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Quote again from the article, did you read it? > What no one here knew that day, May 30, 2013, was that the investment company, DC Energy, was reaping rewards

Quote again from the article, did you read it? > What no one here knew that day, May 30, 2013, was that the investment company, DC Energy, was reaping rewards from the swelter Price offset gained was greater 1.5 million (* this is on one occurence of a grid overburden. The wholesale price jump was 550%, which is somewhat of a hint to the initial investment). > Those profits are a small fraction of the fortune that traders at DC Energy and elsewhere have pocketed because of maneuvers involving the nation’s congested grid. Key term here is 'maneuvers'. They don't plot down a one big bet scheme. How sophisticated? Here, let's look at the article: > Across the nation, investment funds and major banks are wagering billions on similar trades using computer algorithms and teams of Ph.D.s, as they chase profits in an arcane arena that rarely attracts attention. Their _intent is to ensure they are not signalling_. (editted: *)

jjoonathan 12y ago
> Quote again from the article, did you read it? Yes, I saw the "shock and awe" soundbytes too. I ignored them. They are irrelevant to the question of whether what is happening is good or whether it should be stopped. > Price offset gained was greater 1.5 million What does the scale have to do with any of this? > Key term here is 'maneuvers' I'm not interested in who used which loaded term. I am interested in the marginal incentives provided by these trades. Do they point in a direction that benefits society or in a direction that hurts society? > Their _intent is to ensure they are not signalling_. If their teams of Ph.Ds had figured out a way to avoid the signaling inherent in the price changes due to supply/demand swings, they wouldn't be wasting their time in a specialized energy firm. Instead, they would be making trillions of dollars by robbing blind every financial institution in the world. Here's what it looks like to me: The smart PhDs figured out that the energy firm was performing too little maintenance. The energy firm was not willing to employ them to learn this for itself but it was willing to bet against them. The PhDs won and the power company lost. Justice was not served: although it is good that the PhDs got paid for predicting a problem, it is bad that consumers wound up paying double for the problem. HOWEVER, marginal incentives were corrected. If the trend continues, the incentives will continue to be correct tomorrow, and hopefully the power company will wake up and start paying attention to the predictions so that it can head off problem before they occur. The hypothesis of capitalism is that these incentives to fix the actual physical transmission line problem are more important than the unjust costs conveyed to consumers.
- altcognito 12y ago
  > If their teams of Ph.Ds had figured out a way to avoid the signaling inherent in the price changes due to supply/demand swings, they wouldn't be wasting their time in a specialized energy firm. Instead, they would be making trillions of dollars by robbing blind every financial institution in the world. Detecting signaling is a financial game, not a concern of power companies. If capitalism requires you to hire PhD's who specialize in detecting complex financial bets against your company, the system is inefficient. > Here's what it looks like to me: The smart PhDs figured out that the energy firm was performing too little maintenance. The energy firm was not willing to employ them to learn this for itself but it was willing to bet against them. The PhDs won and the power company lost. Oh, btw, the power company serve human beings, the financial traders represent the worst of everything about capitalism.
  - tedunangst 12y ago
    The power companies are not required to detect complex bets against them. They could decline to offer the bet in the first place. Why is DC Energy to blame for accepting a bet that was offered to them?
    - rmc1 12y ago
      NYISO pays Potomac Economics specifically to detect and help prevent this type of trading: http://www.potomaceconomics.com/index.php/markets_monitored/new_york_iso http://www.potomaceconomics.com/index.php/markets_monitored/...
  - jjoonathan 12y ago
    > If capitalism requires you to hire PhD's who specialize in detecting complex financial bets It doesn't. That's the point. That's why the power company is selling these financial instruments, not buying them: so that somebody else does the hard thinking. The price is the signal. You don't need a PhD to determine the message implied by the fact that energy traders are willing to give good odds (i.e. pay more than expected) to bet that your grid will fail in a certain locale on a certain date. > the power company serve human beings The power company not only dropped the ball but dropped the ball after someone told it in no uncertain terms that it would drop the ball in the time and place that it eventually did. If they clean up their act they stand to make good money by selling similar securities. > the financial traders represent the worst of everything about capitalism Correct incentives are the best part of capitalism.

jjoonathan 12y ago

> Quote again from the article, did you read it? Yes, I saw the "shock and awe" soundbytes too. I ignored them. They are irrelevant to the question of whether what is happening is good or whether it should be stopped. > Price offset gained was greater 1.5 million What does the scale have to do with any of this? > Key term here is 'maneuvers' I'm not interested in who used which loaded term. I am interested in the marginal incentives provided by these trades. Do they point in a direction that benefits society or in a direction that hurts society? > Their _intent is to ensure they are not signalling_. If their teams of Ph.Ds had figured out a way to avoid the signaling inherent in the price changes due to supply/demand swings, they wouldn't be wasting their time in a specialized energy firm. Instead, they would be making trillions of dollars by robbing blind every financial institution in the world. Here's what it looks like to me: The smart PhDs figured out that the energy firm was performing too little maintenance. The energy firm was not willing to employ them to learn this for itself but it was willing to bet against them. The PhDs won and the power company lost. Justice was not served: although it is good that the PhDs got paid for predicting a problem, it is bad that consumers wound up paying double for the problem. HOWEVER, marginal incentives were corrected. If the trend continues, the incentives will continue to be correct tomorrow, and hopefully the power company will wake up and start paying attention to the predictions so that it can head off problem before they occur. The hypothesis of capitalism is that these incentives to fix the actual physical transmission line problem are more important than the unjust costs conveyed to consumers.

altcognito 12y ago
> If their teams of Ph.Ds had figured out a way to avoid the signaling inherent in the price changes due to supply/demand swings, they wouldn't be wasting their time in a specialized energy firm. Instead, they would be making trillions of dollars by robbing blind every financial institution in the world. Detecting signaling is a financial game, not a concern of power companies. If capitalism requires you to hire PhD's who specialize in detecting complex financial bets against your company, the system is inefficient. > Here's what it looks like to me: The smart PhDs figured out that the energy firm was performing too little maintenance. The energy firm was not willing to employ them to learn this for itself but it was willing to bet against them. The PhDs won and the power company lost. Oh, btw, the power company serve human beings, the financial traders represent the worst of everything about capitalism.
- tedunangst 12y ago
  The power companies are not required to detect complex bets against them. They could decline to offer the bet in the first place. Why is DC Energy to blame for accepting a bet that was offered to them?
  - rmc1 12y ago
    NYISO pays Potomac Economics specifically to detect and help prevent this type of trading: http://www.potomaceconomics.com/index.php/markets_monitored/new_york_iso http://www.potomaceconomics.com/index.php/markets_monitored/...
- jjoonathan 12y ago
  > If capitalism requires you to hire PhD's who specialize in detecting complex financial bets It doesn't. That's the point. That's why the power company is selling these financial instruments, not buying them: so that somebody else does the hard thinking. The price is the signal. You don't need a PhD to determine the message implied by the fact that energy traders are willing to give good odds (i.e. pay more than expected) to bet that your grid will fail in a certain locale on a certain date. > the power company serve human beings The power company not only dropped the ball but dropped the ball after someone told it in no uncertain terms that it would drop the ball in the time and place that it eventually did. If they clean up their act they stand to make good money by selling similar securities. > the financial traders represent the worst of everything about capitalism Correct incentives are the best part of capitalism.