Turn – financial sector innovations worsen the debt crisis and destabilize the economy

[Marko; August 11; Lecturer at the university of helsinki’s department of social research and author; The Digital Age and it’s Discontents, “The Blind Spots of Digital Innovation Fetishism,” Ch. 2, P. 41-42] TC

Besides assisting in the creation of new financial innovations, digital technologies are at the heart of current global financial market infrastructure. Financial trading is digitalized, and an interesting innovation in this regard is high-frequency trading (HFT). This differs from earlier electronic forms of financial trading in that, instead of direct human involvement, trading is conducted fully automatically via computer algorithms and programs. HFT represents ‘the culmination of decades of technological innovation and regulatory developments encouraging financial automation’ (Lange, Lenglet & Seyfert 2016: 154). The appeal of HFT is based on its ability to execute financial orders at very high speed and to detect small trading opportunities in the markets. HFT systems do this by comparing available prices and price fluctuations between exchange venues and by taking advantage of temporary price inconsistencies to make profits (Bajpai 2014). HFT involves small individual trades in high volume, which has significantly increased the overall volume of financial trading in the 2000s (Chaparro 2017). The quantities are awe-inspiring: Typically, messages concerning bids to buy or sell shares are sent by computer algorithms at a rate of millions per second between the main US share-trading data centres. According to current estimates, about half of US share trading is done via HFT (MacKenzie 2018: 1636–1637).

Speed and thus computing capacity are essential for HFT companies, which has resulted in an arms race between them as they seek to keep ahead of each other in digital-technological development. In the case of HFT, the advantage is measured in milli- or microseconds. For instance, an HFT company that monitors the trade of comparable financial products (e.g. treasury bonds and futures) between the New York Stock Exchange and Chicago Mercantile Exchange can earn a small profit by optimizing the material communication connections between these marketplaces to be able react faster to price changes in those products (Lange, Lenglet & Seyfert 2016: 154). HFT firms are compelled to continuously invest in ultra-fast fibre-optic cable connections and microwave technology to ‘shave off a few milliseconds in the transmission of data’ (ibid.), in an attempt to gain an advantage over rivals. Similarly, high-frequency traders want to have their computer servers as close to stock exchanges as possible, because this also decreases the time of digital data transmission.

Such financial and finance technology innovations exemplify the high risks attached to financialization in the conditions of neoliberal market liberalization. The sheer amount of new digitalized financial innovations and their voluminous use at amazing speeds make them inherently difficult to supervise, regulate and control. Due to the fast rate of financial innovation, some post-Keynesian economists have suggested that, instead of even attempting to regulate certain complex financial instruments that encourage ever-riskier activities, they should simply be banned (Papadimitriou & Wray 2010: 26). Overall, digitally driven financial innovations have contributed to the destabilization of global economy, with severe negative social consequences. Present government policies that lead to the bailouts of speculative financial institutions when they go bankrupt encourages these institutions ‘to go further in their reckless financial ventures and precipitate new financial bubbles’ (Hossain-Zadeh 2014: 69). Under this systemic logic, the risks are privatized, but the losses are socialized, in a way that has clear class character. The global financial crisis has been used not as a reason to dismantle the neoliberal policies as dysfunctional, but as an opportunity to justify austerity cuts in social spending and public services. The latter are falsely blamed for escalating public debts and deficits—whereas, in reality, the crisis was caused by the financial sector—which is then used to justify further redistribution of national income in favour of the rich (ibid.: 76–81)