mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

When Machines Ruled

If you were ever in doubt that we have to protect ourselves against the extreme financial toxicity of the banking industry, algorithm guru Kevin Slavin will put you right.

 

Online trading algorithms are increasingly controlling Wall Street. “We are writing these things that we can no longer read,” warns Slavin, “we’ve rendered something illegible. And we’ve lost the sense of what’s actually happening in this world we’ve made.”

 

Now that code is smart enough to operate without human intervention, the machines can ruin us.

 

Up to 70% of Wall Street trading is now run by machines.

 

A consequence of machine malfunction was the 2010 Flash Crash when an algorithm sold 75,000 stocks worth £2.6 billion in 20 minutes, causing other trading algorithms to follow suit.

 

Interdependent systems fed on each other to exaggerate the effect of a fault.

 

If machines only ruin banks, that’s fine. It would do the bankers much good to be bankrupted.

 

But, under the present system, we’re all on the hook for the debts of the banks.

 

This is what has to be changed. This is what was changed after the Great Depression in the US with the Glass-Steigall Act separating the investment banks from the High Street banks and only giving tax-payer protection to the High Street banks.

 

George Osborne in the UK and Tim Geithner in the US shilly-shally about protecting the tax-payer from another tranche of massive debt run up by out-of-control banking systems.

 

If the investment banks are not taken out of the implicit government guarantee of tax-payer protection then we can all be ruined.

 

And the Western world may end not with a bang, nor a whimper, but a wonky algorithm.

Tags: algorithm, george osborne, tim geithner, toxicity, tranche

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6 Comments

  1. dbs
    August 29, 2011 15:01

    Note that Glass-Steigall was eviscerated in 1997, and the 1938-initiated “uptick rule” limiting short selling was suspiciously repealed in July 2007. And let’s not forget the post-Enron “mark-to-market” rules (applying to mortgages?).
    The first set the conditions for Wall Street to go rogue, while the latter two together triggered the September 2008 financial collapse.

  2. georgegrimes-ti-com.myopenid.com
    August 25, 2011 15:19

    Terry, because our financial systems are not controlled by logical people, like engineers, but by politicians who will sell out to the highest bidder. They write the laws to “control” the financial industry and all they care about is putting more cash in their own pockets.
    Upon reflection, I could have stated this in just one word: greed!

  3. Mr Cynical
    August 25, 2011 12:19

    Because Terry our financial systems are out of control, it’s legalised betting at it’s best.

  4. Terry
    August 25, 2011 11:41

    Why do we go to a lot of trouble to create stable feedback control loops in everything from PSUs to servos and then put a demonstrably unstable control algorithm in charge of our financial system?

  5. Mr Cynical
    August 25, 2011 11:31

    It’s starting to look like we are on a journey to disaster.
    If you want to get depressed read a book called “How the West was Lost” by Dambisa Moyo however hide any knives and rope whilst doing so.

  6. Anonymous
    August 25, 2011 10:37

    Doomed etc.