Tuesday, August 22, 2017


I always pick up a volume of Michael Lewis' special brand of financial crisis literature expecting a whole lot of anger, a whole lot of despair, and a whole lot of edification about just how messed up our System of the World* really is. As I've mentioned before, it's kind of a sickness of mine. I can't stop reading about it, but to no end other than to raise my blood pressure, it would seem, because what can I do about it? I'm not an investor and never will be. I've been a politician and don't ever want to do time in that barrel again. And since my arms and hands went to hell, I don't even write much anymore. But still, these books.

But then comes Flash Boys: A Wall Street Revolt, and what's special about it is all there after the colon in the title. For while of course this book lays out in gruesome detail yet another way in which the world of high finance is designed to screw over the little guy, right alongside its anatomy of a giant scam is the story of a handful of very smart and very strange guys who not only figured out how it all worked, but figured out a way to fix the problem and actually put their plan in motion and created a whole new stock exchange built on the principles of fairness to the investor.

The problem these Flash Boys tackled is the kind of thing that should make any decent person's blood boil: with the computerization of all of the world's stock markets came a myriad of opportunities to rig the game against not just the ordinary Joe Blow investor throwing a few thousand dollars around trying to get rich, but also against all of the even more ordinary Joe Blow workers whose pension funds are being thrown around Wall Street, too. And of course those opportunities were not overlooked.

It's all to do with High Frequency Traders (HFTs), many of whom invested ungodly amounts of money in high speed data connections to the stock markets and to investment banks' dark pools, and in computer server placement as physically close to the machines that actually run these as possible, because this allowed them to engage in front-running. When their software bots saw someone buying shares in a particular stock, they triggered other software bots to buy up all of that stock that was available in fractions of a second before the original schlub's order was fulfilled, and thus to drive the price of that stock up a little, and make the schlub pay more for the stock than he should have, to the slight profit of the HFT. Thousands and thousands of times a day. Meaning ungodly amounts of money was transferred from small time investors, hobbyists, pension funds, hedge funds, what have you, to these HFTs, making an incredibly handsome return on their ungodly investment in fiber optic cable, land easements, construction fees and server real estate. Yeah, I know. And it gets worse, because this was all made possible by some newish Securities and Exchange Commission (SEC) rulings. That were, of course, made by members who have worked in and later tend to go back to jobs in the big investment banks, etc. Foxes, henhouse....

But so, most of Lewis' books that I've read so far have been concerned chiefly with financial villains, and this book certainly felt like another one of those for quite a while. I was hunting up my pitchfork and rounding up some torch-bearers (this was before Charlottesville, OK?) and ready to go knocking on doors in New Jersey, if not Manhattan itself.

But that's not who Lewis' Flash Boys are. The Flash Boys are Brad Katsuyama, once an obscure employee of the Royal Bank of Canada, and the team he put together to figure out why his trades had suddenly become impossible, and then to try to figure out how big the scheme was, and lastly to design and build a stock market that leveled the playing field again. I could almost cheer them as heroes, but in doing so, I'd be celebrating something that in itself still makes me mad, because this is what regulators are supposed to do, except over the years we've cut back on regulators' power, numbers (as in staffing), scope and compensation, all assuring that the revolving door between the public and private sectors of Wall Street keeps spinning faster than Karl Marx does in his grave. How many Brad Katsuyamas has this world produced, this man who would rather figure out a problem and fix it than figure out a problem and profit handsomely from it?

At bottom, Flash Boys is a pretty good detective story, unraveling and explaining very well a very complex and bewildering scheme in a way that gave me a nice strong illusion that I sort of understand it now, but am still powerless to do anything about it except vaguely cheer for Katsuyama and continue to nurse a major hate-on for Wall Street, even as I know that most of what makes my life possible is inextricably tied to its machinations, for good or ill.


*To borrow Isaac Newton's phrase by way of Neal Stephenson.

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