Computer confusion

Michael Lewis's latest book about Wall Street paints a picture where human decisions have been delegated to super-fast computers.

The premise behind bestselling American author Michael Lewis’s latest book, Flash Boys: A Wall Street Revolt, is that the high-tech world of the modern stock market has rendered entirely obsolete the traditional image of brokers massing on the trading floor, screaming orders to buy or sell. Now it is done electronically and in fractions of a second.

What is worrying, given we are still emerging from the greatest recession of the modern era, is the degree to which human involvement has been eliminated, and with it the notion that the market determines stocks’ true values based on fundamentals such as profit.

Instead, he contends, computer systems detect large orders and ­react within milliseconds, using infintesimally faster connection speeds to benefit from the arbitrage of placing orders just ahead in far-off markets, with the effect of inflating values without the intervention of ­human analysis to see if there is a legitimate reason.

The great American investor – and multi-billionaire – Warren Buffett proudly proclaims that he never buys into something he doesn’t understand. Maybe that wise dictum should be expanded to the regulators of the world’s exchanges: never permit something that nobody understands.