
Barclays Not Smart - rgarcia
http://www.bloombergview.com/articles/2014-06-26/barclays-not-smart
======
tptacek
To sum this up:

A "dark pool" is simply a trading exchange where orders aren't published
(trades, of course, are). Huge investment banks run dark pools as a service
for clients. The premise behind a dark pool is that institutional buy-side
investors would use them instead of a lit exchange because they want to trade
against other buy-side investors, without market-makers and aggressive,
automated sell-side firms to skim off their profits. Barclays LX is a dark
pool set up by Lehman.

It turns out that the idea that big buy-side investors can trade with each
other without middlemen in a dark pool is probably a fiction. The premise
probably doesn't hold. There are at least two big reasons for this:

1\. Giant institutional investors tend to take similar positions. If one giant
firm is gobbling up FCOJ, the others probably want to trade in the same
direction. So when you restrict your trading partners to similarly structured
and sized firms, you tend not to have counterparties to take the opposing
sides of trades.

2\. The timing of decisionmaking at giant firms is slow, and there aren't all
that many of them relative to the market as a whole. So even if there are
counterparties to match for trades, that match probably doesn't happen within
the window of time that the traders actually want to trade (you want to move a
block of stock in minutes or hours, but if you can only trade with other giant
mutual funds, it might take days to find a match; think about the difference
between filling a market order on ETrade versus trying to sell your house).

So for Barclays to make LX actually do something, rather than just acting like
a frustratingly inert list of big firms, they needed to get sell-side firms to
trade there too. Which they did.

The subtext of the Bloomberg post is that getting the sell-side into the LX
dark pool was probably a necessity, because when you look at the revenue
numbers, Barclays was making its real money from the buy-side; the HFT traders
paid it a pittance compared to the mutual funds. All things being equal, it
was economically irrational for Barclays to court HFT firms. Of course, in
reality it was entirely rational, because without the automated traders, no
trades would have happened at all.

~~~
scrumper
This is a good summary of a typically rational article by Matt Levine. His
entire commentary on the industry post-"Flash Boys" is similarly enlightening
and balanced.

There is a striking parallel in the futures markets: Their original role was
to help farmers hedge their risk of bad harvests by setting a fixed price for
future delivery of foodstuffs. That market overtly and explicitly requires
that there be hedgers and speculators, otherwise - no trade. Dark pools are no
different, for the reasons you nicely outline above.

You could argue that what Barclays really should have done was channel some
retail flow into LX, but sources of that kind of unlimited, innocent liquidity
get snapped up pretty quickly.

~~~
rayiner
I've been quite impressed with Matt Levine's articles. Also, while I realize
that Bloomberg probably exerts zero editorial control over View, I've been
quite happy with Bloomberg's Wall Street coverage as of late.

~~~
foobarqux
He's intelligent, well educated (Harvard, Yale Law), worked at the top firms
in M&A law and derivatives sales (Wachtell, Goldman) and then left to write
articles about finance.

You can't ask for much more than an intelligent former insider with excellent
writing skills who wants to explain financial news to others. He makes other
journalists look as uninformed as they are.

------
chollida1
Dark pools didn't start off as a bad idea.

Their purpose was to allow big institutions to "hide" their block orders.
Previously if an institution wanted to trade a big block, it had to break it
up via a VWAP or POV algo and trade it over the day or to go to a sell side
institution to find a buyer, in which case the broker would take a commission
that is often 10x what the regular DMA commission would be.

To be fair, this is still what most buy side firms do these days. Dark pools
really haven't helped much in this regard as many funds now just bypass them
when they can.

> Meanwhile, Barclays was advertising LX to high-frequency traders by offering
> them more information, lower fees, and faster connections than it gave to
> institutional investors.

This is the basis of problem here.

A dark pool doesn't publish a bid/ask like other exchanges do. The idea was
that everyone would be on equal footing wrt the information present. It
appears as though Barclay's has been giving HFTs additional information,
including the bid/ask spread in some cases, which totally defeats the purpose
of having a dark pool to begin with.

The reason they did thsi is that there probably only needs to be one dark pool
for the entire US, but each bank realized that it could make some serious
money running their own, the only problem is that now you have the same
problem as any web 2.0 market place startup does.

"How do you get the buyers and sellers"?

The HFTs started offering the banks boat loads of money to have access to the
order flow in their dark pools if the bank reached certain thresholds of flow.
To get to the required flow the banks started routing as many orders as the
could, keeping RegNMS in mind, to their dark pools first before settling the
orders on other exchanges.

I've been told with a straight face by some sell side brokers that I could not
tell their SMART order routers to skip dark pools when trying to send my order
to the market, again RegNMS excepted. It wasn't until we stopped trading
through them that they relented and allowed us to by pass their dark pool.

~~~
tptacek
Wait, you had me until the last 2 paragraphs.

The whole point of Levine's article is that HFTs _did not_ offer the dark pool
operators "boat loads of money". The dark pool operators gave the HFTs
sweetheart deals to induce them to trade in their pools. They didn't do that
because the HFTs paid them. They did it because without the automated traders,
the dark pools wouldn't have worked at all.

By the numbers, if the big institutional investors wanted HFTs out of the dark
pools, Barclays should have kicked them to the curve. Not ethically, but
simply from a practical business perspective. But Barclays couldn't do that...
or, they could, but then the institutional clients would have stopped trading
in the LX pool, because they'd never get filled.

~~~
chollida1
Ok, a few points.

1) most institutional clients don't necessarily want to trade in a dark pool,
their orders are just routed there by the broker's smart order routers. You
would be very surprised how many huge funds don't do post trade analysis.

2) the dark pool operators make money from the HFT's not in terms of the
commission, but in terms of collocating fees, market data fees, and the right
to be one of only a few HFTs allowed in the dark pool via collocating, ie
exclusivity.

The boat loads of money was maybe an akward of stating it. To match a trade
you need people on both sides of the trade. The HFTs were the missing piece
the other side of the trade. WIthout them no trades, hence no money. With
them, you trade more... alot more, which leads to the boat load of money that
starts following when the HFTs come in.

I may have a biased view as I'm on the buy side but not on the HFT end of
things:)

~~~
dev_jim
Sorry, you are mixing and matching concepts from reading too many articles on
HFT.

> the dark pool operators make money from the HFT's not in terms of the
> commission, but in terms of collocating fees,

No. Dark pool don't really charge collocation fees. Barclays LX didn't. Most
dark pools are in Weehawken and it's just a simple $500 cross-connect from
your existing trading system.

> market data fees

It's a dark pool. There is no market data to charge a fee from.

> , and the right to be one of only a few HFTs allowed in the dark pool via
> collocating, ie exclusivity.

Not in the case of Barclays LX. They let every HFT in at very low rates which
is the entire point of the article.

~~~
thedufer
From the article:

> Barclays was advertising LX to high-frequency traders by offering them more
> information, lower fees, and faster connections than it gave to
> institutional investors.

The "more information" being the key part - it sounds like the pools weren't
as dark as their customers were led to believe. Your other points are spot on,
though.

~~~
minimax
If Barclays was displaying resting orders to HFTs in LX, the AG wouldn't beat
around the bush about it in the complaint. It would have been the headline
issue. Doesn't seem likely that was the case.

------
JumpCrisscross
Let's ignore the fact that Barclays manipulated the data underlying the chart
in Figure 1. Think about what the chart is intended to convey.

One-second alpha, on the vertical axis, measures an "excess return" certain
market participants earned over a 1-second trading interval. It represents
skill in trade execution. What Barclays is saying, by pointing giddily at the
bubbles in the lower-left quadrant, is that it has collected a fruitful
variety of institutions particularly rotten at competently executing their
trades. The customer being pitched is being told that it, being smarter than
all those clowns, can now take advantage of their naïveté.

If I were an existing customer, I'd be insulted to be so portrayed. Or maybe
not. Maybe I'd assume I was the lone smart bugger in the top-right. I guess
that's what this chart counts on to generate, not lose, business.

~~~
lmm
If you're buy-side you know you're a clown on the execution side - it's not
your core competency, it's just a cost center that you vaguely want to keep as
low as possible while you make your real money through long-term value
investing or serving your fundamentals-trading clients. You'd rather trade in
the pool full of clowns, where the sharks get kicked out, and execution will
be basically a wash rather than a transfer of money from you to the HFTs whose
core competency is execution.

~~~
tptacek
Yes, you would rather trade in the clown pool. But isn't the problem that the
sell-side doesn't just fleece the clowns, but also enables the clowns to trade
at the rate they expect to trade at?

~~~
lmm
Well yeah. My point is simply that if Barclays had really managed to achieve
what the chart appears to show without compromising execution rate (probably
impossible), their clients would have been happy rather than insulted.

------
dreamweapon
From the article:

 _The complaint is long on evidence of false advertising, but shorter on
evidence that the "predatory trading" was actually predatory. There's a
certain amount of foamy fulmination at "predatory trading," but nowhere is
there any evidence suggesting that Barclays's institutional clients were
actually harmed by it._

He then goes on to suggest that the lawsuit is therefore essentially frivolous
(in his words, "a self-referential argument.")

His reasoning is flawed, of course. For one thing, commercial fraud is
_always_ harmful, even if you can't always prove that someone suffered
specific losses for it. For another, the banks agreed explicitly agreed to
comply with all pertinent legislation (including the Martin Act) in exchange
for the privilege of obtaining a charter which allowed them to become banks in
the first place. Whether one thinks the Martin Act is overly broad or gives
too much leeway to prosecutors is of secondary importance.

~~~
Yunk
Yes, I had the same problem with the article. The lawsuit just seems to be
cherry picking which part of Barclay's paradoxical claims to trust, not
creating its own self referential problems.

If Barclay's could get HFTs out of their products then their situation
wouldn't be much different from diet cola and they could raise a fair amount
of FUD against the competition irregardless of quality of evidence. But you
can't sell the same product yet claim you have removed the "harmful"
component. Claiming you know it is not really harmful just means you were up
to 2 fraudulent activities to deprive the market and your customers of a
better arrangement.

------
jerf
I don't know enough to have an opinion on HFTs and whether they actually
provide liquidity. However, creating sub-markets that are illiquid if you
remove them, but become liquid if you add them back in, strikes me as a pretty
powerful bit of evidence in HFT's favor. Rebuttals? (Serious question.)

~~~
bkeroack
The whole point of this article is to present a pro-HFT viewpoint. I don't
have an opinion either way (yet), but this is clearly written by someone with
an HFT bias.

~~~
jerf
I like to look at the objective facts that are very hard to spin. There aren't
many of them, but you can make a lot of hay with them. "We tried not including
this thing, and it didn't work, and then we put them in, and it did work" is a
very powerful argument, since I value reality and real things over any amount
of handwaving and theory. That's something that can't so much be spun as
rebutted, hence my phrasing. (For instance, perhaps it's simply a lie. I don't
know.)

(The Great (Psuedo-)Intellectual Temptation is to privilege theory over facts.
It is not a path that leads to anything useful, but it sure is a popular one.)

~~~
jbooth
Just to throw it out there (I don't have the answers here), but "We made a
private dark pool, tiny relative to the size of the overall market, and it was
illiquid without HFT" isn't really the same thing as "the stock market would
be illiquid without HFT".

------
mathattack
Matt Levine is awesome. Thanks for sharing. He's also the world kingpin of
footnotes. It's almost as if he's a frustrated academic who needs to hide his
humor in citations.

~~~
anonymousDan
Personally I find an abundance of footnotes to be bad style. If it's important
enough to say it then say it in the main text, otherwise don't bother.

~~~
mathattack
It's part of his personal style.

------
mrow84
I have a couple of questions for the people on here who actually understand
all this stuff.

The argument, as I understand it, for why it is useful to have HFTs in markets
like the one in the article, is that they provide extra liquidity. My
understanding of liquidity is that it is some kind of measure of how quickly
an asset can be sold. I'm sure there are some formal definitions, but that has
to be something like [asset value/sale time], where larger is more liquid.

It seems to me, though, that liquidity is necessarily very time-scale
dependent. For example, there is basically no liquidity in any market at the
picosecond (or whatever is faster than current trading) timescale, because (by
definition) no-one trades that fast. So really, although liquidity can be
calculated as a rate, it is more appropriate to look at the distribution of
available liquidity over different time scales. In other words, being able to
sell $10 of assets in 10 days is not really the same as being able to sell $1
of assets every day for 10 days.

My questions are:

1) is my understanding of liquidity as being timescale dependent correct, and
if not, why not?

2) if yes, what is the social value of "faster" liquidity?

3) if "faster" liquidity has greater social value, is there any point at which
the cost of maintaining that liquidity (which is what I understand HFT profits
to be) exceeds the value of having liquidity at that timescale?

edit: spacing for visual clarity

~~~
consz
Liquidity is a measure of how much you can execute/trade immediately at any
one moment in time. You can think of the fair price as the midpoint of the
best bid and best offer -- but nobody can trade at this, so if you want to buy
or sell, you have to buy slightly above the fair price or sell slightly below
the fair price. And if you want to buy or sell a lot, you have to buy or sell
standing bids/offers at prices worse than the best bid/offer, e.g. MSFT has
best bid at 36.60 and best offer at 36.61 with 30,000 shares at every price.
If you wanted to buy 100k shares immediately, you'd have to buy 30k at 36.61,
36.62, 36.63, and 10k at 36.64, for some average price slightly higher than
36.62.

So I would say that liquidity is _not_ timescale dependent -- its a measure of
the quality of your execution (relative to the fair price) if you executed
everything you needed to _right_ now. Personally, I would say no to (3) -- HFT
offers liquidity at all times and only transacts when their counterparty
decides to cross bid-ask spread, so if they didn't want the price HFT was
offering than they wouldn't hit their bid/offer. The cost of all the ancillary
infrastructure (wireless connections, backspace, hiring harvard/mit quants) is
independent of the direct cost (crossing bid-ask spread) a consumer pays to
the HFT, so the actual cost paid by the customer is a fraction of what the HFT
has to pay to be able to display the quotes it does.

~~~
mrow84
Ok, I think I understand what you're saying in principle, but I still don't
really understand how HFT, or indeed anyone who is only trading on prices,
adds liquidity as you have defined it, beyond the addition of their initial
capital: it's not having quick trades that makes a market liquid, just having
available trading partners with enough capital to complete the trade you want.
It strikes me that, if you roughly assume that price-based trading is random,
then all that fast trading "really" does is speed up the process by which some
people randomly lose their money and others are randomly given that money
(those people generally being the price-based traders themselves, presumably,
because they will be the ones involved in the majority of the trades).

So my follow-up question is: what is the particular benefit of being able to
trade as quickly as possible?

And a related, more specific, question that might be easier to target and
explain: I'm sure I've heard people suggesting capping trading frequency
(which might be a ridiculous idea, I don't know); how would doing so harm
liquidity?

Also, just to clarify my previous question about cost, I was trying to refer
to the "cost to the system", rather than direct costs. I'm not sure I can
properly define what I mean by that, but I suppose it would be something like
if the total revenue going to the HFT firms or similar people was greater than
the return to the rest of the system of having their services. I'm not really
convinced by market arguments against such cost/benefit inversions taking
place, because inertia and changing circumstances can move institutions from
being helpful to being unhelpful without markets being in a position to
compensate.

If I've made any other bad assumptions, please point them out as well.

~~~
consz
The benefit of being able to trade as quickly as possible (as an HFT) is you
are able to put more shares/contracts up at each price, ie. provide more
liquidity -- this is because anytime the price is going to move against you,
you get hit for 100% of your standing bid or offer, and the faster you to
cancel those orders are the fewer times this happens. This lets you post more
liquidity on average and pull it when the price is no longer good.

Capping trading frequency would lower liquidity. Simply put, the less up-to-
date your view of the market is (if orders are only matched every T
milliseconds, you could have a view of the market thats up to T milliseconds
behind), the more uncertainty there is in your prediction, which will result
in you quoting a wider bid-ask spread or quoting smaller amounts at each
price. I'd say for T very small (say, T < 5ms), it will make zero difference
to liquidity or HFT profits.

I suppose its tough to answer your final question. I'd say liquidity is very
useful, and tighter bid-ask spreads help price discovery and help portfolio
allocation (the wider the bid-ask spread, the less likely a given portfolio
will be allocated in the desired way, since you can only replicate a portfolio
modulo transaction costs). Anytime a transaction tax or other regulation is
implemented that targets only HFT, liquidity drops, often drastically (e.g.
Swedish equity markets in 90s had a relatively high transaction tax that
essentially dropped all trading volume on their exchanges to zero, and trading
moved to other European exchanges trading equivalent derivatives on Swedish
stocks). In addition, HFT industry profits are low -- I'd be surprised if it
breaks 5 billion/yr.

~~~
mrow84
Thanks for replying. I like your time averaged argument, that seems to be a
good explanation of why it is useful, both to the trading entity and to the
market, to be able to change orders quickly.

I think my final question about the balance between total costs and benefits
is motivated by the fact that discussion about HFT and similar price-based
trading always makes it sound like a lot of effort is being invested in the
competition to find profit-making trades, and my wondering whether all that
effort could be more productively used elsewhere.

I understand the market motivation behind doing it, which I think yours and
others' explanations justify well, however, as I mentioned previously, I
remain unconvinced by the allocative efficiency of markets in all situations,
and these 'arms race' situations seem like good candidates for market failure
(to stress, I mean failure only in terms of the societally-efficient
allocation of resources, I don't doubt the local efficiency).

Your note about HFT profits obviously goes some way to addressing this by
suggesting that the level of resource allocation isn't that high - I have to
confess I didn't realise the profits were quite so low. I do, however, think
that revenue is the more important figure, because that will capture the
productive effort that we, as a society, are investing in this activity, which
we can then usefully compare to the liquidity benefit we get from it.

In case you are interested, I think I have been spurred down this line of
thinking by having recently read 'The Collapse of Complex Societies', by
Joseph A Tainter, which I can heartily recommend if you haven't already read
it. My argument is really his, just applied to the frontier of our times -
finance.

And as a personal aside, if you don't mind my asking, you seem to have a good
understanding of the realities of this situation, were or are you involved
professionally?

------
elecengin
I struggle to feel bad for these institutional investors. These investors are
mostly fund managers who make on the order of 1% of assets under management
yearly... Arguably, their jobs are composed of two functions: decide on
investment decisions, and execute on those decisions. Yet - they are unable to
do their own analysis of execution quality.

A simple determination of execution quality does not require a PhD in math -
it requires comparing the price of execution to the market shortly after the
execution occured (If it moved against you, you could argue there was "adverse
selection"). I am not saying what Barclay's did is right. I just feel it says
more about the inept behavior of institutional investors that they were not
able to smell a rat earlier on.

The article rightly points out that HFT drives dark pools. If an institutional
investor didn't know that, I am very confused why we pay them so much money...

~~~
scrumper
Who's money do you think they are managing?

~~~
tptacek
I'm not sure how the answer to that question is relevant to the comment you're
replying to.

~~~
scrumper
Parent "Struggle[s] to feel bad for institutional investors" as if this was a
class of whiney rich people who's money was under threat. It's not of course;
it's mutual funds and pension money - our money.

Let me expand a bit: dark pools exist because of an asymmetry in the public
markets caused by their fragmented structure. Those money mangers recognized
that, so they sent flow to a place which was explicitly marketed as a tool to
mitigate that asymmetry.

Contrary to the parent's post, transaction cost analysis is not an especially
exact science and the tools available to fund managers are not particularly
helpful or well-integrated. Their sell-side partners are not overly invested
in helping them either, since they have their own issues (intense cost
pressure, declining flow, regulators everywhere...)

~~~
tptacek
No, that's a bit of spin you put on it. His point is that the people running
money for the institutional investors are themselves highly sophisticated, and
if a point so simple as "you need sell-side financial entities to make a stock
trading exchange work" eluded them, there is a bigger problem than Barclays
marketing; those firms are being run by incompetents.

 _Later_

Sure! It's not controversial that Barclays marketing of the LX exchange was
misleading. Nobody is sticking up for Barclays. But the important, subtle
point is that the LX pool _probably couldn 't have worked_ the way Barclays
claimed it could. It doesn't matter how they marketed it. Without market
makers, with a collection of like-minded investors, it's hard to get action.

So it's not that Barclays was somehow corrupted by HFT traders. It's that they
were trying to lead-to-gold alchemy to sophisticated clients, who should have
known that Barclays can't turn lead into gold.

~~~
scrumper
You are right, I responded to my interpretation.

That being said, the trading desks on the buy side are, for the most part, not
very sophisticated at all. They are dealing with the same evaporating
liquidity as the sell side, but they have far less ability to manage it. They
are utterly reliant on the tools their brokers offer - tools which are
generally very good (algos, and dark pools). In this case they are guilty of
naivety perhaps, but it's nativity born of desperation. Barclays did directly
say, "no predatory flow." At some point, even on the street, you have to
believe direct statements made by your counter parties.

 _Later_ I'm enjoying this; I have to run to a meeting unfortunately. Sorry :)

~~~
kasey_junk
The idea that the buy side is less sophisticated than the sell side (or the
new breed of participant the HFTs) is plain false. Their whole value
proposition (how they justify that 2 & 20 they charge) is that they are
sophisticated players in the market that can deal with these complexities. For
instance, I've written HFT software for a buy side firm.

To put this into prospective, there are single buy side firms that are bigger
than the entire HFT market making industry.

~~~
scrumper
2 & 20 is exclusively the preserve of hedge funds, an entirely different
animal to large-scale institutional asset managers who make up the bulk of the
buy side.

There's no arguing with the sophistication of the portfolio management side of
institutional AM's - these are smart, well-compensated people with excellent
tools and first-class support from their own companies and the street's
research. Once you get to the buy side trading desk - the people responsible
for implementing the decisions of the PMs, and the people who are dealing with
this rapidly-changing, fragmented market - things become different.

------
jackgavigan
I dug up the original chart, before Tradebot was removed:
[http://jackgavigan.com/2014/06/30/barclays-smoking-
chart/](http://jackgavigan.com/2014/06/30/barclays-smoking-chart/)

------
richardw
There seems to be a false dichotomy here - free-for-all or no automated
traders. Automated firms are included in the diagram, so Barclays wasn't
hiding them. It was, however, claiming to remove those it considered bad
actors, and then wasn't actually doing so. Surely allowing HFT firms but
removing those (specifically, Tradebot) that didn't follow the rules would
still have left enough trade flow to enable the buy-side to get value? If it's
bad enough to warrant removal from the diagram, it's bad enough to be removed
from the pool, leaving every other participant to continue as before.

------
drawkbox
Amazing info and article.

In the end, Barclays created the LX dark pool to get more fees from individual
investors and smaller investors. They used HFT firms as the carrot and stick
to extract more revenue from the suckers using HFT and the
volatility/liquidity that it can provide.

> Meanwhile, Barclays was advertising LX to high-frequency traders by offering
> them more information, lower fees, and faster connections than it gave to
> institutional investors.

Seen from an investor who bought the marketing, this is dishonest. But seen
from the Barclay's boardroom, if they make all their money off of non HFTs,
they need to increase buying/selling on their smalls and institutional
investors. So of course Barclays would make it really cheap for the HFTs, all
the more action to extract fees and commissions from the clients/suckers that
pay.

------
create_acct
Are there any services out there that allow automated trading, but as a game?
There are many services that let you do manual trades as a game, but I've
never seen automated ones.

~~~
ddeck
Interactive Brokers also offer a paper trading account that can be traded via
their API just like a regular account, although you need to have an account
with them.

There are some limitations on specific order type/venue combinations, but most
things are supported.

[https://www.interactivebrokers.com/en/index.php?f=tws&p=pape...](https://www.interactivebrokers.com/en/index.php?f=tws&p=papertrader)

~~~
create_acct
I've looked at them before, but I don't have $10k to tie up on what is just me
playing around.

~~~
noname123
Nah bro. You can try their demo account. The login is 'edemo/demouser' and you
can use it via their API as well. The only issue is that the demo account is
not persistent, so you'll lose your positions the next trading day lol. Plus
there are tons of peeps sharing the account trying to test their trading bot
as well after-hours. But if you're just doing daytrading QA, it's pretty good.

------
davidhunter
Some thoughts on this as the former head of electronic trading product
management at Deutsche Bank

[http://dave-hunter.com/why-barclays-lied](http://dave-hunter.com/why-
barclays-lied)

------
suprgeek
Is this not a clear case of Fraud & Mis-representation? If a person had pulled
this kind of stunt you would see criminal chrges flying all over the place
..Why are bank executives at Barclays not going to jail over this?

~~~
dabeeeenster
Because money _is_ power.

------
barclay
I resent the title of this article.

~~~
slantview
I believe it's a pun on the "U smart" comment made by one of the VPs.

------
api
"Meanwhile, Barclays was advertising LX to high-frequency traders by offering
them more information, lower fees, and faster connections than it gave to
institutional investors."

Whether intentional or not, it sounds like they built a combination public
swimming pool / alligator farm.

Marc Andressen recently penned a screed that made the rounds about how Sarbox
and friends have killed the IPO. He's not wrong there. IPOs are happening much
later and less frequently because of regulation.

Where he's wrong is... well... he's basically like a resident in a high crime
neighborhood asking why all the shops have bars on their windows. It's driving
away business after all! Let's take those bars off the windows...

But as soon as you do that, you get a smash and grab the next night. Sorry
Marc, but there's bars on the windows because the neighborhood is full of
thugs.

The ultimate problem -- and the ultimate thing that has killed the IPO -- is
that the financial system is full of glorified white collar street hustlers
who look at markets as something to bust out for short term profits.

Like the proverbial bad neighborhood I think the only solution might be to
move out. I can see technologies like Bitcoin and systems like crowd funding
as the embryonic beginnings of a new financial system with greater intrinsic
transparency and with cryptographic authentication baked in from the get-go.
Perhaps, with that added transparency, it'll be possible to engineer in a
fundamentally better security model to discourage predation.

~~~
smsm42
With the correction that the only way the "public" can swim is by riding the
"alligators".

>>> Let's take those bars off the windows...

Or maybe let's fight the actual crime instead of installing thicker and
thicker bars on the windows of businesses which aren't actually criminal. I'm
not sure there was ever a high-crime neighborhood which was fixed and turned
into a flourishing community by increasing the thickness of bars and putting
more metal doors and barbed wire.

