Sunday, August 05, 2012
Knight Capital, a hyper-complicated modern financial entity, which operated on abstractions and farted numbers, lost $440 million this past Wednesday and may not come back. According to the Reuters story, the meltdown was produced by a "software glitch."
That means one of the company's automatic computerized trading programs malfunctioned, and over the space of about 45 minutes bought millions of shares of stock at inflated prices, which Knight then had to unload at a losses for itself and its trading partners, which include the giants Fidelity Investments and Vanguard.
Knight Capital was one of those modern-day firms which make nothing, except money of course. Reuters describes it as "one of the leading market makers in U.S. stocks," and explains, "Knight is among the firms that are critical to smooth, orderly trading. Market makers match orders from buyers and sellers and often provide liquidity by stepping into the market themselves."
I have only a vague and hazy notion of what any of that means, but so what? After the big meltdown of 2007-08, it quickly became obvious that a lot of the people who had been trading in collateralized debt obligations didn't have a precise idea of what they are or how they work. In its mania for huge profits, enormous risks, and abstract models, the finance sector has turned the corner and is rocketing down the home stretch, headed for the finish line and the payoff: self-destruction.
Like a piece of overripe fruit, the fully-automated plutocracy will eventually simply fall into our hands, and thence into the compost heap, and will help provide the soil for a new, old-style economy based on producing tangible things which possess measurable value.