Eric Posner's Bloomberg Op-Ed Advocates an FDA for Securities
In February, Mary Schapiro, chairman of the Securities and Exchange Commission, said the agency is looking for ways to rein in high-frequency traders. That is, the people who use computer algorithms to buy and sell derivatives at lightning speed to make instantaneous profits.
High-speed trading can waste resources and cause market disruptions. So the commission is right to look into high-speed trading. But it must realize that this is only one issue at the edge of a vaster problem that requires significant government intervention.
The larger challenge is that much of the U.S. financial system is devoted to wasteful activity -- useless trading that advances no important economic interest but, at the same time, creates a dangerous risk of economic crisis.