Comment by erikpukinskis | Hacker News Reader

Comment by erikpukinskis | Hacker News Reader

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People generally won't use your site unless it helps them in some way. It makes their life easier, it helps them move information around, or they enjoy it. It's debatable whether the specifics represent a net good for humanity (cough Zynga cough) but there's at least a decent chance that you're helping folks out.

Some financial organizations provide important liquidity. They offer you a loan when you need one. But many exist only to shuffle around money in a clever way, so that some percentage of that money goes into their coffers. And it seems like the smarter the employees, the less likely they are to actually be providing any real services to people. After all, smart employees are the ones who can make truly spectacular exploits of the game... exploits that are lucrative but pointless.

And I don't know anything about the details, but I can't help but wonder... when you write a brilliant algorithm that scrapes money out of the markets... or you set up a clever instrument that lets you capitalize on structural regularities in the market... whose hide does that money come out of? I honestly have no idea, but my instinct is that it's coming from people who are already disenfranchised.

"And it seems like the smarter the employees, the less likely they are to actually be providing any real services to people"

I would call this a negotiation that they are winning. Just like startup founders win in their negotiation with employees for equity.

"People generally won't use your site unless it helps them in some way."

And people generally won't trade with you unless it helps them in some way. Again, how is this different?

people generally won't trade with you unless it helps them in some way

Not necessarily. People engaged in real trade set up financial institutions, but once these institutions are set up, a game is in place. That game may be beneficial overall to the businesses, but individual players aren't necessarily beneficial... even if they are participating according to the agreed upon rules.

It's like cashing in a Groupon deal and then never returning to that business. The company loses money on you and they only agree to serve you because it works for them at scale. But at the micro scale you are hurting them.

People who do so have every right to, but they are not contributing to the economy. They are just making a lot of money by making other peoples' lives more difficult.

That's like saying someone who listens to a sales pitch and then doesn't buy the product isn't adding value to the economy.

Ok, then, how does stealing sound? You can't really win this argument, man. No matter how you dice it, the FED is stealing from the American public to hand it over to financial institutions who then sell us back our stolen goods.

People are forced to trade, here is how: When the government needs a loan to cover its budget, they get it from the Federal Reserve. The Federal Reserve are charged to coin new money to provide the government (see wikipedia Federal Reserve, subheadings: 'Elastic Currency', 'Lender of Last Resort' & 'Central bank'). As the Federal Reserve increases the money supply, the value of the dollars in your pocket/matress/bank account go down.

Since the value of currency evaporates, the only way to maintain your savings is to have it in a non-currency form. Stocks are a pretty liquid asset. This pushes people away from savings and into speculation (the stock market), where many lose their shirts.

Here's the non sequitur:

1) inflation makes it costly to hold money

2) inflation forces you to make stupid speculative investments and frequent trades

The second doesn't follow from the first.

Most people buy mutual funds, which take a nice fee for doing work a dart-throwing monkey could do (no exaggeration). It would make more sense for people to buy a random sample of the S&P 500, but try telling them that.

Do you invest your money in a random sample of the S&P 500?

If I wanted long-term exposure to the S&P 500 then I would indeed do that. I have bought and shorted SPY (which has a fee attached) as a part of short-term pairs trades.

My point is simply that for years, fund managers such John Bogle have made a big deal about the fact that an efficient market doesn't allow stock picking funds to beat the cheaper index funds, etc, etc. True enough, but the next logical step is to drop the index funds and manually reproduce their trivial work.

Someday, a smart brokerage is going to offer a service to do this automatically, with cut-rate commissions. This would save people billions and billions of dollars.

I think you are referring to an ETF?

SPY is the largest ETF, and follows the S&P 500, which is why I mentioned it. I trade lots of ETFs. Short term, they allow individuals to use hedge fund-style strategies. Long-term, they are essentially the same as mutual funds. Very-short-term, they allow quants to make money on arbitrage. There is no good reason for their existence, honestly.

If you don't derive value from them, why do you trade them?

You are absolutely right. ETFs are basically mutual funds, but with greater liquidity and lower fees. That's the reason for their existence - mutual funds, but better.

When you say things like "Very-short-term, they allow quants to make money on arbitrage.", it makes me think you really don't understand the role of market makers, proprietary traders, or quants.

Let me ask you a very basic question: why do market makers (the people you trade against when you buy or sell SPY) make money? They aren't stealing from you. They are providing you the service of liquidity. Market makers connect people who want to buy/sell now with people who want to buy/sell in the future. In the interim, they take on the risk of holding that position that you didn't want. On average, they are compensated for that risk.

The way you say "they allow quants to make money on arbitrage" implies that the quants are just "extracting money" from the markets without doing any good at all. This is the complete opposite of the truth, and more people need to understand this.

I only said 'many' lose their shirts, but that might have been harsh.

Many investors are just looking to store their savings. They're not Warren Buffets, they don't study markets to make educated decisions, they just go into index funds and hope for the best.

But it's like having your bank in the lobby of a casino. You don't have to play --- but you're already there, and look at the flashing lights...

So do you always view negotation as someone winning and someone losing?

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