Wednesday, September 25, 2013

Traders may have gotten last week’s Fed news 7 milliseconds early
Somebody placed massive orders for gold futures contracts betting on exactly that outcome within a millisecond or two of 2 p.m. that day -- before the seven milliseconds had passed that would allow the transmission of the information from the Fed's "lock-up" of media organizations who get an early look at the data and the arrival of that information at Chicago's futures markets (that's the time it takes the data to travel at the speed of light. A millisecond is a thousandth of a second). CNBC's Eamon Javers, citing market analysis firm Nanex, estimates that $600 million in assets could have changed hands in that fleeting moment. 
There would seem to be three possibilities: 1) Some trader was extraordinarily lucky, placing a massive bet just before a major announcement that would make that bet highly profitable. 2) There was a leak, either by a media organization with early access to the data or even someone at the Fed. Or 3) The laws of physics have been violated as the information traveled from Washington to Chicago faster than the speed of light. 
You can see why Option 2 looks the most plausible. 
Capital markets exist to serve the real economy: Stock and bond markets exist to allow companies to raise the funds they need and savers to invest for the future. Futures and options markets exist to let companies and individuals hedge against potential losses, smoothing out the risks of fluctuations in currencies, commodity prices, or whatever.

There is a role in these markets for traders whose work is more speculative. Having opportunistic traders in the markets always watching for mispricings can be beneficial to the real companies and individuals looking to save or invest because it means they are more likely to be able to get a fair price and carry out the transaction whenever they want. (The traders ensure, to use the formal terms, liquidity and efficient price discovery). 
But when taken to its logical extremes, such as computers exploiting five millisecond advantages in the transfer of market-moving information, it's much less clear that society gains anything.
[Y]ou have to either live in the countryside or live in the city and be really rich to say that rubber tomatoes suck. For those humans who live in the city and are not really rich, rubber tomatoes provide a welcome and tasty and affordable simulacrum of the tomato-eating experience.
In his version of our present dilemmas no one is to blame. "As citizens, we may feel that inequality on this scale cannot possibly be good for a democracy.... But the super-rich are not at fault." 
...Like its nineteenth-century predecessors, this story combines a claim about improvement ("growth is good") with an assumption about inevitability: globalization—or, for Robert Reich, "supercapitalism"—is a natural process, not a product of arbitrary human decisions. 
again "The Good Banker"

The imperative of speed, the conflation of technological and moral progress, of science and morality.
Modern liberalism begins in universalism, treating various people's interests as equal or equivalent. But the global view of individuals as actors has given us an asocial model of morality: 
"If her interests have the same value as his, then my interests must have the same value as yours."

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