If a chain saw cut off your hand, would it be CHAIN SAW error?

Knight Capital Says Trading Glitch Cost It $440 Million
$10 million a minute. That’s about how much the trading problem that set off turmoil on the stock market on Wednesday morning is already costing the trading firm.

Daydreamer
Philly

The purpose of stock markets is to generate capital for businesses. But in reality, they've become casinos where investors of all kinds speculate on what stocks will go up or down. Rarely is money invested into the market for the purposes of capitalization. It makes sense that a stocks price would go up if the company is paying a dividend, but again, rarely is this the case. Instead the whole market is driven by speculation and perception. Rational thought is nowhere to be found.



Toronto
Dear Pierre, the Free-Trader,

The healthy functioning of capital markets is based, ultimately, on the confidence of average investors that the market is basically fair and they will be rewarded in the long run for intelligent paitent investing.

A whole bunch of unregulated 'innovations' -- opaque derivatives that are falsely rated triple A, skyrocketing credit default swaps, 'defensive' hedges that turn out to be speculative gambles, super-fast computer trading that leads to market takeover by margin traders who crowd out patient value investors with substantial skin in the game -- all these clever, unregulated innovations are making billions for hedge funds and investment banks but are steadily undermining the confidence, and rewards, of average investors. People like me are getting out of equities, for good. Beware. It's happening, and all your bleeting about over-regulation is just hastening our exit..
In reply to TPierre Changstien



RealCalGal
West Marin

Tax trades. Lower the deficit. Reduce computer trading. Make the stock market about investment again, instead of the gambling den it has become.


Joe M.
Miami

"the company said that none of its customers had been hurt by the errant trades." Of course they said that.

The question is: Who's going to eat the $440 Million? The company? Insurance? The guys who wrote the faulty software? Somewhere in the virtual banking world, there's a $440 million smoking hole in the ground that someone has to fill up. Only more proof that our financial system is playing with monopoly money - That they bought with our real cash.



TG
Seattle

Stop the madness: Impose a transaction tax!


Anthony
Chicago

This glitch in the software, plus the growing threat of cyber-terrorism or cyber-robbery makes me think we'd be better off with people trading in the pits. As in medicine, and here as well, maybe, just maybe, our feats of technological brilliance surpass our ability to control our inventions. I'm no Luddite, but the idea that chunks of wealth the size of this loss or larger can disappear into thin air in seconds is disturbing.


Mark C
Upstate NY

"The question is: Who's going to eat the $440 Million? The company?"

The company will of course do it's patriotic duty and take full advantage of the tax laws to write off the loss and in the end it will get a nice fat rebate check courtesy of the American taxpayer.

Huge bonuses all around!!!
In reply to Joe M.


Captain Obvious
Baltimore MD

Take a look at returns on 401Ks, and the stock market in general, over the last decade. There's simply no profit left in any long-term investment strategy, for a retail investor. All the profits go to fees, or to churn, or to all the different strategies of computerized trading (in effect, front-running all your IRA's trades.)

Even a very slight transaction fee, like gravity or friction, would bring some semblance of order back to the trading world. But I hardly think it matters in terms of the long-term prospects of your retirement account.


Duncan Lennox
Canada

"Until this week, Knight had been one of the biggest beneficiaries of the evolution of the market, helping clients trade in and out of stocks at high speeds."
While producing NOTHING ; except a scam on the rest of us.

Let`s hope the people who take home the big bonuses from Knight et al ,take home the losses as well.


Joe Schmoe
Brooklyn

At a quant interview I once challenged my interviewer to explain exactly what function his sort of people (high frequency traders) performed for the market. His answer was: to provide market liquidity. The rationalization for their greed always boils down to that answer, and I don't find it persuasive anymore. Daydreamer is right. The market makers hardly seem to have capitalization in mind when doing their business. How many of these brazen "Bob's Capital Group" companies are out there? I see them as nothing more than efficient vehicles for vacuuming even more money into the wallets of the 1%.
In reply to Daydreamer


BinProv
New England

The entire capitalist system is a "glitch" and 99% of the world's population are the losers. The stock market itself is nothing more than a casino.


Squifford Bear
Santa Monica, CA

Thomas Joyce has shown that the market isn't an investment tool anymore for most people. It is legalized gambling for a few. Helping clients trade in and out of stocks at high speeds is not an investment. No wonder the American public is discouraged with Wall Street.


cgehner
Seattle


This and other issues surrounding computer trading makes a mockery of economists' claims that the stock market is the pen-ultimate example of "free market economics at work", where rational players, with "full information" make reasoned judgements to buy and sell. I recently heard that computer trades now make up as much as 40% of trades on the stock markets. This, then, is more like the Las Vegas casinos where retired bored older people pull the levers of the one-armed bandits, which are computerized to make pre-determined pay-outs, thus more "rational" than what the stock market is doing now.


joe
ny

A transaction tax would help but it wouldn't fix the problem of the inequity that has been progressively and deeply entrenched into the system over the past 20 years. High frequency trading programs encoded into high-speed computers are available only to wealthy investors. Alternative investment strategies are theoretically available to everyone but, in practice, are the exclusive domain of wealthy hedge fund investors. Naked shorts are not something your grandmother is going to engage in, nor should she, and if she doesn't, her retirement account is vulnerable to sharks in suits. Dark pool exchanges have replaced the NYSE as the place where the majority of trading takes place and the vast majority of people are not even aware of their existence.
People who argue that high frequency trading provides liquidity are trying to fool you into thinking that liquidity could not exist without these recent developments and the people who argue that these programs and alternative strategies using futures or options enhance price discovery or reduce volatility and are therefore beneficial to all are simply lying.
Capitalism in financial markets breaks down when restrictive controls are not applied. Since the explosion over the past 20 years of the OTC derivatives market and computerized trading, an unprecedented shift in the concentration of wealth, has occurred. The top 1% have taken all the money there was to make from equities and financial instruments. We must take away their toys.


Matthew
Tallahassee

Someone remind us again--what do the most privileged and wealthy among us actually contribute to our world? Increasingly, it looks like the answer is. . . our destruction.


Ira
Boston

Computer glitch? Not hardly. The computer, I'm sure, did exactly as instructed. Trading systems, weapons systems, defensive weapons systems - all of these contain artifacts of HUMAN error just waiting to be exposed.

Computers are tools. If a chain saw cut off your hand, would it be CHAIN SAW error?

The needed balance between trusting computers, verification, need for speed, imagining what could go wrong, testing and more will keep us challenged for many years.

Still, better Knight Capital than strategic missiles.


Qev
Albany, NY

Dear God, I hope they were big-time Romney contributors.


Chris
New Jersey

Not surprised that this happened and it will definitely happen again. The dirty little secret in financial IT services is that much of the systems architecture and programming work is performed by contractors. Yeah, there are IT managers and the like that supervisor the projects and staff but, truth be told, when systems become complex even sophisticated QA methods can "fully" expose ill-designed software. This financial IT underbelly is very volatile. It is not uncommon for IT contractors to come and go during the course of even a relatively short 2 year project cycle. Much of this volatility is due to work conditions: extreme personnel oversight, life in a sea of anonymous cubicles, pressing timelines, coder fatigue and the opportunity for landing a better, less stressful position somewhere else. There is little emotional or morale investment made by contractors. Write the code and go home to the family at day's end. Let QA discover the bugs and notify me. Those of you who are in IT services know what I say to be true. Expect this lack of investment in full-time employees to expose "glitches" in other industries. It's just a matter of time. This is the true underbelly of the U.S. marketplace, both commercial and governmental. Shut-up and don't complain, vote.


Thomas
Indianapolis

The purpose of high-speed computerized trading is to enable nearly instantaneous buying and selling with the intent of raking billions of dollars out of the economy, as instant profits, while producing nothing. In this sense, the market play was akin to that of a casino, and Knight, a high roller, lost big time while likely having no clear understanding of the ‘odds’ imbedded in their programming.


Village Idiot
sonoma

Yes, blame those sneaky, conniving, underhanded incompetent computers. What? Dr.Frankenstein and his Masters of the Universe lost control of their monster -- again?

No, this is just another example of monumental Wall Street management stupidity, in a long and tedious list of monumental stupidities and outright criminality. No amount of computer programming can fix that problem, but some legislation - including a provision for serious jail time - might.

The best that can be said of this latest debacle -- and it is schadenfreude-gratifying to say it -- is that losing $440 million couldn't happen to a nicer bunch of people. Not that any of them will lose their bonus, of course.

But there is the potential for good news: If the firm goes under because of this management screw up and all the employees are laid off, there will be 1418 people around the world free to go find some productive work to do, like cleaning the toilets at San Quentin. We should no more lament their fate than we would that of out-of-work Mafia hit men laid-off because the feds busted The Firm. After all, it's the glorious "creative destruction" that makes capitalism so great. Isn't that what Romney tells us?


Kirk Hartley
Chicago

The whole story highlights the reality of massive profits from simply programming computers to do things based on slight informational asymmetries, which has nothing to do with stock picking or other substantive knowledge. Trading on tiny asymmetries is not useful to society.

As taxpayers, we subsidize that useless business by paying for a vast regulatory structure that tries - but fails - to ride herd on this kind of trading. We also subsidize the business by paying the stock trading fees needed to support the entire endeavor at the NYSE, Nasdaq, etc. , and they send many dollars to support all the computer trading, etc. We further subsidize the industry by paying for all the public judges and agency lawyers needed to straighten out violations of law. We also pay for the federal bankruptcy judges to straighten out private messes created from entities that fail. And, worst of all, these issues take Congressional attention away from the real issues that need attention - e.. foreign policy, "entitlement" changes, etc.

It's time to end the subsidies and distractions by prohibiting this kind of trading through publicly regulated and operated exchanges. If the traders want to build their own unregulated private platform at their expense, let them so long as it is explicit that there are no actual or implied guarantees against financial failure. I'm tired of paying for armies of people to work on frauds and screw ups arising from socially useless activity.


John V. Kjellman
Henniker, N.H.


There is no sound, economic reason for trading 4 billion shares a day. I remember when the markets were working quite will trading 12 million shares a day. We're doing over 300 times that now, the whole global economy hasn't grown 300 times in the past 50 years.
In reply to Steve


Joe
undefined

Having spent billions on technology, and not to mention the hundreds of millions it has bestowed on its leaders over the years, the NYSE (and the NASDAQ for that matter) have become jokes of "self regulating" entities. It's easy for Knight and the NYSE to blame this on computers, but the simple truth is that humas caused this and the responsible individuals should be held accountable.

The "market" has lost all touch with reality, individual investors and the public trust. Buyers beware - the game is stacked against you!


TPierre Changstien
bk,nyc

You don't know what you're talking about. The people who design these programs are highly skilled and very well paid. That does not remove the element of human error from the system. Furthermore, this is more a failure of testing thank anything. I worked at one of the biggest banks in the world and we replaced our entire trading system with something built almost from scratch, and we did a month of parallel testing before we let that thing go live. So if there is a problem here, I think it 's more likely it was the human error of going live before enough testing was done.
In reply to Connect::the::Dots



Mark Hugh Miller
Los Angeles

This raises the question of what is the purpose of our markets: long-term prudent investment in business, or moment-to-moment trading by professionals who leverage off of investors' financial commitments for incremental profit? This trend risks the total loss of investor confidence, and the collapse of our financial system - long-term (a concept lost on the greed-mongers in the pits).

On May 6th the Dow Jones lost 10% in less than 10 minutes. Why ? Explanations here www.youtube.com/watch?...

A CBS piece about High Speed Trade from october 10 2010:
www.cbsnews.com/video/watch/?id=6945451n

The lame rules for presidential debates: a perfect microcosm of US democracy Secret collusion between the two parties, funded by corporations, run by lobbyists: all the ingredients are there

The 2012 Debates - Memorandum of Understanding Between the Obama and Romney Campaigns

President Barack Obama walks past Republican presidential nominee Mitt Romney during the first presidential debate. Photograph: AP

The way the two major parties control the presidential debates is a perfect microcosm of how political debates are restricted in general. Though typically shrouded in secrecy, several facts about this process have recently come to light and they are quite instructive.
I was on Democracy Now this morning along with George Farah discussing the ways these debates, designed to cast the appearance of fostering vibrant exchanges, are actually intended to constrict the range of debated views as much as possible. My segment (and the transcript to it) can be seen here, but it was the commentary of Farah - who is a genuine expert in the history of presidential debates - that I found revealing.
He described how the two political parties in the 1990s joined forces to wrest control over the presidential debates away from the independent League of Women Voters, which had long resisted the parties' efforts to shield their presidential candidates from genuine surprise or challenge. Now run by the party-controlled Commission on Presidential Debates, these rituals are designed to do little more than " eliminate spontaneity" and "exclude all viable third-party voices". Citing a just-leaked 21-page "memorandum of understanding" secretly negotiated by the two campaigns to govern the rules of the debates, Farah recounted:

"We have a private corporation that was created by the Republican and Democratic parties called the Commission on Presidential Debates. It seized control of the presidential debates precisely because the League was independent, precisely because this women's organization had the guts to stand up to the candidates that the major-party candidates had nominated. And instead of making public these contracts and resisting the major-party candidates' manipulations, the commission allows the candidates to negotiate these 21-page contracts that dictate all the fundamental terms of the debates."

Gawker's John Cook has an excellent breakdown of the 21-page memo. In his piece, entitled "Leaked Debate Agreement Shows Both Obama and Romney are Sniveling Cowards", Cook details how the rules imposed on these debates demonstrate that, above all else, "both campaigns are terrified at anything even remotely spontaneous happening."
Under this elaborate regime, the candidates "aren't permitted to ask each other questions, propose pledges to each other, or walk outside a 'predesignated area.'" Worse, "the audience members posing questions aren't allowed to ask follow-ups (their mics will be cut off as soon as they get their questions out). Nor will moderator Candy Crowley." The rules even "forbid television coverage from showing reaction shots of the candidates".
All of this means, as Farah put it:

"The town hall debate we're going to see tonight is the most constrained and regulated town hall debate in presidential debate history. The first town hall debate was introduced in 1992, and no one knew what anyone was going to ask, none of the audience members were going to ask. The moderator could ask any follow-up questions. It was exciting, and it was real.
"Well, President George H.W. Bush stumbled in response to an oddly worded question about the federal deficit, and the candidates - the campaigns have panicked and have attempted to avoid that kind of situation from happening again. In 1996, they abolished follow-up questions from the audience.
"In 2004, they began requiring that every single question asked by the audience be submitted in advance on an index card to the moderator, who can then throw out the ones he or she does not like. And that's why the audience has essentially been reduced, in some ways, to props, because the moderator is still ultimately asking the questions.
"And this election cycle is the first time that the moderator herself is prohibited from asking follow-up questions, questions seeking clarification. She's essentially reduced to keeping time and being a lady with a microphone."

Making matters worse still, the Commission is run by lobbyists and funded by large corporations. As Zaid Jilani writes today, the two Commission co-chairmen are former GOP Chairman Frank J. Fahrenkopf, Jr. and former Clinton spokesman Michael D. McCurry. Fahrenkopf is one of the nation's leading lobbyists for the gaming industry, while McCurry advises a long list of corporate clients including the telecom industry.
The debates are paid for by large corporate sponsors, including Anheuser-Busch Companies. As Jilani writes, "in the past, the tobacco industry, AT&T, and others have all been sponsors." And as Farah describes, with all that sponsorship comes the standard benefits:

"FARAH: 'First, the just nice advertising, of course. They get to - you know, Philip Morris sponsored one of the presidential debates, paid $250,000 and got to hang its banner in the post-debate spin room that was seen throughout the country. But more importantly, they get access, and they get to show support for both major parties.'
"AMY GOODMAN: 'The major parties on their podiums have Bud Light on the podium?'
"FARAH: 'Not yet. We're getting there. We're getting there, Amy. But they get to show support for both major parties. How often can corporations find a way to make a single donation that strengthens both the Republican and Democratic parties and get a tax deduction for that kind of donation? So it's a rare contribution. And it also gives them access. They get to go to the actual debate themselves and rub shoulders at private receptions with the campaigns and their staff.'"

Meanwhile, the moderators were selected to ensure that nothing unexpected is asked and that only the most staid and establishment views are heard. As journalism professor Jay Rosen put it when the names of the moderators were unveiled, using terms to describe those views that are acceptable in Washington media circles and those which are "fringe":

"In order to be considered as a candidate for moderator you have to be soaked in the sphere of consensus, likely to stay within the predictable inner rings of the sphere of legitimate controversy, and unlikely in the extreme to select any questions from the sphere of deviance."

Here then, within this one process of structuring the presidential debates, we have every active ingredient that typically defines, and degrades, US democracy. The two parties collude in secret. The have the same interests and goals. Everything is done to ensure that the political process is completely scripted and devoid of any spontaneity or reality.
All views that reside outside the narrow confines of the two parties are rigidly excluded. Anyone who might challenge or subvert the two-party duopoly is rendered invisible.
Lobbyists who enrich themselves by peddling their influence run everything behind the scenes. Corporations pay for the process, which they exploit and is then run to bolster rather than threaten their interests. The media's role is to keep the discourse as restrictive and unthreatening as possible while peddling the delusion that it's all vibrant and free and independent and unrestrained. And it all ends up distorting political realities far more than illuminating them while wildly exaggerating the choices available to citizens and concealing the similarities between the two parties.
To understand the US political process, one can just look to how these sham debates are organized and how they function. This is the same process that repeats itself endlessly in virtually every other political realm.

Glenn Greenwald

________________________________

The readers of The Guardian have it:

CreatureAdam


America isn't the free-market loving democracy that the transparent propaganda, gullible citizens and unintelligent politicians like to proclaim. So tell us something we didn't notice.

Thomas Jefferson has surely turned in his grave so many times by this point that his soul is dizzier than Felix Baumgartner must have been when he went into that tailspin.



exkiodexian

The last four paragraphs in this piece are why I read Greenwald. These four paragraphs are so lucidly, accurately, and beautifully written - they should be required reading for all Americans who need to get their heads out of their rears. If only they knew how badly our Democracy has been hijacked, perhaps we could move toward meaningful change. Real Democracy.

GlennGreenwald

Response to bloopie2, 16 October 2012 9:43PM

bloopie2

I'm curious, do you use phrases like "cloaked in secrecy" to arouse people? Certainly you can't expect everything that everyone does to be out in the open. If the parties intentionally put up strong barriers to the knowledge, that's one thing. But if they simply go and do it on their own, without public input, I wouldn't consider that as "cloaked in secrecy". Which is the case here?

They spent months negotiating with lawyers, advisers, staff and all other kinds of people to produce a long memo that provided the rules of the debate. They meet in secret and tell nobody what they've agreed to. At the same time, they release to the public small bits of information that purport to be "the rules for the debates" while the real rules are concealed.
The real rules are hidden. The for-the-public rules are disclosed. It's totally misleading. And yes, by definition, the process was cloaked in secrecy. As George Farah said about this leaked document:

"This contract was not made public in 2008. It was made public in three prior election seasons only because we got copies from whistleblowers."

What possible reason is there to conceal from the public the agreed-to rules that govern the presidential debates?

GlennGreenwald

Response to PrezDuck, 16 October 2012 10:35PM

PrezDuck

You're the angriest person ever. Don't you ever get tired of being a one trick pony? Surely there is something, somewhere, that could give you reason to write an article about something other than how the US is the most evil country in the history of the world.

I'm going to take your desires for what I should write about very seriously, really take them to heart, in light of that new law that was enacted requiring you to come and read what I write every day. It would be unfair, in light of your lack of choice, for me to ignore your preferences.
In this spirit, you should email me each morning with some suggested happier topics: my favorite flowers, what it's like to swim to with a dolphin, fun cat videos, things like that. Maybe I can devote every Wednesday to offering light-hearted relationship to my readers

("Dear Glenn, my boyfriend says that I don't pay him enough attention, but I'm just really exhausted after work. Help!"
"Dear Exhausted: Try some board games, or maybe finding a TV show you both like. Quality time doesn't have to drain lots of energy! Good luck, and do let us know how it works out!").

I really want to make sure that you're happy and entertained. It's not like this is a political column or anything, so why should we always be so dreary and write about political problems in the US, a country that is prospering so well? Let's lighten things up.
As I've said before, I'm struggling to show my more playful side and I feel like this sort of encouragement can only help.

rrheard

Response to GlennGreenwald, 16 October 2012 11:01PM

You're the angriest person ever. Don't you ever get tired of being a one trick pony? Surely there is something, somewhere, that could give you reason to write an article about something other than how the US is the most evil country in the history of the world.

Yeah come on GG lighten up. Imperialism, duplicity, drones, erosion of civil liberties, economic corruption, hypocrisy, unnecessary wars, death of innocents . . .
Americans don't want to know any of that, they just want to believe in how great they are. How free they are to buy almost anything they can afford. If a few eggs have to be cracked to maintain that culture wide level of self-delusion--so be it. So long as they are brown and live on the other side of the globe--out of sight out of mind is America's motto. The ol' price of freedom and liberty that others must pay, to us, sans the messy democracy and right to self-determination.
America is the indespensible nation. Without America Iraq and Afghanistan wouldn't be the modern politically free economic juggernauts they are today. Libya fuhgettaboutit. BFFs Saudi Arabia, Qatar, Bahrain-ditto.
Hell right now today, Iranians are throwing away their Ahmadinejad foam #1 fingers and draping themselves in the American flag in gratitude for the sanctions that are ruining the lives of millions in the hopes they'll "rise up" just like the Iraqis did to throw off Saddam when we sanctioned them.
All of that is unimportant by comparison to the virtual magic show of domestric prosperity the duopoly has created in America with their bipartisan centrist "concensus".
I'm with what's his name--you should write more stories about Panda births and Dancing With the Stars analysis. You know "feel good mom and apple pie Americana" type stories.

P.S.  More emoticons. Glenn just needs to put some happy faced emoticons after his rebukes of the anklebiters. Messes with their minds.

GlennGreenwald

Response to ytrewq, 17 October 2012 12:48AM

ytrewq

OMG. Glenn Greenwald has revealed the secret that politics is largely bullshit. Who fucking knew?

Super-sophisticated, profoundly worldly, unbelievably savvy people like you already knew. But nobody can write for those who are omniscient and have seen it all, so this isn't really for you.
This, however, is for you.

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