Saturday, May 8, 2010

Pull the plug on Wall Street’s Computers Before They Cut Our Throat.

Our entire civilization has become so complex that it has almost ceased to be understandable in any rational terms. Nothing is safe from the super complexity of modernity.  The price of something as simple and basic as onions in the corner market does not depend upon things as simple as weather and fair trade any longer. No - now food is a commodity, it is traded, speculated for and against and reduced to a data set for most of its time before ending up on top of a hamburger. As a commodity it is shipped all over the world in subsidized transport burning oil like it was water to move onions across the globe in concord to orders issued from a great complex of wholesale distributors. Computers calculate bids and sales from commodity brokers who are watching flickering internet displays projecting future prices based on complex calculations of weather, oil cost, possibility of war or interruption of supply, current and future production, demand and a million other factors.

Onions are a mere example, the same thing happens to all raw materials and supplies. Finance is subject to even more torturous complexity in the modern search for more and more profit from less and less real worth. Somewhere a futures contract for the delivery of those onions from fields in outside Santiago to markets in Sydney is bundled in with millions of other contracts and put forward as a subcomponent of a commodities derivative being traded across internet lines from New York to London to Berlin then over to Shanghai. This commodities derivative will be bundled with some bundled mortgages securitizing a security being traded in Chicago against surety debt swap agreements being negotiated in Wall Street to provide funding to a firm which is backing a Bond for roads in Athens being used to guarantee a loans coming from investors in Dubai and Indonesia.

It is all just too absurd. To quote “Fabulous Fab” of Goldman Sachs we are “standing in the middle of all these complex, highly leveraged, exotic trades created without necessarily understanding all of the implications of those monstruosities!!!” This was shown in excruciating detail on Thursday May 6, 2010 when the New York Stock exchange’s Dow Jones Industrial index dropped nearly 1000 points in a matter of minutes. Trillions of Dollars of supposed value was vanishing in less time that it takes to boil an egg. Even more ridiculously, the market was being driven by computer programs working faster that men can think or respond. Insane supposedly impossible things were happening. Major corporation’s stock value dropped to zero. Not a penny – but zero. Meaning an infinite number of people could buy the company for no pennies – nothing. Similarly, a few stocks went up over 3,300,000 percent in seconds.

This is ridiculous. It would funny if it had not placed the fortunes and livelihoods of millions of people at the mercy of a trader’s fat finger trying to use an I phone virtual keyboard sitting at some Manhattan sushi bar. This is actually one of the theories being tossed around - how amazingly tragic. Another theory is perhaps it was insider trading trying to bring about potential for huge profit. Supposedly the Exchange was going to nullify all trades during that period where variances exceeded 60%. We will see if that really happens. If it mean profit for the few from the many - I doubt it will be reversed.  Maybe it was a cyber attack being tested. If that is so, then clearly we need to unhook ourselves from the vulnerable complexities that allowed it.

How this happened is therefore still under debate. But that it did happen should be a ringing alarm that our financial system like most of our society is over complicated and under regulated. We as a nation need to do what some financial firms did yank the plug. Yes it is true some firms realized that their technology was out of control and literally pulled the plug on their computers to try and break free from their tyranny. As Scotty of Star Trek said “the more you over think the plumbing, the easier it is to stop up the drain.”

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