Narco Markets

 The stock market crash of October, 1987 is a good example. Like everything else, the markets have been wired to speed both trading operations and the feedback of information used in trading decisions. Due to rapid links, it has become increasingly possible to make money from very short-term market fluctuations that previously were ignored. Every transaction is an opportunity for making money; more transactions mean more earning potential. Consequently, the dominant market character has shifted from long-term investment to short-term speculation. Traders need to make decisions much more quickly to exploit short-term swings, and each transaction in turn affects market conditions, generating new information that must be integrated in future decisions.

 The markets have come to constitute one of the purest and speediest information feedback loops on the planet. Anyone who's ever been subjected to audio feedback knows how unstable such a situation can be. The October crash wiped out over 500 billion dollars in paper assets in one day's trading on the New York Stock Exchange. And the post-crash markets continue to be volatile, reflected in fluctuations that are both deeper and more frequent than ever.

 It has been difficult to identify any purely economic cause for the crash. One of the prime causes cited was simple human panic, in the wake of Japanese fund managers selling large amounts of stock on the New York Exchange. However, it was the exquisitely tuned high-speed feedback potential of the market that allowed the panic to spread so rapidly and completely.

 Another reason often proposed as a factor in the depth of the crash was the prevalence of program trading, where complex computer programs performing real-time analysis of a wealth of market information signal traders to buy or sell. Such programs are necessary in the short-term market because a human trader simply doesn't have time to process all the relevant information. When the market was plunging and the programs kicked in with sell orders the traders had to make immediate decisions, or risk further losses due to inaction. They had no hope of evaluating whether the computers were operating sensibly under extreme conditions.

Because the markets operate at a rate beyond the human, the market destabilized faster than human traders could react. It changed more quickly than news of the change could be analyzed.

 Paralysis emerged on a number of fronts. The Super-dot system, used in New York for electronically routing large share orders was shut down. The entire Hong Kong exchange was closed for four days in a futile attempt to avoid the worst of the crash. Telephones were bottlenecked, or went unanswered by brokers scrambling to salvage large portfolios, with many small individual investors unable to contact their broker to give instructions.

In the wake of the crash mild regulations were introduced to institutionalize such paralysis -- for example, forcing a halt to trading when the markets drop more than 50 points in a day. The pattern of over-stimulus, frenzy, and paralysis is not unlike an epileptic shut down by excess neural activity.

 Many individual investors were burned out of the market, with institutional players increasing their share to 60% of all activity, post-crash. After all, how can individuals hope to compete in a speculative market with institutional brokers who have access to millions of dollars of hardware, second-by-second updates, and proprietary software developed by economists and mathematicians drawing million-dollar salaries? Control passes to a centralized elite. Decision-making power is taken away from individuals, who wind up taking cover in mutual funds.

 If you wonder what all this has to do with newspapers, the markets are simply a highly specialized breed of news, focused on minute-by-minute or even second-by-second changes in exchange rates, interest rates, stock prices, futures values and so forth. It could be argued that journalistic news is more a spin-off from the world of finance, than vice-versa. Reuters, established as a news service in the 1840's was distributing financial news by the 1850's. Today it has about 1400 corespondents worldwide and is the world's largest distributor of specialized financial terminals. For an exorbitant monthly fee, you can lease a terminal which provides continuous stock quotes and news-service dispatches in tandem, as well as permitting trading in currencies, stock and futures contracts.

The news in its traditional form -- bad frost in Brazil, a new deficit forecast from the government -- makes markets, just as the markets are folded into the newspaper you pick up every day.

 We are too far gone in our addiction to turn back, of course. The traders couldn't survive being unplugged from their information feeds. Take away just their cellular phones and they'd flop around like divers deprived of air. The withdrawal pains of a less trivial disruption would surely be lethal.

The traders are an extreme case, perhaps. Whether the average person would fare any better is increasingly doubtful.