Before HFT, to execute a block trade, your only option was to go to a specialised liquidity provider a.k.a your friendly local investment bank - the CC company in your analogy - , who would take a huge spread - the 3%-5% drain on the economy that you mentioned - in exchange for taking that liquidity risk.
Now, with HFT, the increased speed of markets has democratised liquidity provision. There is a corresponding larger supply of liquidity in the markets, and so spreads have come down - very significantly.
The aggregate affect - it is now cheaper to trade on stock exchanges. What does this mean? When your 401(k), pension fund, mutual fund, etc. rebalances, it doesn't lose 3% of your money to an investment bank. It loses ~0.01%-0.05% (1-5bp) of your money as a transaction cost (earned by HFT firms as compensation for taking on the liquidity risk), and thus you keep more of your money.
It's easy to say that HFT's provide 'no benefit to anyone but themselves' without any understanding of the historical context, but once you do, it's hard to see it in such black and white terms.
Full disclosure - I was an algo trader in a previous life.
Ok, this seems plausible, however, I am skeptical. Do you have any data or studies proving out these theories, including data that would give credence to the idea that the $ taken out of the market now due to HFT is less than that taken out by old fashioned liquidity providers?
Before HFT, to execute a block trade, your only option was to go to a specialised liquidity provider a.k.a your friendly local investment bank - the CC company in your analogy - , who would take a huge spread - the 3%-5% drain on the economy that you mentioned - in exchange for taking that liquidity risk.
Now, with HFT, the increased speed of markets has democratised liquidity provision. There is a corresponding larger supply of liquidity in the markets, and so spreads have come down - very significantly.
The aggregate affect - it is now cheaper to trade on stock exchanges. What does this mean? When your 401(k), pension fund, mutual fund, etc. rebalances, it doesn't lose 3% of your money to an investment bank. It loses ~0.01%-0.05% (1-5bp) of your money as a transaction cost (earned by HFT firms as compensation for taking on the liquidity risk), and thus you keep more of your money.
It's easy to say that HFT's provide 'no benefit to anyone but themselves' without any understanding of the historical context, but once you do, it's hard to see it in such black and white terms.
Full disclosure - I was an algo trader in a previous life.