July 24, 2009

Google Working To Defuse Google Books Concerns [8:08 am]

An article on a recent panel discussion at the BPL: Google Books causes concern among librarians, authors (pdf)

Google’s growing digital book project is making some in the publishing world nervous - a fact the search giant is trying to change. Google Books, which includes the largest team of engineers working out of Google’s Cambridge office, has been a force ever since it started an aggressive book scanning project with some of the world’s largest libraries in 2004. But now that Google has become a publishing powerhouse - with more than 10 million books scanned so far, of which 1.5 million are currently available online free of charge - it has made some librarians and authors uneasy.

“Google is creating a mega bookstore the likes of which we have never seen,’’ said the panel organizer Maura Marx, executive director of Open Knowledge Commons, a Boston nonprofit organization. “People are very uncomfortable with the idea that one corporation has so much power over such a large collection of knowledge.’’

A growing concern, which was raised during the library panel, is that Google will end up with monopolistic control of access to millions of scanned digital books. This concern was heightened when Google negotiated a settlement with the Authors Guild and the Association of American Publishers, groups that represent authors and publishers, after they sued Google to stop the search company from digitizing books.

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Architectures and Advantage [7:25 am]

Designing institutions when market ideology meets technological advance: Traders Profit With Computers Set at High Speed (pdf)

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

Later: a cautionary voice — Hurrying Into the Next Panic? (pdf)

So, is trading faster than any human can react truly worrisome? The answers that come back from high-frequency proponents, also rather too quickly, are “No, we are adding liquidity to the market” or “It’s perfectly safe and it speeds up price discovery.” In other words, the traders say, the practice makes it easier for stocks to be bought and sold quickly across exchanges, and it more efficiently sets the value of shares.

Those responses disturb me. Whenever the reply to a complex question is a stock and unconsidered one, it makes me worry all the more. Leaving aside the question of whether or not liquidity is necessarily a great idea (perhaps not being able to get out of a trade might make people think twice before entering it), or whether there is such a thing as a price that must be discovered (just watch the price of unpopular goods fall in your local supermarket — that’s plenty fast enough for me), l want to address the question of whether high-frequency algorithm trading will distort the underlying markets and perhaps the economy.

[...] Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people.

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