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     Jul 16, '14

Tech wrecks markets
By Martin Hutchinson

The New York Attorney General's lawsuit against Barclays' dark pool is yet another example of banks' increasing resemblance to asbestos manufacturers. But it also reflects an uncomfortable truth: Whether through "fast trading," through the new area of "crypto-currencies" or through the increasing frailty of bank and corporate security systems, technology is transforming previously well-understood markets into insider-dominated scams. The

implications for the future of a free economy are dire indeed.

In a classic free market, buyers armed with a substantial amount of mostly accurate information about a security's prospects compete with sellers armed with similar information, and an open auction decides the price at which the security is traded. Even in the days of "gentlemanly capitalism" this was never quite the way the markets worked in practice. London's jobbers and New York's specialists were often aware of large orders from institutions and were able to manipulate their books ahead of those orders so as to profit from them. This made jobbing and specialist activity nice juicy businesses, blue-collar fountains of profitability in a world where most of the big money had been educated at Eton or Yale.

Initially, the arrival of computerized trading seemed likely to increase liquidity in the world's stock markets. Certainly that's how the new technique was presented to investors. We were told that the additional volume generated by computers would allow price quotes to be narrower and ensure that buyers were present even in difficult market times.

Needless to say, this has not entirely happened in practice. More ...

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.

(Republished with permission from PrudentBear.com. Copyright 2005-13 David W Tice & Associates.)




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