"Des waerelds doen en doolen, is maar een mallemoolen,"

"Des waerelds doen en doolen, is maar een mallemoolen," engraving from Het Groote Tafereel der Dwaasheid, 1720.

"The actions and designs of the world go round as if in a mill." South Sea bubble financial crisis.

Tuesday, February 15, 2011

What is Wall Street for ?

Felix Salmon looks at the falling number of publicly listed companies on US major domestic exchanges and sees a dangerous trend eventually leading to make stock markets irrelevant for the economy.
Put another way, as the number of initial public offerings steadily declines, the stock market is becoming little more than a place for speculators and algorithms to compete over who can trade his way to the most money.
This echoes an old debate about whether bank-based or market-based systems allocate capital more efficiently and one that should be revisited in the light of these past decades' financial innovation and its consequences.

Monday, February 14, 2011

The persistence of habits and stock exchange mergers

The Deutsche Börse and the NYSE/Euronext are negotiating a merger. The Economist noted a paradox which shows that it is hard to overcome differences in regulatory practices and that social structures of financial markets are not easily wiped off:

The reality is that the exchange business is unusually unglobal. Securities and derivatives are traded, by and large, in long-standing silos, with their own regulations, laws, working hours and critical mass of big, savvy market participants, who may not all be based in the same country but who share the same rules of engagement. Even if practical, the utility of being able to trade everything, everywhere, all the time is not clear.

Sunday, February 6, 2011

The complexity of stock markets

The Nasdaq has been hacked. First the flash crash and now this: 
Hackers have repeatedly penetrated the computer network of the company that runs the Nasdaq Stock Market during the past year, and federal investigators are trying to identify the perpetrators and their purpose, according to people familiar with the matter.
Tyler Durden takes a retrospective look at its recent development and conclude that this stock market is nothing but a "daylight fraud":
The one exchange to first legalize frontrunning aka Flash Trading, to actively promote churning via HFT erection-inducing liquidity rebates in stocks and options, to create novel and ingenious ways to skirt Rule 611, and, most recently, to overtake the NYSE as host for greatest number of fraudulent Chinese reverse-mergers, the Nasdaq has never kept a secret that it cares far more about its clients than the investing public.
This shows just how critical and complex financial markets have become. They are viewed by officials as part of the basic infrastructure, like power companies or air-traffic-control operations. On the other hand, the SEC does not have the budget to regulate it like it should be (which does not excuse its staff downloading midget-porn). And wait, if stock markets like the Nasdaq are of strategic importance,  then the debate about how to regulate it should be viewed in this light as well. It boils down to how to manage complex financial system - algo trades and HFT are under scrutiny - so that investors and the public do not begin to think financial systems are big ponzi schemes.

Tuesday, February 1, 2011

From protest to global recession

Nouriel Roubini illustrates the point of my last post, and goes a step further. From the Arab street to oil prices, and from oil prices to global recession. Yes, international politics still matter. And it impact on stock markets too.