What the interns have wrought, 2025 (opens in new tab)

Maybe humanity can start paying them decent money first?

How do we start to care about quality, building lasting things, fundamentals? What would happen if we taxed capital gains at 100% for the first, I don't know, 3 / 6 / 9 months of holding an asset? Maybe investors would have more incentive to care about fundamentals?

Anyway, I assume I'm wrong about all of this, just looking for someone to explain why. ;-)

At the end of the day I believe that if CS/finance was not "cool" and paid the way it does (specially at the level of HFT) most of those kids currently there would go back to the good old law/medicine...

The only "actually useful" tech jobs if we're going to consistently apply a bar that excludes finance would be stuff like aerospace R&D or ERM systems. Which, to be clear, I would love if society incentivized more strongly. But finance is hardly the worst offender here.

Once you start noticing things changing, try to identify how you could profit off of it. If it's a change, then there's profit to be made somehow.

Any anecdote is a potential lead.

Suppose you want to invest in S&p500 so you want to buy the ETF. Someone like Jane Street can create sell you this ETF, and take care of the risk that comes along with it. For example, the price they sell you this ETF should take into account the pricing of underlying stocks. While it sounds trivial, doing this profitably (and therefore sustainably) is a tough job. And doing it competitively to offer you a good price on it is an even tougher job.

All for-profit businesses can be viewed abstractly as “in the business of making money”, so this doesn’t really distinguish Jane Street in any way.

> … why/if what they do is useful to anyone?

The utility that Jane Street provides is to the be a persistent buyer and seller of equities. Basically you can call them at any time and buy shares or sell shares. Most shareholders do not trade very often so without a “market maker” like Jane Street it can be a lot of work finding a buyer/seller who is willing to trade on your schedule at the current market price. You’ll have to pay them extra to convince them to trade, which makes it harder to trade profitably. Jane Street significantly lowers the price and makes trading easier (“provides liquidity to the market”).

in my experience Jane Street make no attempt to defend the financial system; such societal benefits are obvious or implicit.

whether you (or they!) really buy that is irrelevant

Market makers like JS vastly increase market liquidity across all sectors, which is required for modern high-efficiency economies to work. McDonalds prices are possible because there's enough liquidity in corn futures.

More abstractly, high market liquidity corresponds to higher-confidence information about the future, which hedge funds generate (and distribute for a low fee via markets), allowing for more impressive planning ahead.

Also, you know how when you buy stocks it doesn't cost you anything and you often get better-than-public-book execution prices? That didn't happen prior to modern electronic market makers. Multiply that efficiency gain by umpteen trades every day.

In general, "being in the business of making money" inherently requires you to do something useful to get paid, to the extent you're not just abusing a principle agent problem or something. The most credible argument for hedge funds making money without doing something useful is that they're doing cantillon effect harvesting or something. I think that's pretty small overall.

In turn that leads to more efficient markets since prices converge to their "correct" value faster.

- Money (the concept) is useful to society as a store of value, so you don't have to waste effort bartering for things.

- Adding on to that, credit is useful to society since it lets humanity even more efficiently allocate its good and labor (stored as money).

- Finally, stocks, insurance, and other financial instruments are additional advanced developments on top of credit, where groups of humans (companies) can take on even more risky endeavors supported by investors or insurers.

So my view is companies like Jane Street facilitate these complicated value transfers, to let (e.g.) a spaceship company draw on resources generated by growing crops, selling shoes, giving haircuts, etc via a convoluted path through stocks, ETFs, whatever.

Of course the whole point for a firm like Jane Street is to make money. To make money means they are competing with someone and that someone could be a loser depending on the scenario.

My own opinion, most folks don’t like market makers or folks who work in financial markets are simply not well informed. The efficient allocation of capital is a valuable service to humans in a capitalist society. People often forget how wide spreads were in the past and that humans were swallowing that margin up with little competition. Now market making is highly competitive and because of it investors both small and large benefit from it.