Linux at NASDAQ OMX

Posted Oct 28, 2010 3:47 UTC (Thu) by wahern (subscriber, #37304)
In reply to: Linux at NASDAQ OMX by i3839
Parent article: Linux at NASDAQ OMX

More rules is a horrible idea. More rules means more oversight which means the government and the taxpayers are taking on more of a burden.

IMO the better solution is radical transparency. The account of every trader, broker, and fund should be completely open. We should have bonds, securities, commercial paper and everything else flow through transparent exchanges. We should have an open national database of corporate holdings so you couldn't setup shell companies to hide market transactions.

This way the market could police itself. And when rules are broken they'd be broken by more than one party (as both parties would be responsible for ensuring transparency of the overall transaction), so enforcement of the few remaining rules would be even easier.

Of course, this wouldn't be well received in Europe because of their peculiar views on privacy (gov't invasion okay, private invasions so intolerable as to be immoral), and it wouldn't be well received in America because, well, the corporations wouldn't appreciate not being able to extract rents--and bailouts--from the shoddy "markets" they construct.

Linux at NASDAQ OMX

Posted Oct 28, 2010 13:48 UTC (Thu) by Np237 (guest, #69585) [Link] (14 responses)

You are contradicting yourself. How will you enforce transparency, if not by making more rules? If not by adding oversight to control this transparency?

You may disagree on the nature of rules there is to implement but at least you seem to share this view.

Linux at NASDAQ OMX

Posted Oct 28, 2010 19:20 UTC (Thu) by wahern (subscriber, #37304) [Link] (13 responses)

The implication of using transparency as a device is that rather than government officials needing to pour over transactions and to police the minutiae of corporate decision making to detect improper behavior, the market would be able to do it. For example, the market wouldn't have allowed the mortgage bubble to become so inflated if it could have clearly seen the ridiculous positions of the major investment banks and institutional investors viz-a-viz those instruments. As it was nobody knew whether investor A had 5% invested in that particular segment or 95%. Overall you would need fewer government officials and fewer rules.

Financial markets are based on risk, and risk is lack of information. The more information a market has access to, and the less costly it is to leverage that information, the less risk in the system.

Economists would say that the only information a market needs is open pricing signals (i.e. you just need exchanges). But that can't literally be true because you have complex derivative products which manifestly nobody can properly price; and the reason these derivative products are so popular is because of the problem of managing risk. Reduce risk and you reduce the pathologies for pricing at the margins. You also avoid the moral dilemma of too big to fail, because the "too big" institutions couldn't as easily get close to failure mode.

Enforcing transparency is a rule which addresses the illness. Adding ad hoc rules on holding requirements, etc., merely addresses a symptom. Reduce risk and you alleviate--to some extent--all the symptoms.

Linux at NASDAQ OMX

Posted Oct 28, 2010 20:30 UTC (Thu) by Np237 (guest, #69585) [Link] (12 responses)

Im amazed that there are still people to believe in Adams Smith invisible hand.

There is no argument that can be opposed to such a religious belief.

Linux at NASDAQ OMX

Posted Oct 29, 2010 17:48 UTC (Fri) by zlynx (guest, #2285) [Link] (11 responses)

Do you believe in solving NP-hard problems using techniques such as Monte Carlo and simulated annealing?

"The Market" is just such a technique for optimizing the economy. The global economy (even a country's economy) is a problem impossible to solve with a giant computer or central planning bureaucracy (gag).

Linux at NASDAQ OMX

Posted Oct 29, 2010 18:32 UTC (Fri) by Np237 (guest, #69585) [Link] (9 responses)

Monte Carlo and similar techniques do not work for chaotic systems.

And you dont need such a far-fetched analogy to see that letting the market optimize the economy just doesnt work. Historically, every time the market was left with more power and less regulation, it lead to increased poverty and economical crisis.

Linux at NASDAQ OMX

Posted Oct 29, 2010 19:45 UTC (Fri) by zlynx (guest, #2285) [Link] (8 responses)

The market isn't chaotic in that sense. Food and water will always be valuable. So will labor reduction (employees, slaves, machines) and entertainment. At a medieval feudal level a planned economy can be run from the top down. That couldn't be done if it was a truly chaotic system.

In the modern world eliminating the market or placing too much control on it will always fail.

The market will resurrect itself in the form of an underground economy where supply and demand (plus legal risk fees) will result in exchanges at the true market value of goods and services.

A regulated market that respects true values will still fail when the regulation cost exceeds the legal risk costs. At that point it becomes much cheaper to avoid the legal markets (pay workers cash under the table, hire illegal aliens, buy drugs from Canada, etc).

Take the old USSR for example or any government that has attempted to enforce a rationing system. Ticket sales and scalpers are another example.

To take this back to the subject, if there was any attempt to impose month long waits on stock sales, investment brokers would go somewhere else, to another country probably, where such ridiculous laws were not in force.

There will always be someone. North Korea or Venezuela could become the finance capital of the world.

Linux at NASDAQ OMX

Posted Oct 29, 2010 20:03 UTC (Fri) by Np237 (guest, #69585) [Link] (7 responses)

Economy as a whole is not necessarily a chaotic system. But the market with no control (or joke control, as currently) is definitely one.

As for other places becoming the finance capital of the world: sorry to disappoint you, but it has already happened. Bahamas, Cayman, Isle of Man, to a lesser extent Delaware and Singapore This is where the large transactions are happening. The solution is not to just imitate them and hope for the best when speculation and market manipulation takes away any kind of value from the real world economy. The solution is, on the contrary, to impose strong regulations (with high legal risk costs, as you point out) and to make it costly to make money flee in such places. Several realistic solutions, from Tobin tax to various kinds of oversight, have been proposed in this direction, but have not been implemented because of beliefs in the market that confine to religion.

Linux at NASDAQ OMX

Posted Oct 30, 2010 22:43 UTC (Sat) by giraffedata (guest, #1954) [Link] (6 responses)

As for other places becoming the finance capital of the world: sorry to disappoint you, but it has already happened. Bahamas, Cayman, Isle of Man, to a lesser extent Delaware and Singapore… This is where the large transactions are happening.

Let's not exaggerate. Far more money changes hands in New York, London, etc. than those places. These are the finance capitals of the world. And it's because laws in New York and London allow exchanges to run Linux and execute a million orders a second. If they didn't, then the transactions would move to those other places.

I don't get the "sorry to disappoint" angle at all, since you're at best confirming zlynx's point: places like North Korea and the Bahamas can have fewer restrictions and be the marketplace of choice.

Linux at NASDAQ OMX

Posted Oct 31, 2010 6:18 UTC (Sun) by Np237 (guest, #69585) [Link] (5 responses)

You are completely missing the point.

I dont care about people playing casino in such places. As long as they dont do it with our money.

There are ways to prevent people from using money and goods from our countries in such places. Running a competition for which country has the laxest laws to allow the fastest transactions with the least control is not one.

Linux at NASDAQ OMX

Posted Oct 31, 2010 7:04 UTC (Sun) by dlang (guest, #313) [Link] (3 responses)

if all you are worried about is your money, then just don't give your money to money managers that do things you don't like.

unless you are forced into a union, they don't force you to give them any money, you can do whatever you want with it.

Linux at NASDAQ OMX

Posted Oct 31, 2010 7:24 UTC (Sun) by bronson (subscriber, #4806) [Link]

Have you forgotten about the great bank bailout of 2008?

Linux at NASDAQ OMX

Posted Oct 31, 2010 7:51 UTC (Sun) by Np237 (guest, #69585) [Link]

Do you actually know how the economic system works?

Not everyone of us wants to spend his life alone in the mountains raising goats.

Linux at NASDAQ OMX

Posted Oct 31, 2010 8:13 UTC (Sun) by giraffedata (guest, #1954) [Link]

if all you are worried about is your money, then just don't give your money to money managers that do things you don't like.

I don't think anyone is posting worries about his own money, even though the posts might be worded that way out of simplicity. What people are worried about is their wealth, and having a mattress stuffed with money doesn't make you wealthy if the price of everything is high. Certain behaviors of financial institutions make prices high so that no matter what one person does with his own money, he ends up poorer.

And it's rather arbitrary what money we call mine and what money we call yours (laws can easily change that accounting), so it's legitimate to complain about things that waste "our money."

Linux at NASDAQ OMX

Posted Oct 31, 2010 7:59 UTC (Sun) by giraffedata (guest, #1954) [Link]

You are completely missing the point.
I don’t care about people playing casino in such places. As long as they don’t do it with our money.

No, I just wasn't addressing that point. I was addressing the point from your immediate previous post that the Cayman islands, etc. are today the finance capitals of the world, and that that revelation should disappoint zlynx (who said places like North Korea could become finance capitals if laws were to restrict trade in today's finance capitals).

If those weren't points you intended to make, you shouldn't have said it.

Linux at NASDAQ OMX

Posted Oct 31, 2010 13:07 UTC (Sun) by nix (subscriber, #2304) [Link]

I wish people would pay attention to the history of the Soviet Union instead of just using it as a whipping boy. What killed their dream of near-optimal central planning from the start was two things: firstly, the available computer power and communications bandwidth was nowhere near sufficient to optimize the whole economy, or to react to changing external conditions fast enough; secondly, they relied on people reporting what was happening on the ground, and most of those people had an incentive to *lie*. (Later on, a third thing killed them: that the existing productive systems had grown into empires and the people running those empires fought to stop them being torn down: also, by then the lies were so pervasive that not many people thought to tear them down. Capitalism's "creative destruction" may not be all it's given credit for but it's a hell of lot better than what they had.)

But the idea of optimizing an entire economy is not hopeless. You just can't do it with humans doing the data collection and reporting :/ in this it was very similar to much else about communism: it would work great if we were all selfless robots.

The nice thing about price signals is not that they are particularly brilliant or insightful. It is that they are relatively hard to manipulate, so individual liars can't bugger up your economy.