What's the problem with hoarding? There's no difference between a billion dollars stuffed under the mattress, never to be spent, and a billion dollars burned up in a fire. If the rich aren't spending, they are not consuming resources or causing pollution, so it's as if their money never existed. And if they do one day decide to draw down their accounts, then it wasn't being hoarded.
>> If this were a card game, the millionaire could go piss himself.
Thankfully the economy is not in fact a card game, and no billionaire can force you to piss yourself.
And I have a strong belief that creators should be compensated for their hard work. Tell you what: let's compromise. Creators get a right, let's call it "copyright" or something, whereby for a limited amount of time they get to control how to distribute their work. In order to maximize profits they will rationally not charge too much. After enough time has passed, this right expires and their work goes into the public domain. Sounds good?
I'm not a fan of payment for order flow. The problem is that it lets HFTs pick off the uninformed orders, leaving the orders that actually reach the exchange more "toxic". This lowers the incentive for others to rest orders on the Central Limit Order Book, harming price discovery. So while in the short term no one is harmed, the long-run consequences could be bad.
If the HFTs pick off uninformed orders, wouldn't that mean that the remaining orders are more informed? That does seem like it would make trading on the exchange itself would get more expensive, though, because this is all basically a mechanism for the HFTs to price-discriminate. But the market did somehow work back in the bad old days of odd-eights and such.
This NYT piece is heavy on moralizing rhetoric and light on technical details. The BloombergView piece by Matt Levine [1] is much better:
"It's important to realize that slowing everyone down by 350 microseconds can't possibly help anyone. As Hudson River Trading said in its comment letter: "Similar to a 100-meter sprint, if you simply add 350 microseconds to each participant’s time, neither the order in which they finish nor their time differentials will change.""
It would indeed be pointless if everything was slowed down by 350μs, which is why that is not the case. IEX lets its own "pegged orders" and "routable orders" cut the line, picking off liquidity at the other exchanges. If IEX is approved, there will be an arms race, with other exchanges inserting their own similar delays. Even worse, because of Reg NMS you can't legally avoid trading on IEX even if you wanted to. If the price of a stock is falling rapidly and you wanted to sell, IEX will always have the best price since it is stale by 350μs. Everyone will be forced to send their orders to IEX, even if everyone knows that the bid there is illusory.
The Matt Levine piece is very good. Do please read the whole thing.
A delay of 350 microseconds may very well make the market less turbulent and reduce the prevalence of "flash" crashes. Though the method of implementing the delay might not succeed, a forced delay would alleviate the arms race to lower latency algorithms. Lower latency means fewer computations and less memory, which means the strategy space is smaller. With enough players crowded into a small strategy space, the market becomes more frothy as periodically too many players collide on the same strategy.
Placing a lower limit on latency allows a better balance between algorithmic complexity and latency. The strategy space will be larger and hopefully will be large enough that there's room for most everyone to try different strategies, making the market calmer.
Unfortunately, IEX's proposed implementation of a delay is probably not as good as simply changing the precision of the exchange's clocks. If the exchange decided it would measure time only to the nearest second and orders occurring at the same second would be processed in random order, I expect that would be a better solution. Adding some randomness to the processing order at the 100s of milliseconds scale would go a long way to reducing front-running and overly simplistic momentum strategies. The latter are the main cause of market turbulence.
Why would adding delays make the market less turbulent? The standard dynamical systems intuition says that adding delays creates instability. Think about how many stable ODEs have wildly unstable numerical solvers, at least when the step sizes are too high.
Or in terms of project planning, if you have 2 day sprints, you can course correct every 2 days and rapidly approach a usable product. If you have 3 month sprints, you might spend 2.9 months building something totally wrong. 2.9 months of moving the wrong way will get you a LOT further off course than a badly planned 2 day sprint.
Enforcing a delay may reduce the incentive to increase speed at the cost of strategic complexity. If the turbulence is caused by the interactions of overly-simplistic momentum agents, then increasing the complexity of the agents will stabilize the market. This should hold to the extend that increased strategy complexity also increases the variety of strategies in the market.
Think of the market as a liquid near boiling point. If the energy of the system increases too much, it makes a phase transition. To raise the boiling point, add impurities. This is a flawed metaphor in many ways, but it might offer a new intuition for you. Unfortunately, in the case of the market (and many systems) efficiency is the enemy of stability.
If you prefer a project-planning metaphor: BigCo executives have caught Agile fever. They see that 2-month sprints are more effective than 2-year project plans and they've heard their competitors are finding great benefit from 2-week sprints. BigCo decides to leapfrog the competition and goes straight to 2-minute sprints. They've tested their engineers and found that 2-minutes seems to be a lower bound on writing a chunk of useful code. The executives declare that all engineers must report accomplishments and re-plan their next activities every 2 minutes in accordance with proper Agile workflow.
Obviously, extreme speed is disastrous. I'm not saying to slow down the market to making an order once monthly. Just slow down from nanoseconds.
If in doubt, build a small simulation. Simple agent-based models can produce very interesting phenomena.
Efficiency in the "efficient markets" sense is not instability - it is by definition perfect incorporation of all information into the price.
Fast adjustments are not "energy" in any sense, and smaller but more rapid adjustments are in fact considered to be properties of an "orderly market" (to borrow SEC terminology). Your 2 minute sprint example has a problem with transaction costs, not rapid iteration.
Rather than analogies, can you just state directly how adding latency will stabilize things?
I meant efficiency as in low spreads, not as in Fama.
I tried to state the mechanism directly, but apparently didn't do so very well. I could try again, but I think it'd be more effective to appeal to authority. Check out "The Race to Zero" by Andrew Haldane at the Bank of England (http://www.bankofengland.co.uk/archive/Documents/historicpub...). It appears that the presence of too many low latency / high frequency players puts the market in a state where it can phase shift, crossing from normal "stable" dynamics to a dramatic spiking dynamic. In normal times, "HFT" increases liquidity and reduces spreads. Every so often those HFT players leave the market suddenly, nearly simultaneously, causing a liquidity crisis.
Note that many exchanges enforce a short pause in trading when the market seems to be going crazy. The delay appears to help, so long as traders don't move to a different exchange.
HFT has clearly lowered spreads. This isn't even in dispute.
The issue of market makers pulling out during a crisis is a regulatory issue; an market maker might do the right thing and push the market back towards where it should be and then be punished by a regulator who breaks the buy trade. If this behavior is undesirable then eliminate the "clearly erroneous trade" rules.
Your citation also doesn't address any specific mechanism by which a delay would improve things. All it does is speculate that speed might be bad due to fat tails and handwaving.
Changing the precision on the clocks and inducing some level of randomness seems like a good idea. Combine this with styles of orders that are conditional (e.g., buy if price <= x) and we'd have something that looks a lot like FP's "atoms" -- apply the function, and if the change isn't invalid due to race conditions, keep. Perhaps this might result in bids that are more "say what you mean" than the current economically favorable games of bluffery, opponent-baiting, and chicken.
The El Farol Bar Problem is great reading; thanks for that link.
I don't think it's that good of an idea. If the allocation is random, participants will counter by sending in more orders than they want, to increase their chance of getting a fill. The microstructure will look similar to a market with a pro-rata matching algo. This article has a good discussion of some of the downsides of pro-rata http://www.advantagefutures.com/is-pro-rata-an-accident-wait....
But it's unclear to me how the random component would work that you all are talking about. Is my resting order subject to a random cancel delay as well? If it's not, then we still have a requirement for speed, as cancelling soon-to-be bad orders is arguably more important than placing soon-to-be good aggressive orders. And if it is subject to a delay, spreads are going to be MUCH wider, losing individual investors more money than they currently are to the current system.
The way I imagined the randomness aspect is the same way it's handled now for two orders received at the same time according to the machine's precision of time perception.
Unfortunately, a loss of efficiency (increased spreads) is the price we will pay for less frequent crashes/spikes.
Of course the biggest problem is not coming up with a better (mathematically verified) scheme to run stock markets, but instead it is getting it accepted and implemented. Given the interests, I suspect this problem could be, for example, of the same level of difficulty as reforming gun laws in the US.
Not quite -- this guy didn't naked short a put option on Maya crude. The plan was to dynamically hedge the position -- putting on a trading strategy that continuously neutralized the first partial derivative of the payoff function. The problem was the the second partial derivative was left unhedged -- oops! To put it technically, he was delta hedged but not vega hedged. Thus when volatility spiked he lost money. Even worse, he insured 2/3 of Mexico's entire production, so when things got bad there wasn't even enough liquidity to maintain the delta hedge.
A better plan would be to come up with some sort of vega hedge using WTI volatility. WTI vol and Maya vol are correlated so some sort of partial hedge should have been possible, but it's very tricky. This is why other banks were not interested. It sounded like he was either too lazy or arrogant to believe he need to vega hedge and it blew up in his face.
> To put it technically, he was delta hedged but not vega hedged.
Delta, the first partial derivative on price of the Black-Scholes model of option pricing [1], is the rate at which the price of an option changes in relation to the price of the underlying asset. For example, a call option with delta=0.25 requires one own 1 unit of the underlying for every 4 options (keeping things simple) to be perfectly hedged, i.e. indifferent to changes in the price of the underlying. If you are running a leveraged operation, delta-hedged means well-hedged.
Unfortunately, as the price of the underlying changes delta changes. Yes, one can describe this relationship in terms of volatility (as the price changes, volatility will spike, which in turn feeds into the value of delta). But it is simpler to describe it in terms of the second partial derivative on price, gamma. Gamma is the rate at which delta changes in respect of price.
Non-derivative assets are delta=1 assets; for every dollar change in the price of AAPL the price of AAPL changes one dollar. Duh. Buying and selling delta=1 products helps one hedge delta. Gamma, being a second derivative, is non-linear. That means only non-linear products will aid you in your game against it. Options, and option-like products, are really the only ones with "gammaness".
Big operations gamma hedge as much as they can while trying to keep their delta contained. For example, if you sell 100 puts, you would keep yourself delta-hedged while you try to profitably buy 100 puts. Provided the price doesn't wiggle around too much, this works.
This strategy is problematic, however, if your counterparty is Mexico. Mexico wants LOTS of options. If you can't give Mexico LOTS of options, Mexico can't bother dealing with you. So you tend to want to provide Mexico with LOTS of options because LOTS of options commonly means LOTS of profits (and LOTS of fees).
But the market doesn't have a bunch of people buying and selling LOTS of options. Just lots of options. So whereas one might usually be 20 or 50 or 70 percent gamma-hedged, when one just booked LOTS of options, 2% seems like a pretty good rate for the first week after the sale. Sucks to be you if Libya or Iran or the Sauds decide crash the party in that time.
Thanks for the explanation! The assumption that volatility is a random walk strikes me as a very poor model when shit goes south. I would guess people use more sophisticated models in practice? Do you know of any good books on the subject?
The experiment seems poorly designed if the purpose is to simulate the real world:
"In the cooperation phase, both players ... contribute simultaneously ... to a common pot, unaware of the partner’s contribution." The higher-ranked player then gets priority in determining how the payoff is split.
Who goes to work without agreeing on a salary?? Who co-founds a company without agreeing to an equity split??
The connotation for the so-called "lower ranked player" is also misleading, as in the real world the employer is more similar to their "lower ranked player": the employer usually commits to paying the employee around three months' worth of salary first. The employee then gets to choose to slack off or work hard. So, in a sense, the employee gets to choose how to divide the payoff: the employee always gets the salary, while the employer gets (output - salary). Of course, in the real world the game is then iterated, as the employer gets to choose to fire the employee or continue the relationship.
Any experiment in game theory that doesn't involve iteration is highly unrealistic -- the fact that we have a reputation to keep and have to deal with each other over and over again is pretty darn important! Frankly I'm a little bit disappointed that Nature has chosen to publish this paper, as I don't see what insight it offers.
>> 2. The splitting phase is not influenced by the collaboration phase (I can't avoid to note that you don't choose to apply this insight to start ups).
Vesting is supposed to serve that purpose by allowing a co-founder who doesn't contribute to be fired. Certainly it can be harder to fire a non-performing co-founder though.
> Who co-founds a company without agreeing to an equity split??
Lots of people! This is the normal state of affair in many spin-offs where the product happens before the company and the "ownership" must be divided after most of the work is done.
Is childcare in fact expensive? According to the article it "can top 15 percent of the median income for a married couple". But considering that taking care of children used to be a full-time job for a housewife, isn't it actually surprisingly cheap relative to historical standards?
In general, if there isn't increased productivity because of technology, we shouldn't expect lower costs in terms of labor-hours consumed. See "Baumol's cost disease" (https://en.wikipedia.org/wiki/Baumol%27s_cost_disease)
I used to work in child-care. We charged $14/day for after-school care (4-5 hours), and the staff-to-child ratio was about 20:1. Counselors made < $10 hour. This was 2001-2007 or so.
Child care was the biggest money maker at my organization, which was a fully-featured ymca with seasonal sports, fitness, olympic pool, gymnastics, rock wall, skate park, and 10 million in the bank. We had a pre-school, after-school, and summer camps. I can't speak to the % of net income that came from child care, but I think it was very large.
I think given multiple children, it becomes very likely that it's better for one parent to stay home. They get to spend a lot more time with the kids at a very small financial difference.
We were allowed to have 30:1, actually (with 4 and 5 year old kingergarteners, any school-age kids).
We typically kept about 20:1 until a time when we were trying to qualify for a higher standard, which required a 15:1 maximum.
And occasionally my co-counselor would be gone and I'd have 50+ kids for the day. It went okay for me, but many of the counselors could not have managed that whatsoever. In fact, many of my later co-counselors couldn't handle any amount of children by themselves.
You are damn lucky you didn't have a fire or other emergency. I also recommend checking the insurance and local laws to find your personal liability in those situations.
We had multiple groups and plenty of other staff, they just wouldn't be assigned to my group.
For instance, I might have the soccer field for a given rotation (we had several each day), and on the playground nearby was another group or two, supervisors inside, etc.
Any kind of non-herding-children emergency would have been handled without issue. Fire could be an issue, though I'm not sure an additional staff member would improve the situation much--the problem would be the doorways creating choke points.
I went to my sons school the other day - parents were invited to attend for half an hour. He's 6. The children sat down quietly when the teacher asked. One of the parents took a phone call (!), at which point one of the kids immediately turned around, gave her the most incredibly stern look and went "shhh!" - it was quite amusing to see a bunch of 6 year old kids behaving better than their parents.
Conversely, though, I had teachers as a kid that wouldn't have been able to get anyone to behave... My class drove more than one teacher to run crying from the class room. In primary school.
That basically is what the article says. I don't find it surprising at all.
Do the math: if parents want one carer for every N kids, they have to pay 1/N-th of the costs of a carer.
I guess that 10 is a conservative estimate for the value of N, taking into account holidays, sick days, and the fact that kids will be at the center for over 8 hours because parents have to do their own workday between dropping off and picking up their child.
Also, parents do not want to make daycare look industrial, daycare needs a kitchen, beds so that kids can rest in the afternoon, etc. That means parents effectively have to pay for about half a second house for their kids, an extra set of toys, etc. and they want it all from 8AM-6PM, so daycare providers cannot run shifts to more efficiently use their facility.
Edit: and don't forget income tax. Parents have to pay a daycare worker's income before tax from from their income after taxes.
For me, that makes it clear that, at current price level, daycare workers cannot have a middle class income. Also, if they had, lots of people couldn't afford child care.
And historically, child care wasn't a full time job. Housewifes also prepared food, cleaned the house, washed clothes, found time to repair clothing, went shopping, etc. Even with modern appliances, that adds up.
>For me, that makes it clear that, at current price level, daycare workers cannot have a middle class income. Also, if they had, lots of people couldn't afford child care.
You're assuming here that the payment all has to come from the parents disposable income. Other countries (try to) address this with government or employer subsidies for childcare, eg in Australia http://www.humanservices.gov.au/customer/services/centrelink...
Doesn't most countries finance school for older children partially or entirely through taxes as well (primary school)?
Obviously, education is seen as a necessity both for (semi)functioning democracy, but also for any modern society to work. It seems odd that we're happy to take care of kids for free (or highly subsidized cost) from the age from 6 to 16 -- but somehow the years 1-6 needs to be paid for by parents? Are those 4 years really so much more expensive, that it wouldn't make sense to just roll that all up into one budget?
I actually need to look at the arguments around this in Norway -- free school from the age of 6 to 18, along with a free college education isn't really an issue - and full coverage of child care services also have broad agreement -- but somehow simply making said childcare free seems to be much more contentious. Or perhaps just overlooked.
I suppose one could make up microeconomic arguments along the lines of a solid education for all benefits all, while allowing all parents those extra 3-4 per child in the job market might not benefit all. Perhaps more interesting is the general trend that there's less work -- so having people spend some time off from work (with eg: pay from the government) might simply be a more efficient model going forward.
But if we accept that free primary school is a good thing, I don't see how we can argue that free kinder garden isn't too.
It does come out of parents disposable income, eventually.
If the government subsidizes it, taxes will go up and disposable income goes down (though part of the cost gets externalized to childless taxpayers).
If most employers pays for it, cost of living will go down, and salaries will also go down (for everyone, so your childless coworker's salary will also go down and the difference will either go to the shareholders, or maybe the CEO will just pat himself in the back for his brilliant cost cutting ideas and give himself a big Christmas bonus).
All in all, it sounds like the only cases where it makes sense to subsidize is in countries with an aging population. Otherwise, it's fairer to pay living wages to workers and have each parent pay out of pocket.
> ... daycare workers cannot have a middle class income. Also, if they had, lots of people couldn't afford child care.
I know this will sound terrible, but if you cannot afford to pay child care, maybe the economy is telling you that your marginal job is not worth be done or held. The reality in US and many countries following it's economic model is that unemployment is a chronic, ignored problem. Marginally useful jobs can exist because there is always a big pool of desperate people ready to take poverty wages. You will do yourself and everyone a favor by not competing in that race to the bottom.
As long as the child is being raised by a family with at least 2 adults, a stay at home mom or dad is perfectly capable of providing care while at the same time engage in all types of frugality and household economy activities that will extend the salary of the sole breadwinner beyond what is normally possible for a couple of overstressed careerists. They can also engage in education and creative activities that will allow them to pick up a career later, when the kids are old enough to attend school (which is a sort of mandatory daycare, anyways).
Also, it is important to recognize that a single parent raising children is a extraordinary and unsustainable situation (though sadly common through history). Subsidies, charity and informal help from extended family, friends and neighbors should be directed to this cases, instead of being spread out trying to benefit as many people as possible.
It's pretty expensive, my own informal surveying of people with kids suggests the 'good' childcare places are basically equivalent of an extra one-bedroom apartment per month per kid. Relative to historical standards, you had not only the housewife, but grandparents, other relatives, and even your neighbors in the immediate community to help share the burden.
I'd say you're underestimating. Our son is with a childminder two days a week, and I could easily get a one bedroom place for that money. In the UK the last stats I heard suggested you need an income of £40,000 a year or more to break even on full time childcare.
High quality child care is very expensive. The average daycare feeds your kids cheese puffs and processed foods and takes no special interest in customizing a child's experience. It is expensive to use child care that forgoes the state matching food grants (which encourage the cheese puffs), and focus on specialized care for your child.
In San Francisco, full time day care can run about $2k a month - here's a link to the costs for the day care for faculty and staff at UC Berkeley ($1600-$2125, depending on the age of the child). Let's go with $1700 for the calcs, to keep it conservative.
There may be cheaper options, but seriously, fifteen percent sounds very low even for two income well paid families. And of course, at such an ultra wealthy income bracket, tax breaks have phased out far lower in the income scale.
Another way to look at it is $3,400 * 12 = $40,800. Let's assume a 20% tax bracket (assuming one spouse makes a good income and intends to keep working), so it costs you $51,000 to go to work vs staying home. Even if you don't strictly lose money by working, that second income has to go way up before it's really worth it.
There is one other factor, of course, which is career continuity. It may make sense to work essentially for 20% of your pay if it means that in 5-6 years, when the kiddos are older, you can rejoin the workforce at a higher income level, rather than trying to break in after an extended absence. Also, my numbers are a worst case scenario, where you have two small children in daycare at the same time, though of course spacing it out comes with a different set of problems.
Add in the sky high cost of housing, and you can see how hard it is to raise a family in the bay area now. The best bet is actually to have one very high earning spouse (medical or nursing specialist, higher echelons of law or finance, some upper tech or managerial positions). $200k+ a year is a very different picture if it is all earned by a single spouse. Alternatively, for two very high earners (again in that 200k+ range), the percentage spent on childcare and basic housing starts to diminish to acceptable ranges.
This is also why, ahem, I don't take claims of a labor shortage in SF seriously at "six figure" salaries if the salaries are barely above 100k.
I wrote this extension a while back and I'm wondering what you guys (and gals) think. It uses DirectedEdge's API (they are regulars here, thanks guys!). Are the "popup bubbles" useful? Any suggestions for improvement or new features would be very helpful.
Why do we need to spell correctly? Why can't we use "u" for "you"? Why do we need to end sentences with periods? Why do we have to use the correct grammar?
1) It's simpler for humans to read. The purpose of XML was to be somewhat human readable and quotes help with that.
2) It makes possible for people to throw together a basic parser if for some reason they don't have access to the libraries (embedded, new language, etc)
3) Life would be a lot simpler if everyone followed the law (or specs).
I have implemented such an algorithm in the past. The problem is that it actually makes things even more redundant since it gives you stuff you have already read and liked. The results returned are usually articles on the exact same topic from a different source.
>> If this were a card game, the millionaire could go piss himself.
Thankfully the economy is not in fact a card game, and no billionaire can force you to piss yourself.