May 8, 2010

Automatic systems

Even a stable vessel, sailing in calm weather, can not survive having all the passengers and crew rush to the same side of the ship at the same time.

All technologies, and all techniques, are available to all countries, stolen, copied, or leaked. That is one of the real results of “globalization.”

It is not a difficult exercise for a large bank, trading for itself and for its own profit, to place an exactly similar order a second ahead of any large sell or buy order it receives from a client. The small time difference translates into a large price difference over the client; indeed the largest banks openly boast of their super efficient automatic strategies, allowing split second advantages. What one bank does profitably and successfully is what the other banks will also do.

Sudan is the largest country in Africa, and one of the very poorest, not normally regarded as being on the cutting edge of technological innovation. Its ruler, Omar Al Bashir, however, uses the same drone technology the US is using on Pakistan. (See on Sunday, February 14, 2010 for Sudan’s drone use.)

Think for a moment about the implications.

(Or, if you prefer contemplating the results, how about Mr. Gordon Brown, prime minister of Britain announcing, as one columnist puts it, “Will work for food” after the UK election; not Tony Blair, nor George Bush, nor Obama, nor even the Pentagon or CIA itself can help him.)

So, no, the sudden drop of the Dow Jones by a thousand points on Friday May 7, 2010, wiping out a trillion dollars of share value in the space of a few minutes, was not caused by a “fat fingered trader putting an extra zero” on an order. That story won’t fly, no matter how often repeated. It was caused by all the fully automatic systems getting the same sell orders at the same time.

When all the automatic systems are set on “Destruction,” turning off the power and forcing a hard reboot is the only option left.