Recently, surveys were begun to prepare for the laying of a new $300 million trans Atlantic fiber optic cable. Will this cable improve communications for everybody between the US and Europe? Will we be better able to make Skype video calls to Britain or France? I am afraid not. This cable has a different purpose.
http://www.businessweek.com/...
When it opens in 2013, Project Express will be the fastest cable across the Atlantic, reducing the time it takes data to travel round-trip between New York and London to 59.6 milliseconds from the current top speed of 64.8 milliseconds, according to Hibernia Atlantic. Those five milliseconds might not seem like a big deal, but to the handful of electronic trading firms that will have exclusive access to the cable, it will be a huge advantage. “That extra five milliseconds could be worth millions every time they hit the button,” says Joseph Hilt, senior vice president of financial services at Hibernia Atlantic.
Many people are not aware of the new very high speed financial trading systems, where computers detect tiny price discrepancies and momentary opportunities and react as quickly as possible to take advantage, far faster and in far greater volume than any human could do. These transactions make up a significant percentage of financial transactions today. In this game, every millisecond counts, so powerful computers, fancy software, and high speed networking is used.
This is a symptom of the financialization of our economy. It has become easier to make a lot of money a lot faster by skimming off money in the financial system than it is to actually produce useful goods and services. Many of the activities of Bain Capital and other private equity firms are examples, with companies being bought with borrowed money, paying large "management" fees and dividends to the new owners with the borrowed money, then often being discarded or going bankrupt after everything has been squeezed out of them.
With financialization comes financial crises, such as the Great Depression and our current situation. Real people become poorer, even though the capacity to produce goods and services is still as great as it was before the crisis.
Why aren't politicians talking about rebuilding the economy on the basis of production of goods and services for everyone, an economy that is not vulnerable to instability caused by playing games with money? Money is supposed to be a means to an end, to allow for allocation of resources. Instead it has become an end in itself, where getting money is disconnected from any real value.
I cannot figure out how the new high speed trading methods add any value or improve allocation of resources in any way. They are instead a symptom of disconnection of the economy from society.