Why, between the dark pools and the public exchanges, were there nearly sixty different places, most of them in New Jersey, where you could buy any listed stock? Why did the public exchanges fiddle with their own pricing so often—and why did you get paid by one exchange to do exactly the same thing for which another exchange might charge you?

The SEC staffer argued that it was unfair that high-frequency traders couldn’t post phony bids and offers on the exchanges to extract information from actual investors without running the risk of having to stand by them.

The U.S. stock market was now a class system, rooted in speed, of haves and have-nots. The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all. What had once been the world’s most public, most democratic, financial market had become, in spirit, something like a private viewing of a stolen work of art.

the dangerous practice of stock-jobbing, and would divert the genius of the nation from trade and industry. It would hold out a dangerous lure to decoy the unwary to their ruin, by making them part with the earnings of their labour for a prospect of imaginary wealth. The great principle of the project was an evil of first-rate magnitude; it was to raise artificially the value of the stock, by exciting and keeping up a general infatuation, and by promising dividends out of funds which could never be adequate to the purpose.

I’m convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.

A prison is perhaps the easiest place to see the power of bad incentives. And yet in many walks of life, we find otherwise normal men and women caught in the same trap and busily making the world much less good than it could be. Elected officials ignore long-term problems because they must pander to the short-term interests of voters. People working for insurance companies rely on technicalities to deny desperately ill patients the care they need. CEOs and investment bankers run extraordinary risks — both for their businesses and for the economy as a whole — because they reap the rewards of success without suffering the penalties of failure. District attorneys continue to prosecute people they know to be innocent because their careers depend on winning cases. Our government fights a war on drugs that creates the very problem of black-market profits and violence that it pretends to solve. We need systems that are wiser than we are. We need institutions and cultural norms that make us more honest and ethical than we tend to be. The project of building them is distinct from — and, in my view, even more important than — an individual’s refining his personal ethical code.

If financial markets aren't efficient, then what are they? According to the 'fractal market hypothesis', they are highly unstable dynamic systems that generate stock prices which appear random, but behind which lie deterministic patterns.

[I]t is not speculation, leads and lags, and the rest which cause the trouble. It is their impact against fixed exchange rates. With a floating exchange rate, speculation is not only harmless; it actually does its work, of moving the rate to correspond accurately with the net total of all anticipations. Speculation only becomes harmful, it can only do baleful work, when it is confronted with a blatantly false assertion made and attempted to be sustained by Governments in terms of a fixed parity... [I]n a world of economic change and in a world where the major monetary powers are likely for a long time to come to be pursuing their own different policies, the nearest approach to stability we can have is by allowing those changes to be reflected in rates which are free to move. We ought now, at last, to abandon the illusion that we can call change to a halt and live in a world of our own pretence, and instead to provide, by a sensitive and continuous recognition of changing reality, at least that stability which is available.

Finance came to be viewed as a productive activity itself rather than a means to promote production. The public was no longer buying stock to invest in enterprises that would pay dividends over time, but merely because one could get rich from buying and selling stocks. As more people bought in, stock prices climbed still higher—a dangerous positive feedback loop.

He now suspected that every human being who knew how high-frequency traders made money was making too much money doing it to stop and explain what was going on.

Faith in natural order and market efficiency forecloses a full normative assessment of market outcomes. ... It effectively depoliticizes the market itself and its outcomes. It is only when the illusion of natural order is lifted that a real problem arises: that of the justice of the organizational rules and their distributional consequences.

We need a moderately-priced stock market… The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do. For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.

Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run orders from one market to another.

The relationship of the big Wall Street banks to the high frequency traders, when you think about it, was a bit like the relationship of the entire society to the big Wall Street banks. When things went well, the HFT guys took most of the gains; when things went badly, the HFT guys vanished and the banks took the losses.