In last week's episode, we wandered
around parts of downtown Manhattan and New Jersey
to talk about the pace of money determining the pace of life.
Let's see what you had to say.
Rupi Resonet on the sub-Reddit points out
what was maybe an unclear connection that we
made at the end of the episode.
And I just want to clear this up.
What I did not intend to say is that high frequency trading had
an effect on the subprime mortgage crisis,
but rather that high frequency trading tactics, lots
of the high speed, especially algorithmic trading
tactics that hedge funds and a lot of other places employ
are very complicated and very, very secretive,
much like the way the mortgage-backed derivatives
that led to the subprime mortgage crisis
were also very complicated and secretive,
and that both of those things sort of benefit from,
in their own way, how difficult it is to understand them,
so that when a smart finance person says like, oh no,
it's just-- don't worry.
It just works.
It just does the thing, and you'll make some money.
It may be worth asking some questions
about why is it not important to understand how it works.
And what I didn't mean to suggest
is that high frequency trading is materially related to
or in some ways caused the subprime mortgage crisis.
Just want to clear that up.
Joshua Dawes and Mace Kurb both point out
that the base level, high frequency trading
tactic that we described is an example of what's
called arbitrage, which is something that
has been around in markets for as long
as there have been markets.
Put as sort of simply as possible, arbitrage
is buying and selling an asset in a short amount of time,
such that you sort of make a very quick and immediate
profit.
And in another comment, Joshua Dawes
describes how this is done with currency
and that there is a way for you to purchase
an amount of currency and then sell that currency in such
a way that you will immediately make more money out
of just having had money, but moved it around a little bit.
And there's also some talk about how
trying to predict as confidently as possible what the market is
going to do before it's done, before it happens
is, again, also a very old tactic, as old as markets.
And I think one of the things that we could have done
is talked about how the sort of arbitrage that we described
in the episode, with a trader being able to see something
in one place before the information
makes it to another place, as the base
level, like high frequency trading tactic,
is we could have gone one step further to talk a little bit
more about how then building on that knowledge,
you start to get into very,
very complex ways of people sort of playing with the market
and engaging in transactions that are trying to sort
of tease information out of where the market is heading
and how it works that are based entirely on how fast they are,
and that if they have that speed there
are certain things, certain very complicated things
that they're able to do.
But that on the base level, the sort
of seeing where the market is heading
and trying to intercept that information
is itself nothing new.
What is new is the speed.
And I think that there is maybe a little bit of a disagreement.
And I think that this is a widespread disagreement
and is reflected in sort of what we discussed,
which is some people think that this
should be a regulated process.
And some people think this is a natural effect
of just how markets work and how money changes over time.
And that is that speed something new?
Is it, in fact, a material change that changes
the way markets work?
And I think that you can see people saying,
like Joshua Dawes says, it's--
there have always been people in trading and in markets who have
more resources than others.
At one point, it was a spyglass.
And now, it is co-location and knowledge
of algorithms and high frequency trading tactics.
And then, of course, there is, I think,
the counter argument that there is
a point at which the expertise needed
to engage in high frequency trading
is such a narrow band of expertise
that the number of people who are capable of attaining it
is necessarily much, much smaller
than the number of people who could do something
like purchase a spyglass.
But I think that's--
comparing those two historical sort of situations
is complicated and deserving of more time than we have
in a comments response video.
Mace Kurb does bring up that even though things
are capable of moving very quickly when
lots and lots of money is moving around, especially when we're
talking about big organizations, there
is still a human-related bottleneck
that people need to sign things and make decisions.
And decisions can only be made so fast and so carefully.
And that the number of organizations that are actually
doing this kind of breakneck speed, computer powered, even
like AI level high frequency trading
is relatively concentrated and relatively small.
And while that is the case, I think
that this is the thing that we're sort of trying to get at,
which is that as that becomes a larger number, a larger
percentage of the trades that are happening on any given day,
does that then, like Mace Kurb suggests it could,
threaten to change the way that markets move
and whether or not individuals then
have any kind of control or input
into these monetary systems?
Keiran Reiner asks a really good question and sort of posits
that it is not a one-to-one relationship
between the pace of life and the pace of money,
but that there are other factors that include technology.
And that it is not just that people
determine the sort of shape and then pace of money,
and then ask it to do things.
It is available technologies in a kind of grander sense
give impressions or ideas about what's possible.
And then there's this feedback loop between all three.
I think that this is--
I think that this is pretty close to how
I feel about this, in that it's a good way of thinking
about it, because it doesn't place
the responsibility or the sort of determining
of anything in one specific place,
on any one actor's or area's shoulders.
And I think it also reflects a lot of the truth of how
technology related to investment,
especially the sort of bleeding edge stuff, is moving forward,
in that these people, a lot of these firms,
and a lot of the people who are doing this kind of work
are looking for talent coming from like physics.
They want physicists and mathematicians and engineers
and people from outside the finance world,
because those people sort of will
know the limits of what is currently possible, period,
and not just possible within how finance business is done.
So yeah, I think this is a pretty astute observation.
Matilda and a couple other people
pointed out that the UK is, in fact,
issuing new coins that have corners,
which I had no idea about.
I knew that they were issuing new pound coins,
but had no idea that they were going to be angular in any way.
And actually, I talked with Ian MacKinnon about this on Twitter
for a little bit.
And he estimated that it will be--
he did a Google and found that it would be 80 million pounds
to upgrade all of the machinery that takes coins
to deal with the new shape.
And he also posted a picture, which
we'll put a link in the description, where the coins
themselves actually do look--
they look pretty round.
Like, they have corners.
But they look pretty round.
Either way, it's, yeah, an interesting development.
I've heard that the reason that this was done
is because the pound coin is amongst the highest, the most
counterfeited pieces of currency in the world.
It's in either the top three or the top five.
And that there's a bunch of anti-counterfeiting measures
that are in the new coin, including the fact that it's
not perfectly round.
Your2ndPlanB links us to a related Saturday morning
breakfast cereal comic about the--
depending upon how you look at figurative or maybe even
literal arms race that is related
to the speed of money and monetary exchange, as usual.
The Complier makes the case that it is not
the speed of life that is effected
by the nature of money, but it is rather
the size of a society.
And I think that this, in a way, stands to reason, in that one--
in one's local community, especially
if one has the luxury of being able to select
that local community and go wherever they want,
you can sort of remove yourself from the effects of a sort
of intense market capitalism.
But that having money sort of shed its solid form
like we talked about in the episode, does--
it might make it-- it might allow it to move faster.
But it also allows it to go more places.
And that, in a lot of ways, you can-- that--
pick your metaphor.
Shrinks the globe, or increases one's ability
to act and increases the overall reach
of a modern sort of market-based economy.
And I think this is, yeah--
I think this is all to say, good point.
Thomas S points to a study that shows the overall decrease
in what is called the velocity of money, which
is the sort of number of currency exchanges
that happen during a given period,
and that that since 2008, since the financial crisis,
has actually declined.
And I saw a couple of people actually bringing this up
in the comments, saying that velocity of money
is the phrase that the video needed
and that we were missing this sort of technical term.
And actually, I had talked about it a little bit
while we were writing it.
And I think I wanted to avoid it for a specific reason, which
is that though we talk about Georg Simmel saying
that the more transactions that happen,
the more fast paced life is, I think what we're trying to get
at is not necessarily that day-to-day transactions,
like you paying money for objects,
you sort of like out in the world spending cash,
not talking about that in relationship to speed,
but talking about the operations of markets
and the sort of highly technical or much more abstracted
ideas of value and wealth, and how those are related to speed.
And so, yeah, that's why we sort of didn't get into this,
because I think that this is a related but distinct
conversation.
And maybe we didn't draw a fine enough line between the two.
That there is-- there's sort of like speed
of day-to-day transactions, speed of people
spending their pocket money.
And then there is the actual literal speed
of information in moving money in the world of finance around.
And while those things have effects on one another,
they are not the same thing.
I think we're trying to ask how this thing might
effect a sort of larger shift or like a larger set of attitudes
that people over here in the--
if we're making the Wall Street, Main Street distinction--
might end up somehow paying the price for.
But, yeah, I realize that is a--
maybe a thing that could have been spelled out.
And this is the kind of stuff that we run into,
15 minute videos, trying to figure out
what's worth explaining and what's not.
It's always a struggle.