All Eggs Now Circulating Too Fast in Too Few Baskets

In many of the world’s markets, nearly all stock trading is now conducted by computers talking to other computers at high speeds. …

While this “Tron” landscape is dominated by the titans of Wall Street, it affects nearly everyone who owns shares of stock or mutual funds, or who has a stake in a pension fund or works for a public company. For better or for worse, part of your wealth, your livelihood, is throbbing through these wires. …

There are advantages, but …

some experts wonder whether the technology is getting dangerously out of control. Even apart from the huge amounts of energy the megacomputers consume, and the dangers of putting so much of the economy’s plumbing in one place, they wonder whether the new world is a fairer one — and whether traders with access to the fastest machines win at the expense of ordinary investors.

It also seems to be a much more hair-trigger market. The so-called flash crash in the market last May — when stock prices plunged hundreds of points before recovering — showed how unpredictable the new systems could be.

Electronic Trading Creates a New Financial Landscape – NYTimes.com

Bold emphasis is mine. Non-linear systems go nuts easily. Iterative systems are inherently non-linear. A fast feedback loop here, feeding into one or two there, and the world economy lurches.

This is not good. There better be some damn good dampers in place.

 

 

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