Faster than a speeding bullet, more powerful than a locomotive, able to leap tall buildings in a single bound. Look! Up in the sky! It’s a bird. It’s a plane.
It isn’t Superman folks, but don’t tell any of these self-professed masters of the universe that, they wouldn’t believe you anyway. This post centers around two of these self-appointed supermen, David and James Barksdale. James Barksdale made his fortune and name running one of the original internet browser company’s, Netscape. His son, David Barksdale is CEO of the startup, Spread Networks. Netscape was once the dominant web browser, but has since subsided into obscurity, but not before James Barksdale got rich. Spread Networks is now poised to make its economic mark too, in its niche market.
The point is ladies and gentlemen that greed, for lack of a better word, is good
Last month, Spread fired up its network. Compared to normal network providers the Spread network is somewhat peculiar. It only connects two cities, Chicago and New York. Why did they do this? The speed of light in finite and inviolable and hence the speed of information over a fiber-optic cable is likewise finite and inviolable. If you can’t run a race any faster, then your only hope of getting to the finish-line faster is to take a shortcut. Geometry teaches us that the shortest path between two points is a straight line. This is the path that Spread took. Normally it costs $200,000 per mile to lay high-speed fiber networks. It is estimated that Spread paid a premium $300,000 per mile, to chart the course that they did. Over a route of 800+ miles this equates to almost a billion dollar premium. Spread Network’s fiber is estimated to be a total of three milliseconds faster than all other networks. So why pay almost a billion dollars for just three-one-thousands of a second?
Someone reminded me I once said “Greed is good”. Now it seems it’s legal.
The answer of course is the phenomenon of high frequency trading, also know as computerized trading. In the arms race of high frequency trading, a three milliseconds time advantage is an absolute advantage. Spread Networks is poised to make a lot of money. None of the investment houses that operate between New York and Chicago can afford not to sign up. Spread’s network is obviously a smart idea, but is it a good idea? Does it create real wealth? I don’t think so. It makes the Barksdales and their client’s richer, but does not increase the real wealth of our nation . They are playing a zero sum game.
Bulls make money, bears make money and pigs get slaughtered
Conversely, the Obama administration broke ground this last week on a high-speed rail line between Saint Louis and Chicago. This rail line is expected to reap a cornucopia of economic and environmental benefits. This line is slated to cost $3.1B versus the estimated $2.5B that the Spread network cost. I ask you folks, who is investing most wisely for our country, our federal government or our investment community? This is not just a rhetorical question, because our country in its economic woes is vulnerable to eclipsing from our economic rivals, Europe, China and Japan. The high-speed Voodoo securities trading that has become the de jour needs to be curtailed, if not eliminated. An individual investor stands no chance against these cyber trading demons.
I think that with the two examples that I have laid out here, that the ineffectual, bumbling and costly federal government has come out on top of the private sector. Putting money into something is better than wasting money on nothing. Our stock markets are broken.
Yes, it’s Superman – strange visitor from another planet who came to Earth with powers and abilities far beyond those of mortal men. Superman – who can change the course of mighty rivers, bend steel with his bare hands, and who, disguised as Clark Kent, mild-mannered reporter for a great metropolitan newspaper, fights the never-ending battle for Truth, Justice and the American Way.
Thanks to the PermaBear for this storyline. The pictures with this post first stress the emergency nature of our current economic situation and second show some tangible production in our backyard. I like to think of the supermen, the Wall Street titans, as the grasshopper upon the pumpkin, claiming all the credit for what lies below it. I have quoted Michael Douglas’ character Gordon Gekko throughout this post, because he epitomizes the evil that lurks in Wall Street. Wall Street II also opens today.