May 05 2011

Flash Crash

A year on, flash crash didn’t prove transformative

By Jonathan Spicer, Reuters

Thu May 5, 2011 8:55am EDT

In the hours and days after last year’s “flash crash,” it seemed like Wall Street’s high-tech marketplace was in for big changes.

Yet a year later, little has changed — suggesting that while the flash crash was historic, it was not transformative.

With Europe’s debt crisis keeping markets on edge on May 6, 2010, a big futures sale sparked a cascade of selling in the stock market. The high-frequency algorithmic traders that now supply much of the market’s orders started bailing out, leaving nothing to stop the stampede to sell at any cost.

The Dow Jones industrial average plunged nearly 700 points in minutes that afternoon, eliminating $1 trillion in paper value before rebounding nearly as quickly. Blue-chip stocks hit record lows while others such as Accenture Plc traded for a penny, prompting thousands of trade breaks and wrecking havoc on investments.

The U.S. Securities and Exchange Commission has so far made only one structural adjustment to markets: trading pauses known as circuit breakers. The regulator also made some noncontroversial nips and tucks around the edges and is mulling further changes, but for now at least, an overhaul is nowhere on the horizon.

“Not enough has been done,” said Andrew Brooks, head of U.S. equity trading at T Rowe Price, a big Baltimore-based asset manager.

“Do we know who trades all the large stuff? Do we know the nature of the counterparties in the marketplace today? The answer is no, and it’s crazy.”

So much for free, efficient, and transparent markets.

The solution is a transaction tax.  Not only would it force high churn traders to reconsider their gambling bets “investment” decisions, but it would also solve our revenue (not deficit) problem at a stroke.

What we have to do structurally is make it impossible (or prohibitively expensive) to gamble ‘on the house’ by using leverage as a money multiplier unless you are prepared to pay off your private debts when you lose.

I have no sympathy at all for those who sold Accenture at a penny.  You were fucking stupid to let a computer make your decisions for you.  Master of the Universe my ass, you’re a con man with a gambling addiction, a moron, and you deserve to be kicked to the gutter penniless and homeless like your Randian philosophy demands.

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