October 11, 2011
It is easy to classify the current protests against Wall Street as a lot of noise by a handful of people who do not understand the financial markets. But this does not mean there is no justification to the claims of excessive greed.
High frequency trading is perhaps the most egregious example of pure greed with no useful purpose. A handful of firms are tainting all of Wall Street and making huge profits in a way that makes no contribution to anyone but themselves.
The firms engaging in this practice claim using more sophisticated technology to trade stocks is just the latest example of gaining competitive advantage. Injecting confusion by placing and removing tens of thousands of false buy and sell orders in seconds is just capitalism at work.
In actuality it is an epic abuse. Monopolists like Rockefeller, Vanderbilt, and J.P, Morgan at least built things with their schemes. The high speed traders create nothing for anyone but themselves. For everyone else there is just uncertainty, fear, the sense that logic and analysis dont count.
The underlying premise of the stock market is to provide a mechanism for companies to raise money for investment in their business. Investors who provide the money get rewarded with dividends and capital appreciation. The effective companies grow, the ineffective ones fail. This process doesnt happen in a day or a month.
The stock market was never intended to be a vehicle for people whose idea of long term investment is a minute. High frequency trading makes no contribution whatsoever to the real function of the stock market - raising capital for investment. Indeed it does the reverse - drives capital out of the market. Individual investors have taken hundreds of billions out of mutual funds and stocks even though interest rates are at extreme lows
No capital means no growth, no jobs, no wealth for anyone but the tiny handful of people who engage in high frequency trading.
High frequency trading should be illegal, just like insider trading, because it serves no useful purpose in supporting investment in America and causes harm to millions.