Doomsday Machines: High Frequency Trading and the Men Who Built It
Posted on Jan 5, 2014
Haim Bodek is one of the genius architects of the system of lightning fast computers and algorithms that dominate trading on stock exchanges. Focusing on the “Flash Crash” of May 2010, he takes us on a tour of the terrifying machines that rule the economy and that experts say no one controls.
The runaway complexity and inherent danger of the system is explained by former high frequency trader Dave Lauer in the documentary below, produced by VPROinternational and filmmaker Marije Meerman:
The markets and the interplay in the industry between all these firms with all these very complicated and complex technology systems and how they interact makes the entire system of exchanges, high frequency brokers and the interaction between the technology, it makes it a complex system. And so, for example, the flash crash is the perfect example. There is no cause and effect that you can point to. “What caused the flash crash?” is a nonsense question. It makes no sense in the context of a complex system. And if you were to replay the same sequence of events identically, there’s no guarantee that it would cause a flash crash again. That’s the nature of complex systems.
Commenting further on the crash, Lauer speculates on what society loses when educated elites become fixated on markets and making vast amounts of money:
For me, I don’t know, it just changed me. Looking back on that day I lost faith in capitalism or at least what we had built to be capitalism. And I didn’t trust it anymore. I lost trust. My friend has a Ph.D. in climate science from Harvard, who was working there. There was a Ph.D. in bioinfomatics sitting next to me; a semiconductor designer on the other side. Sitting behind me was a Masters in math from MIT. And these people are taking their huge brain power and devoting it to making pennies in a high frequency trading system. And I couldn’t really justify it anymore. Because… they should have been doing… they should have been curing cancer or global warming. And here they are. They’re making a fortune. And were we making the markets a better place? Were we increasing efficiency or stability? I mean, that day showed me that we weren’t.
—Posted by Alexander Reed Kelly.