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To: elmatador who wrote (36270)	12/7/2010 5:07:01 PM
From: axial	Respond to of 46821

"They are against strategies that they believe hurt the retail trader/investor and there's clearly merit to many of their thoughts on the problems with the current market structure." Elmat, you make a good point. I believe it goes farther -- to the issue of systemic risk in a highly-interconnected and complex world. Most people here understand the human tendency to herding: the mania and stampede are well-known phenomena. However, recent crises were stimulated - in part - by unchecked spread of financial "innovations" the impact of which was both poorly-understood and only partly visible to markets and economies. From 2008: "The network effect works internally and externally: it's a huge accelerant, creating a virtuous or vicious cycle (depending on your viewpoint) of rapidly-increasing usage coupled to unchecked propagation." Message 24665654 In a global economy where derivatives total ten times world GDP, the financial system is capable of completely wrecking the global economy. Indeed, in the last crises that almost happened. --- Research on the subject continues. Some recommended reading: [1] Critical Market Crashes arxiv.org [2] Financial Networks and Financial Stability ecb.int [3] Systemic Risk in the Financial System: Insights from Network Science pewfr.org [4] Is network theory the best hope for regulating systemic risk? slideshare.net --- For anyone interested, David Easley (Dept. of Economics, Cornell University) and Jon Kleinberg (Dept. of Computer Science, Cornell University) have issued a free pre-publication draft of their new book. Download is in .pdf format, 18.5 MB: : cs.cornell.edu Networks, Crowds, and Markets: Reasoning about a Highly Connected World Overview. "The book is intended to be used at the introductory undergraduate level, and as such it has no formal prerequisites beyond a level of comfort with basic mathematical definitions at a pre-calculus level. In keeping with the introductory style, many of the ideas are developed in special cases and through illustrative examples; our goal is to take concepts and theories that are complex in their full generality, and to provide simpler formulations where the essential ideas still come through." So far, I've found the multidisciplinary approach to be very useful. Their treatment of cascades in financial markets doesn't encourage definite conclusions; neither does it negate warnings made by others. Jim