More useful detail on HFT comes out in this segment.
Michael Lewis, author of “Flash Boys,” talks about high-frequency trading, the U.S. stock market and financial regulation. Here is a direct video link.
Yes the stock exchanges need to go back to being unbiased utilities versus the for-profit-prostitutes they have become. That one has been obvious for years.
There is also another important point here missed in the red-herring argument that “trade commissions are cheaper today than years ago, so hasn’t HFT made it better for investors.” Financial markets devolve into an unethical abyss in direct correlation with the degree of opaque activities, hidden fees and conflicts of interest that the system (the public, investors and regulation) tolerates. We have seen this throughout time.
If financial institutions are allowed to take big risks underwritten by the taxpayer, they will take crazy risks that will bankrupt the economy. If they can make fortunes selling people capital risk and calling it “advice” they will sell them tons of risk at every price and harm the clients. If they can hide their fees and take profits in a million different ways, they will be on the take from many and charge more. If they are allowed to operate in complex webs of conflicting interests they will take advantage of those conflicts. If their executives are allowed to move freely back and forth between private companies and government policy roles, they will use inside knowledge of the regulatory rules to slant policy in the industry’s favor and degrade the public trust. Transparency of fees, disclosure, a division of risk sellers from advisory service, fiduciary standards surrounding conflicts of interest…this is all patently obvious stuff–reforms that need to be restored as they did in the 1930’s.
As Lewis says, we can’t blame lions for eating antelopes if we keep putting the lions in positions of control and trust over the oblivious and trusting antelopes. But we will keep paying huge, debilitating socioeconomic costs. And 5 years after the great financial crisis, we still are.
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