Led by computers to financial ruin

Smart machines are overwhelming the stock markets, as electronic traders buy and sell securities without human intervention.

Smart machines are overwhelming the stock markets, as electronic traders buy and sell securities without human intervention.

In the January 2011 number of Wired magazine, Felix Salmon and Jon Stokes reported: “Today Wall Street is ruled by thousands of little algorithms, and they’ve created a new market — volatile, unpredictable and impossible for humans to comprehend.”

Frankenstein-style investment engineers build the algorithms — powerful computer programs. Then the algorithms take on a life of their own. They trade millions of dollars worth of shares in fractions of a second.

There are two different models. A “big picture” algorithm maps the whole market like a robot meteorologist charting masses of warm and cold air.

A single-target model checks the merits and likely movement of shares in individual companies, and buys and sells chosen issues through split-second deals with other programs, calculated at a level of complexity that is beyond human capacity to understand.

The people-power rebels who have occupied Wall Street and other financial hot spots are aware in a diffuse, general way of devices that shut out low-level amateurs and keep political-economic control in the hands of a wealthy elite.

Poor students and minimum-wage workers don’t play the stock market, but they contribute through taxes to reward the CEOs of bailed-out banks with fat bonuses.

The poor and middle class come out losers because politicians (swayed by campaign contributions, outdated economic doctrine and lobby group blarney) decide that the share of grocery, shelter and transportation money that goes to 99 per cent of the people must be cut to safeguard the wealth of the top one per cent.

Meanwhile, electronic trading is technology running wild, like an escaped zoo tiger or a nuclear meltdown. Can the rebels capture and tame this monster of collective artificial intelligence, and reverse the process that created it?

If a sufficient number of us feel pain and anger long and deeply enough, and find inspired leaders who will raise the flag for a practical new program, then system change will happen.

If not, we must make do with tinkering that reinforces domination by the wealthy elite. We must wait for a bigger financial explosion, or some other disaster that stirs us to change how we feel and think. (Nuclear war? A threatened hit by an asteroid on earth?)

My guesswork has nothing to do with the Wired writers. They merely reported the facts.

As for me, I was knocked over by the mind-boggling news of the electronic market. I’m struggling back to my feet and looking for reasons to be cheerful.

Computer-driven high-frequency trading, which by some estimates is now 70 per cent of trade volume, can go weirdly wrong, as Wired pointed out. On May 6, 2010, the Dow Jones industrial average plunged 573 points in five minutes.

In that “flash-crash,” shares of the management consulting company Accenture were sold at a penny each, shares in Apple at $100,000 each. Regulators had to cancel some of the trades and clean up the mess.

The breakdown sends a hopeful signal: If humans can repair a self-damaged electronic exchange network, they can switch it off and build a people-friendly version.

Beyond that remedial measure, they can unplug the entire array of political and financial control machinery, suspend or weaken the power of the privileged, and create a kinder, more efficient network.

Co-operatives — worker-owned, consumer-owned stores, farms, oil refineries, banks and factories democratically run on the basis of one member, one vote, paying modest salaries to managers and investing some of their income to protect land, water and life, and strengthen human services — could be high on the agenda when the Wall Street campaigners move from anger to action.

In Europe, co-ops employ 4.8 million people and are enduring well in tough times.


—G.E. Mortimore is a Langford-based writer. Think About It runs every second week in the Gazette.



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