|The last man standing|
You know why that laugh? Well, there are people in the world who are effective. That is, they can do things and get things done. And, some of these make millions; millions of these slave away exploited by the CEO (and their ilk). Another type? Those who take (in one age, Vikings were the epitome in the European theater). That is, they dominate, have to be lording over someone, and such. Oh yes, they can order people around. Those who are the effective get things done; the order-around'ers take the credit (more times than not) and get the remuneration.
Now, we have those two sets of people. Doers (thank God for that) and manipulators (all types, essentially, exploiters of loopholes, skimmers off of the top, etc.). Now, there are other than these two sets (politicians, for one), but we'll just look at these two, for now (again, as this was addressed before, somewhat). The other sets will be looked at in time, as they relate to business, to boot.
Engineers, for the most part, are doers (see Engineer Memes, for a laugh or two). Some become managers thereby moving out of the doer set (by the way, I heard a manager - about 15 years ago - bewail that he doing something for himself made him a doer - this about the time when secretaries were being let go and managers had to share those types of resources - but, this for another time). And, we have engineers put themselves through paces in order to become entitled to the role and its glory; then, we have them work for manipulators (but, that's the catch, engineers who rise to management become ineffectual).
So, we might say that it's the way of the world. Not necessarily, as I've run across several organizations in which the power roles were passed around. Those who were really effective tried to shy away from playing in the crap (used intentionally, as dirt is to be honored - it feeds you, for instance, by providing the means for food production - hydroponics' role is minuscule, comparatively, at least as of now).
What's the point? It's a lead-in to chimera talking. Doers of the markets are those who are putting the technology into place, establishing the rules of the road, and managing activity. The takers, in this case? Most of the players.
We now hear that an exchange, of a newer variety, has been mis-handling trades for a few years. This came out via audit (we can look at this in more detail, but now we're just talking the generalities). Ignoring the particulars, one has to go back to look at why we think that these computational systems are doing things correctly. First of all, what is correct is not simple (as the guy who runs things says, but he didn't go far enough). Then, who the hell has determined that programming is easy and that we ought to take results from efforts of these people without question (oh, I know, the Zucks of the world just crap on us, and we keep silent since the system appears to be free)?
So, without belaboring the thing, let's look at what will be required. Along with oversight, we need to have quiescent points that will allow a look at things (even if it's time to do a quick capture of the state). This ought to be daily. Then, for any of these hotshot systems, with their automated trading, we need a computational watchdog(s). Ah, yes, none of the stupid dark pools, either.
Consider: Each trade would be handled, and verified, at the time of the event and scrutinized at the review point (several times). It would squelch speculation (yes, Minsky talked about the need).
Why this? There are serious computational problems that are being overlooked (read this and look at the Princeton FAQ). Rick Bookstaber of the SEC, at his blog, had a post (Great migration and barbarians) to which I responded, as follows:
- The definition of the new barbarians would include those who can (via access, by ability, etc.) manipulate the game through knowledge that the underlying complexity will most likely shield their introduction of 'lemons' despite efforts by the "non-barbarians" to be vigilant and to prevent such gaming of the system. Evidently, it works. As in, where are the perp walks?
See Princeton's FAQ on the subject of computational complexity and financial products:
- The net effect can be a huge pocket-picking of the multitude of the hapless by the very few.
So, back to the guy who runs the new exchange: why, guy, did you run off and sell your services as if they needed no scrutiny? Well, to make money, of course. The thing is that the game is now different due to computers (and advancements in the misuse of abstraction - we'll have to get back to this by extending our most popular post).
Business needs to take the role (hear me, Jamie?) in setting up a sustainable approach. Yes, and Ben, to boot, needs to bring his mind around to the reality.
algorithmic trading that everyone ought to read. Essentially, if we use a plane as an example (consider what Boeing has had to do to get the 787 out and about), we would say that the financial folks are putting passengers on experimental aircraft with little regard to their safety and comfort. The whole notion is atrocious. How does it happen? They've coached things in mathematics and computerese, plus they've bastardized Adam Smith's ideas. Where is our sandbox, and where is the stable economic system that we can build?
04/11/2013 -- See Alpha Seeking article.
01/20/2013 -- The recent Business Week had something interesting article (Steven Cohen, of SAC Capital). Some employed in the business have misgivings about their ways of doing things. One talker, under questioning, was asked if he knew of any hedge fund that was clean, or above reproach using the old concept (as in, no shady dealings). No, he said. They could not survive, otherwise. It's like doping.
01/18/2013 -- http://finance.yahoo.com/blogs/daily-ticker/america-declare-bankruptcy-doug-casey-124119100.html (easy debt mortgaging the future generations -- loose money, too, thanks, Ben). How many businesses, like Hawker, were idiotic deals with loads of debt while some walked away with huge pockets?
01/17/2013 -- The Atlantic Article: What's Inside America's Banks? Using Wells Fargo as the focus.
01/16/2013 -- Consider this a ranting overview, the specifics can be addressed, more rationally, using material like Rick's post on his agent-based modeling work. Think of the agent view as analogous to the particle look in physics. What is at the basis of matter? Particle or wave? ... Why would we care from the viewpoint of business and busyness? ... Particles are individuals but could be compound. Think of the wave as representing the composite of the particles, in a sense (there are many other ways). So, talking about economic objects (particles), we have individuals, super individuals (companies, in other words), nations, and more. Some collection, like a bank (many employees (traders, et al), with a Jamie in pseudo-charge, as in, pretty-boy, front-man is a necessary role as we, the customers, want to know that our money is safe - so the pretty-boy can mouth comforting words to us), could be split into the particles, but then what would be the bank? It's a particle, itself, and a series of waves. But, one could, in certain views, use a wave as representing something meaningful. Like, is the principle direction vector pointing toward the mud (not necessarily kidding here - and say that it's a pig's wallow full of it) so that we all get splattered with crap? ... Our problem? The descent (as we've all felt and seen) is due to a lowering all around as these particles followed their own thing without any due thought to the flock (ah, how can we teach such a thing? -- if I'm a John Galt, to which flock do I belong?).