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Has stock market decimalization ruined our economy?

September 5, 2012

Cringely makes a compelling argument that stock market decimilization (allowing shares to be traded to the penny) is the primary cause of the sustained IPO crash in the US since 2000. His article is based on a presentation by David Weild. What’s compelling about this argument is that it gives a more tangible result to the suspected evils of computer generated rapid trading, enabled by this decimilization move. It’s not just that Wall Street has been leaching money from the system (acting as a small friction force), the effect of this regulatory change has (potentially) been to impair the development and creation of new companies.

Wealth creation is just as important as job creation in our economy but too many experts get it wrong when they think wealth creation and wealth preservation are the same things, because they aren’t.

via Ticked off: How stock market decimalization killed IPOs and ruined our economy ~ I, Cringely.

weild

18 million jobs may been created without the move to market decimalization in trading – David Weild

Update: See also the nice article in Wired last month about the lengths Wall Street firms will go to to get a microsecond edge (for the purpose of rapid trading). I’m trying to think of other examples of massive industries that have limitless capital investment capability yet serve no real use to society…

Update 2: So Cringely’s solution is have more IPOs in Hong Kong? That reminds me of the “let’s just let people get drugs from Canada” idea. It doesn’t solve our country’s problem. Pretty disappointing after a good analysis.

 

In Opinion
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For the first time since 1998 more money leaves China than enters it

MAINLAND China can now boast over 1m wealthy citizens (qianwan fuweng) each with over 10m yuan ($1.6m), says the latest edition of the “Hurun Report”, which keeps track of China’s capitalist high-roaders. But the mainland seems to be having trouble keeping them. According to the report, published on July 31st, more than 16% of China’s rich have already emigrated, or handed in immigration papers for another country, while 44% intend to do so soon.

But only 28% of those asked expressed great confidence in the prospects over the next two years, down from 54% in last year’s report.

Perhaps those rich Chinese aren’t just investing. If this is a sign of future (bad) trends in China, it could mean trouble for the world economy. It could also mean a big impact here in the US and elsewhere; the Chinese tend to be fierce competitors (and these are some of the best and brightest).

The Economist, 8/4/12
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