This post is being used as somewhat of a stalking horse for any number of other agendas and soapboxes, which I guess isn't surprising, so I'll join the fray. 1

This post is being used as somewhat of a stalking horse for any number of other agendas and soapboxes, which I guess isn't surprising, so I'll join the fray. 1. There is a misconception about market makers and the nature of a spread. In particularly illiquid markets, market makers allow you to buy and sell immediately. This is a service. The spread pays for this service. The more liquid a market is the lower the spread (eg it is essentially if not actually zero on US Treasuries); 2. For those questioning our brightest and best being "wasted" on HFT, I see comparatively better value on all the bright minds being wasted on social networks; 3. Finance is a constant arms race. The flavour of the month is HFT. In 5-10 years it'll be something else where low-latency transactions are just taken for granted. This kind of market is a gold mine for innovators as the existing players need a certain amount of innovation just to stand still (relative to the other players). There is classic "mine the miners" opportunity here; 4. There is a lot of highly-leveraged trading that goes on, automated and otherwise, beyond the world of HFT. (I believe) Warren Buffett describes this as "picking up nickels in front of a bulldozer" [1]. In extreme market situations, market models go out the window and the highly leveraged are the first to go to the flames. Just ask Bear Stearns [2] with its 35:1 leveraged ratio. 5. Financial institutions have access to way more data and cheaper (typically free) transactions compared to the average investor. It's common practice to do things like whipsaw the market to hit stop loss orders and the like. Honestly, unless you're a bank in the short term it is an insider's game; 6. A lot of the problems with the lack of transparency, assymmetry of information between parties and bad behaviour (like flooding exchanges) comes down to a failure of regulation. The SEC is either toothless or has been subverted by political interests. Much of what happens in the US just doesn't happen in Australia (to the same degree at least). Just take all the fake documentation in the US housing bubble. How bank executives, loan originators and the like didn't go to jail for this is really astounding; 7. Banks and market funds have limited to no downside risk. If things go horribly pear-shaped the US Federal government will--and has--bail them out. This breeds an adverse appetite for risk. I subscribe to the view that the Federal Reserve, the World Bank and the IMF are in large part welfare for investment bankers; and 8. Banks and funds are too large. If something is "too big to fail" then it's too big and needs to be broken up. That is all. [1]: http://en.wikipedia.org/wiki/Long-Term_Capital_Management http://en.wikipedia.org/wiki/Long-Term_Capital_Management [2]: http://en.wikipedia.org/wiki/Bear_Stearns http://en.wikipedia.org/wiki/Bear_Stearns