It's unhealthy that market makers with obligations toward the market are being displaced by these HFT parasites that appear to serve the same function—except when they don't, as during the flash crash.
And the market wouldn't be materially less efficient. The reason to have a market is to allocate resources towards effective producers by pricing them properly. Well, "no human could react quickly enough to buy the stock in New York and sell it in London before the prices reversed" means we know the market would inevitably correct that price even without the presence of that HFT. We are rewarding overinvestment in reaching price equilibria faster, when it already takes less time than it will for a producer to make any use of the money.
Flash crashes aren't an inherent part of HFT, they're generally caused by buggy software. Computer caused crashes have happened long before HFT became popular, and so for that matter have human caused crashes ("fat-finger crashes").
IMO. The main problem is that exchanges can't afford talented developers, they simply don't have the money to compete with the banks and hedge funds. Most exchanges have stop signals (i.e. a message they can broadcast that can stop computer trading, etc.) but often they fail to use them. Exchanges should be implementing algos to better detect abnormal behaviour (whether by human or computer) and prevent flash crashes before they happen.
And the market wouldn't be materially less efficient. The reason to have a market is to allocate resources towards effective producers by pricing them properly. Well, "no human could react quickly enough to buy the stock in New York and sell it in London before the prices reversed" means we know the market would inevitably correct that price even without the presence of that HFT. We are rewarding overinvestment in reaching price equilibria faster, when it already takes less time than it will for a producer to make any use of the money.