The Living Thing / Notebooks :

Financial markets

Descriptive engagement with reality of

Randall Munroe:

![Ssssh, I cited XKCD.]({filename}/images/arbitrage.png(

Actually existing financialism.

High frequency trading

Does HFT do anything overall? If so, what? Should we resign ourselves to it and just try to make cash out of it, since we know that HFT markets ain’t going away.

For alternative finance ideas, see finance. Actual trading strategies, if I ever devise any, will be filed under hedging and portfolio theory.

Why did we get the bloated finance industry of today instead of the lean and efficient Wal-Mart? Finance has obviously benefited from the IT revolution and this has certainly lowered the cost of retail finance. Yet, even accounting for all the financial assets created in the US, the cost of intermediation appears to have increased. So why is the non-financial sector transferring so much income to the financial sector?

But what if HFT consumes liquidity instead of increasing it? Theory suggests that if HFT consists of a bunch of algorithms trying increasingly hard to beat each other to the punch, then liquidity will go down, and the resources spent on HFT will just be a waste. Now, via Johannes Breckenfelder of Stockholm’s Institute for Financial Research, we have evidence to back up the theory.

“That last recession? That was practically fucking victory condition. We teeter on the brink of world financial ruin and a return to the days of trading fucking seashells for food, every fucking day. […]It’s a runaway process. The absolute best thing anyone can do is grab desperately at the throttle.

But they don’t. Because it’s a speeding death kaleidoscope made out of tits. ”It just dangles tits out everywhere. And tits will hypnotize a man. He’ll just grab at them and suck. Unless,” he reflected, “they like cocks. In which case just imagine a whirling thresher of cocks. Tasty ones. People just want a taste. And when they’ve had it, they want more, and bugger tending or directing the machine after that. They just crawl over the thing, trying to drain it of its juices”. […]

“Did you know […] that more than half of the top nought point one percent […] of the highest paid people in America are financial professionals? Tits. I’m telling you. Draining the brake fluid out of a spinning machine that’s going to shred the planet. I’m an economist, me”

Risk contagion in finance

TBD