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by darawk
2270 days ago
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I would say yes, they do make a positive difference for society, but in a fairly abstract way. Efficient capital markets are an extremely important part of a market economy. They allocate capital where it will do the most good. Firms like Renaissance make that process more efficient. That is, they take a process that used to require 1000 MBAs working full time, and they accomplish it with 4 physicists, and automate it. This frees up the 1000 MBAs to go do something more productive with their time. I think it's easy to be dismissive of this sort of value creation because of how abstract it is, and how concentrated the wealth creation at a firm like Renaissance is. However, I think the value add to society is actually real. There are legitimate questions about the value being added by ultra high frequency firms. The ones that engage in market making are definitely adding value, but the ones that are doing things more like front-running or statistical front-running are a lot more questionable. |
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1. I would argue they're not a net positive. Making markets more efficient is fine but markets are already extremely efficient. The biggest social good can be achieved by working on issues that are classical market failures and full of externalities. Climate change, healthcare, basic science, education and so on. The man-hours invested in these prop trading platforms compared to the benefit to society is maybe positive under the microscope, but negative when one considers opportunity cost.
2. They're freakishly proprietary. They're corporate black boxes full of 200 IQ people who could be solving and distributing knowledge, but they're basically locking them in the basement to make money. Put any of those researchers into a public university and over the course of their career, they could educate thousands of fine researchers.