Wednesday, April 02, 2014

Consciousness and Capitalism

 I am reading two books: Mike Lewis's Flash Boys, and Stanislas Dehaene's Consciousness and the Brain. 

In the first, Brad Katsuyama  is the principal character. He was recently on TV on CNBC. Yesterday he won the debate. 

It was the fight that stopped trading on the floor of the New York Stock Exchange—IEX's Brad Katsuyama vs. BATS Global Markets president William O'Brien on high-speed trading and 'rigged' markets.

I believe there are rogue elements who are rigging the market.

Is this populism, or are we entering a cleaner market?

Previously I read Scott Patterson's Dark Pools. Then I had a good opinion of Dave Cummings, who unfortunately is not running BATS anymore. Now I do not feel the same with the company he founded. I hope that Brad doesn't sell IEX anytime soon.

After a few months as a contractor at CME, now I know more about the financial world.

I basically finished Mike Lewis's book. Here is my two cent worth of wisdom on the matter.

Capitalism is based on human instincts, what Dehaene calls unconscious phenomena. Neuroscientists like him, have demonstrated, in the past few decades, what Sigmund Freud publicized, and was already stated by Hippocrates many centuries before: We have an unconscious mind, cohabiting the brain with the so-called conscious mind. If society, in this case the SEC, among others, does not limit predatory behavior, boys will be boys, and will  rip us all off. I highly recommend the recent Martin Scorsese movie: The Wolf of Wall Street, to illustrate the point.

Now 0.1% of Americans own a good chunk of the wealth produced, there is "Wealth Inequality." I believe this has to do, partly with the practices discovered and corrected by Brad Katsuyama. In a nutshell, in the most traditional oligarchical manner, a small group of rogue operators rigged Wall Street.

A brief explanation of these rogue practices follows:

This description by no means substitutes the reading of Lewis's book. I highly recommend it.

Spread Networks set itself to bring the straightest path possible from New Jersey to Chicago, to house fiber optics, in secrecy. When they were finished, a small group of stock manipulators, rigged the system. By having orders known to them, a few fractions of a second before anybody else, they could get a profit, from their private use of infrastructure, sometimes in public lands. This practice is not that different, from Chapo (Shorty) Guzman, now in jail in Mexico, to build tunnels under the border to bring drugs to the US. With this advantage, which they sold to insiders at a high price, they milked regular investors to the tune of billions of dollars.

When Katsuyama discovered this, he had the option to join, with the support of the Royal Bank of Canada, where he then worked, or fix it. He chose the second alternative, and if you do want to invest in the stock market, I recommend that you do it, through his company, IEX. 

In conclusion:

To understand consciousness we need to consider Information. The digital revolution has allowed tremendous advances in the correct use of this knowledge. Information is basic to understand computers, networks, and its foundation, mathematics. Knowledge is neutral; we can produce a better life for the bigger number, or concentrate the resources in a few oligarchs. Brad Katsuyama represents the best technologist in this story, but we have to be vigilant with the future evolution of his company, or any other enterprise.

There is a Digital divide, and a Knowledge divide in the world right now. We need a moral compass to use this power..

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