Becoming the Soviet Union

Yesterday I read the excerpt from Michael Lewis's new book (Flash Boys) about high frequency trading that was published in the Sunday magazine section of the New York Times.  What interested me most while I was reading was the ongoing incentive to understand a system better than everybody else and arbitrage that understanding.  With high frequency trading, if I grasped it correctly, that means seeing an impending bloc of trades in the physically closest electronic exchange milliseconds before they go on to a further exchange, and then quickly buying the stock at the current price in order to sell it to the putative buyer a few milliseconds later at a higher price.

We think of a stock exchange as a market for capital, in which firms can acquire "partners" from a pool of unknown people.  But it has always been a place to make money.  When abuses become egregious (and visible) the market has to be regulated or the supply of capital for actual commerce will evaporate.  Nevertheless, people are always searching for a new way to make money.  It is like an ecosystem in which life will radiate into any available niche.  I know that seems like a pretty metaphor for theft and greed, but since the phrase "available niche" already disguises the blood of prey, I also think it is apt.

What only interested me secondarily when I originally read the article was the fact that most of the programmers who discovered this "niche" (millisecond delays between exchanges) and who wrote the code exploiting it were Russian.  Lewis quotes one of them saying that Russians spend a lifetime finding angles in a corrupt system so they are most attuned to this kind of work.  Hmm.

This morning on WNYC I heard an interview with Matt Taibbi discussing his new book, The Divide: American Injustice in the Age of the Wealth Gap.  He talked about the huge decreases in crime we are experiencing, along with the continued burgeoning of our prison population.  He discussed the single prosecution of a bank after the great collapse of 2008, Abacus Bank, which he described as a clear message saying,  "These guys are small enough to be prosecuted."  And he compared the US today to the old Soviet Union, in which the written laws were much less significant than the unwritten laws.  He referred to Soviet teens imprisoned for selling jeans on the street, while the president of the university he (Taibbi) attended for a year wore Western suits every day.

And it occurred to me that we have a gigantic gulag system.  We have a dual system of justice.  We have a political process dominated by oligarchs.  We have massive distortions of the market through collusion.

We didn't defeat the Soviet Union in 1989; we became the Soviet Union.