnut again. Is there even a word for the opposite of a silent letter (that is, one which is pronounced but not written)? Why leave out the ‘n’ despite it being there when the word is pronounced? Or are you just one of those who don’t talk proper?

Leave a Reply

Your email address will not be published. Required fields are marked *