Exactly. I believe that HFTs are not just unfair but do not allow the market to fulfill it's basic premise as effectively.
The market is supposed to be fair and a level playing field for all those who can afford to buy stock, but the HFTs tilt the odds in favor of the select few.
When the odds are tilted in favour of a select few, it becomes a problem for all. The bond markets are far less regulated, thereby allowing Wall Street to profit massively from confusion and a lack of regulation - Wall Street makes most of it's profits on the bond market. The result is that insane toxic assets get sold, all because the industry can supposedly self-regulate. Result: global catastrophe. (See "The Big Short" by Michael Lewis for a great read on how Wall Street caused the financial crash of 2008).
You say that it is essential to crack down on high-frequency trading. On what grounds? The markets function because these firms provide liquidity. If you want to see what happens when these firms stop providing liquidity, you can look at the flash crash. To crack down on the industry in the ways being proposed would have the exact opposite effect that the regulators are looking for. Spreads would widen. Volatility would increase. Volume would severely drop. Congress has no idea that they are legislating the next financial crisis into existence.
Oh right, I totally forgot there was no liquidity in the markets before HFT came along. How silly of me.
The flash crash was exacerbated by HFT, not caused by the absence of it.
Congress doesn't have to outlaw HFT, but it does have to outlaw HFT order limit probing. Though it would probably not hurt to completely unplug HFT anyway.
There is zero net benefit to the markets from it, and there will be plenty of trading and liquidity without it (just as there was before it). Arguably even more, as funds that now resort to dark pools return to the open markets.
Volatility spikes would still exist (always have always will), but HFT exacerbates them, lack of HFT mitigates them.
The problem with HFT is that it is not a productive enterprise. It does not take raw materials like copper and sand, and apply labor, capital, and innvotation to turn them into products worth more than the sum of their inputs, creating real wealth. It doesn't mine or farm those raw materials. It doesn't even provide a specialized service that saves people time/money.
All it does is skim off the top of the global capital flow, increasing the cost of that capital to everyone else, particularly to the productive enterprises mentioned above. It is parasitic, and gives nothing back, despite the 'story' Wall Street has created to justify it.
I never said there was no liquidity in the markets before HFT came along. I was making the argument that there is much more liquidity because of high-frequency trading. As a result of this much more liquidity, the markets are more efficient. If your only concept of a productive enterprise, however, is one that produces material goods, then there is no point in having this conversation. I do have one response to your sentence:
It doesn't even provide a specialized service that saves people time/money.
You are so far from reality here. Do you understand what the futures markets are for? Do you understand that there are a whole class of speculators, among them are HFT firms, that stand ready to do business with a farmer growing corn, a gold miner mining metal, a cattle producer with cattle to go to the market, etc? By providing liquidity, the farmer can focus on farming, the miner can focus on mining, and the cattle rancher can focus on ranching (whatever they call it) instead of worrying about what they may sell their raw goods at in the market four, five, or six months from now. So, no, I am not out in the fields digging up copper and sand, but I, and others in the industry, make it possible for those that do those things to focus on doing those things. If I figure out a way to make some extra money by using mathematics and computer science, then so be it.
Participants getting exploited withdraw and find other ways of getting what they need, most recently through dark pools.
Crucial liquidity diminishes, and eventually all that's left are the crooks. The suckers are broke and honest non-suckers are gone.
If you want functioning capital markets, you have to regulate and crack down on stuff like this.