In an earlier post here, I discussed the importance of a single word to a particular period in US history. I spoke of “racism” as the word half a century ago and of “debt” as this period’s key word. But there is another word that I think is very significant during this period, but for another reason. That word is “vulnerable”.
We all know that an individual suffering from a weakened immune system is far more vulnerable to an infection. AIDS is one of the most commonly known, but something as simple as jet lag can lead to a cold that the body’s immune system might have fought off otherwise.
It is no different for societies or other “communities”. As a result of all the very obvious crises facing the global financial world today, the background problem in my mind is that of vulnerability. Without clear leadership and a sense of where we are going and why, we all become increasingly vulnerable to additional shocks to our systems.
I imagine most, if not all, of us are familiar with Nicolas Taleb’s “black swans”, those unpredictable events that, when they occur, come necessarily as a surprise (since they are unpredictable) and thus have great impact. A black swan need not be completely unknown or unconsidered, just unpredictable. And I should point out what a few people forget sometimes: a black swan can be a positive event as well as a negative event. Still, it’s the negative black swan that concerns us. Most of us can deal with success. It’s failure we have trouble with.
We have plenty of black swans out there that are being discussed. The default of a Belgium or an Italy, the downgrading of America’s credit rating, and a host of others that are considered possible, but the details of exactly when, to what extent, under what circumstances, and so forth are simply unpredictable. There are so many of them that another black swan may be noticed and the subject raised, but be ignored by or be unknown to those most likely to be hurt. There is a point of overload and I fear we have reached it.
So it was with interest that I read Bill Snyder’s “Tech’s Bottom Line” column at the Industry Standard, a major high tech publication. The article is titled, Hackers find new way to cheat on Wall Street — to everyone’s peril. The opening words are striking…
High-frequency trading networks, which complete stock market transactions in microseconds, are vulnerable to manipulation by hackers who can inject tiny amounts of latency into them. By doing so, they can subtly change the course of trading and pocket profits of millions of dollars in just a few seconds…”
I won’t take the space to try to explain the problem as a reading of his article does that, but I will take the space to express serious concern. Not only is there the obvious danger of someone gaming the system fraudulently, but there is the simple fact that is this is discovered after it has happened on a scale to be widely noticed, a new and real fear will enter into electronic trading which nearly every investor and speculator uses for stocks, options, futures and so forth. It could have an extreme negative impact on markets.
This article has been republished or referenced at some sites and blogs, as I am doing here, but I have not yet seen an in-depth investigation. I sincerely hope that is underway right now, but I have lost faith in the “system” doing what needs to be done to protect itself. A careful investigation and discussion before a crisis occurs makes a lot of sense to me. My experience, as I know I share in common with many, is that any activity that causes disruption will attract disreputable hackers and it will very likely happen. If the activity is also potential hugely rewarding financially, I consider that akin to a guarantee that it will happen if nothing is done to prevent it in advance.
I began this with reference to one word, vulnerable. The serious concerns raised in that Industry Standard report would be valid under any circumstances, but this is an especially bad time for something like this to be ignored, only to explode later.
Raising this matter today is partially a preface to my next commentary on “timing”, but it is also a real issue in itself. I sincerely hope there are teams of those who are skilled in the technology and skilled in market operations who are working on this right now. Regardless of its color, this is one swan whose honking we can get along without.
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