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To: axial who wrote (36561)	11/2/2010 10:16:04 AM
From: Maurice Winn	3 Recommendations Respond to of 46821

This is correct Jim, but not as they think: <In view of facts it seems obvious that HFT's effect on markets is still a big unknown, slanted to the negative. Probably a big crash would be worsened. > The reason it will be worse is not because of the million mile a minute computers but because of the regulatory reaction to the million mile a minute computers researching liquidity and competitor responses to movements. My plan was to profit from the million miles a minute computers by adding liquidity so that when prices are bid down in minutes, they would bump into my buy orders and find a floor. But the regulators decided to cancel such trades after the Flash Crash and episode was over. That would, obviously, cancel my profits. If there is no prospect of profits but a prospect of losses instead, because of guessing incorrectly and having prices continue down and staying there, then it would be foolish of me to provide that liquidity. I told my broker to cancel my plan. So the regulators have reduced liquidity by their reaction. As usual, government people make things worse, not better, by their thoughtless actions. For example the Gulf of Mexico drilling moratorium causing even worse economic harm to the oil spill problem. But pretty much any kleptocratic decision is a bad one, or at best a highly inefficient one. What the Flash Crash computers were doing was investigations in market liquidity. They were real-time experiments by the PhD mathematicians who run the computers which do the work. When such mathematicians set out to represent reality in their models they have to test those models against reality and see what other models think at the same time, because what other models think is reality helps define reality since the reality they are trying to define is market response to volatility. Competing million mile a minute computers and their handlers are part of the market and a very important one at that. What the computers found when they asked the question, "What happens if volatility goes like this?" was that there is an ignorant authoritarian response to cancel trades. So they discovered a law of nature, which is what building models representative of reality is all about. They also discovered that my response was to NOT increase liquidity by offering to buy at the bottom [or what looks like it]. So they discovered reduced liquidity. They put that new data into their models and then they will run more experiments [which is what scientists have to do when trying to decipher the laws of nature]. No doubt other people will be aware that their trades will be canceled so they will be circumspect about buying at the bottom, perhaps waiting until a bigger bottom is established. Presumably the authorities don't want that, but that is what they are creating with their silly, arbitrary, friend-dealing rule. They will cancel the trades of the losers such as me and Lehman, but leave the Goldman Sachs trades intact. Mqurice

To: axial who wrote (36561)	11/2/2010 10:24:27 AM
From: Maurice Winn	2 Recommendations Respond to of 46821

This does seem to be the case: <The failures in financial reform have taught us how deeply (and apparently irreparably) the financial sector has captured regulators and legislators. > When the million miles a minute computer sells me a Tonka Truckload of stock on the way down, and then their regulatory and legislative buddies cancel my trade,it certainly does look as though the regulators are acting on behalf of the million mile a minute traders. Not being a conspiracist and knowing there are strict laws about such flim-flam scamstering, I presume that it's more ignorance than criminal intentions. But after consistent success by Goldman Sachs in having the public loot flowing their way through the good offices of government, while Lehman, Merill Lynch etc were hung out to dry, it starts to look like a trend. Prepare for a bigger flash crash. Mqurice