The precipitous drop in the Dow last week should demonstrate to the regulators that programmed trading and high speed computer trading can and does destabilize the market. The question remains as to whether the regulators or the Congress will do anything about it.
Programmed and high speed trading contribute absolutely nothing to Gross National Product, provide nothing of value to the economy and place the individual shareholders at greater risk. The type of trading taking place is a â€œcasino gameâ€ for a handful of traders designed to make them more money and, it doesnâ€™t matter to them whether or not there is any benefit to the market or shareholders. Large Hedge Funds and money managers use these vehicles as a kind of â€œcrap gameâ€ but one in which only they know the rules (the program). The way the sub-prime mortgage debacle damaged the economy because of a lack of regulation and controls suggests that Congress should pay special attention to these trading methods which contain the elements of a created automatic panic. In short, computer trading and high speed trading should be prohibited unless the traders can clearly demonstrate how these activities provide any benefit to anyone other than themselves. This is not to suggest that investment banks should be prohibited from trading. There is nothing wrong with the banks taking major positions for trading purposes as long as it is done by human decision makers and not according to some computer model developed by a clever mathematician. Experience has proven that the computerized models are much less than perfect when it comes to safeguards.
What should be disturbing to individual stockholders is the fact that the mentality of the stock market is short term oriented and is a trader mentality. The idea of making sound, reasoned investments and holding for the long term seems to be out of favor. But, typical individual investors should not be speculators in their pension plans and should be long term oriented. Short term trading is not appropriate for most individuals yet that is the focus of most market analysis. Congress should be urged to act in protecting the long term investment strategies of the individuals who put money into their pension plans anticipating a comfortable retirement. Individual investors who have done that have been burned twice. First by the Wall Street greed in the sub-prime mortgage activity and now the trading greed. These activities should be strongly objected to by investors via a bombardment of lettere and e-mails to elected representatives calling for greater protections. Individual investors shouldnâ€™t have to face the prospect of going back to work after retiring because their investment portfolios were decimated by adverse market factors that could have been avoided if someone had been watching the store.