🚀 go-pugleaf

In reply to the posting by Dave Taylor in Computers and Society Digest, 
regarding "Computers and the Stock Exchange"...

Arbitrage trading really consists simply of buying and selling 
essentially identical securities or packages thereof, at closely matched 
times, but in different markets or different forms, where the spread 
between the buying and selling prices is sufficient to make the effort 
profitable.  For example, I would buy an index future based on the Dow 
Jones Industrial Average, and separately sell all the individual stocks 
comprising that average, if I had an opportunity to do so at a profit.  
Notice that this opportunity could only exist if the index were undervalued 
and the individual stocks overvalued relative to each other; that the 
arbitrage trade tends to drive the prices into relative alignment; 
and that the arbitrage trading is therefore inherently both self-limiting 
and stabilizing of the market.

Arbitrage trading is essentially the same activity as retailing / 
wholesaling / dealing / brokering / distributing / trading, except that 
these latter terms are usually applied where the underlying commodity is 
a tangible item rather than a financial security.  However, the activity 
in all cases lubricates the market, makes the market more efficient; and 
it is in all cases inherently stabilizing and productive.

The widespread "agreeing that the resultant wild swings and panicked buying 
and selling of stocks on Oct. 19 were caused by this system (arbitrage 
trading)" is totally unjustified and unfounded.  The most elementary 
understanding of the economics of the situation shows that it has beneficial 
effects exactly opposite those for which it is blamed.

Therefore we have a most interesting issue regarding "Computers and Society,"
namely that this entire issue is a massive exercise by society in pure
scapegoating of computers, falsely blaming computer trading for the 
unsettling behavior of the financial markets.

However, I was provoked to this response, not by the newspaper article quoted 
by Dave Taylor, which sort of media trumpeting of massively fraudulent 
political allegations is too common to admit of a reply; but by Dave's 
own closing paragraph: 

	So it appears that the speed and power of the computer
	indeed has finite limitations in certain areas...
	anyone care to surmise what the ultimate long-term
	effects of this sort of limitation will have?

I would ask Dave to either please explain just what these "finite limitations"
are and offer evidence of their operation; or else to please admit that what we
have here is our own Computers and Society moderator casually buying into this
massive scapegoating of computers by society.

Paul Gloger <Gloger.es@Xerox.com>