On April 1st, 2014, trading on the New York Stock Exchange totally stopped for about 15 minutes while an epic debate on CNBC unfolded. Now, to be fair, trading slows for several reasons, including the Olympics and college basketball finals, but this may be the first time that an interview caught everyone’s attention so completely. The topic was high-frequency trading, also known as HFT, which doesn’t sound that interesting, but for what had happened the day before: Michael Lewis had published a book.
That doesn’t sound like such a momentous occasion, but Wall Street had heard rumours about it. They’d been braced for this book like soldiers braced against artillery fire. Interns were sent to the bookstore instead of the Starbucks to buy a copy. The contents were every bit as damaging as they’d feared.
Michael Lewis has a talent for finding a human story that’s wonderfully readable in complex and technical subjects. Sports fans may remember Moneyball and The Blind Side, the latter of which was turned into an Academy award-winning movie with Sandra Bullock (both of which are really good reads, even if you don’t like sports). But he got his start as a journalist writing about the largest frat culture in America, the financial world and Wall Street.
Liar’s Poker is his first book. It’s Michael Lewis’s account of how he found his way onto Salomon Brothers’ trading floor as a bond salesman and the infantile culture of Wall Street in the 80s. It even manages to make the technicalities of the savings and loan scandal interesting, by focusing on the human element. Reading this book, you get this picture that’s not at all flattering to Wall Street in the 80s, where traders are infantile at best and crooks at worst. They take advantage of unwitting bank managers and clients to make a buck, were unrelentingly cruel, crass, and immature, and do their best to become BSDs (big swinging dicks). Reading Lewis’s book is like watching a sausage being made: fascinating yet disgusting, intimate yet off-putting, and most of all, you wish you hadn’t seen it so you could still believe in the final product.
Or so you would think. In a forward to a later addition, Michael Lewis accounts his horror and astonishment at several students writing to him about their admiration for Wall Street and its crazy culture. They wanted to be part of it, the crassness, the arrogance, the immorality, that they’d somehow glamorized in their minds. Personally, I share that horror, but not the astonishment. After all, who doesn’t want incredible amounts of money and the impunity to say fuck all the time?
Lewis returns to the theme of unscrupulous traders on Wall Street in The Big Short, a chronicle of the 2008 financial crisis. It again takes something very complicated (why mortgage-backed securities caused financial institutions to sell loans to people who couldn’t afford them, and why very few people saw the crash coming) by following the human threads in this story. Again, Lewis does not show Wall Street in a complementary light, but his narrative is more about human foibles and triumphs than it is about simple good and evil. It’s a good read if you want to understand what happened in 2008, but don’t have the background or the patience to suffer through a lot of technical jargon.
His latest book, Flash Boys, that rocked Wall Street in April, does follow a more good-or-evil narrative. It’s not about a crisis, or crash, or anything that the general public would have noticed. Instead, the heroes of the book are Canadian traders who fight against villainous high-speed trading firm, who make their money practically risk-free by exploiting their knowledge of what large, institutional clients are buying. Now, of course that’s a bit of a simplification, but that’s the gist of it. Lewis makes it personal by essentially telling all Americans, or at least the ones that read his book, that the game is rigged: they, and the institutions who invest their savings and retirements for them, are being preyed on by these vultures.
Flash Boys is unlike The Big Short because it’s not about a crisis we the public recognize. But it is a message we take to heart: that we, ordinary citizens, are being robbed. This message is even more powerful because this is Michael Lewis writing about it. He can make it personal like nobody else can. The public will listen to him.
So Wall Street was braced, and it got hit by a monster PR blow. So, in order to salvage its reputation, a firm that specialized in high-frequency trading agreed to a debate with Lewis himself and the hero of the book, Brad Katsuyama, to try and refute some of Lewis’s claims. It did not go according to plan.
You can check out the debate here, but I’ll spoil it for you: the guy representing the high-frequency trading firm shoots himself in the foot. It wasn’t because Lewis or Katsuyama were especially brilliant speakers, but because this guy was just such a bad debater. He made an ass of himself, and by extension his company (who fired him afterwards), by sounding like the child who stands over broken vase and stomps his foot to insist that it wasn’t his fault.
This wasn’t the only debate that Flash Boys ignited. The the FBI and New York Atty. Gen. Eric Schneiderman have both announced investigations into market manipulation, front-running, and insider trading shortly after the book was released. The SEC fined the New York Stock Exchange $4.5 million on charges relating to the book. We still don’t have the results of the FBI investigation or Mr. Schneiderman’s investigations: whether or not this makes a difference in the world of investing, however, is still to be seen.
Still, Wall Street should be wary of Mr. Lewis. His talent for characterization and storytelling has painted many financial institutions in unflattering colours. While his books are never a simple condemnation, nor character assassination, he’s managed to do what many people would’ve considered impossible: get the people of America to care about Wall Street before they’ve lost their money.