Wednesday, April 23, 2014
Book Review: Flash Boys by Michael Lewis
Author: Michael Lewis
Enjoyment Rating: ***
Content Alert: swearing, and possible outrage at the things Wall Street insiders will do to make a billion bucks off the backs of unsuspecting investors
Remember how, back in the day, you'd see pictures of traders on Wall Street, and they'd be wearing brightly covered jackets and waving their hands in the air, and the whole room they stood in was filled with little bits of paper? Well, that's not how it's done any more. Like everything else in the world, stock trading has become computerized and automated. Remember the housing bubble? Remember how people got loans they had no business getting and those loans were chopped up and sold to lots of investors who stood to make a whole lot of money off of them? Remember how you felt scammed when you found out about it? Well, there's also been a scam running in the stock market for the last half decade. When automized trades took over, there was often a second or a half a second of lag time between when the traders placed the order to buy and when the sale actually took place. High-frequency traders, capitalizing on their faster connections (and we're talking nanoseconds and microseconds here) have swooped in, and inserted themselves in the middle of a transaction. So you might want to buy a stock for $30.50 and you find that you actually bought it for $30.51. No big deal, right? It's just a penny, but high-frequency traders are making billions of dollars off of their scheme (which reminds me of the time when I tried to buy tickets for a Taylor Swift concert using 3G on my phone and ended up way high up on the balcony even though I put in my ticket request seconds after they opened up for sale, since scalpers were sitting at their computers doing the exact same thing, and to get the tickets I really wanted, I would have had to pay Ticketmaster AND the scalpers).
Anyway, Michael Lewis focuses on a band of geeks, more "Head of the Class" than Wall Street, who band together to bring down high-frequency traders. I read this book solely because it was written by Michael Lewis, who could probably make a book about changing diapers seem interesting. And he does a wonderful job explaining to lay readers about techie kinds of issues that the vast majority of players on Wall Street didn't understand themselves. It's not quite as compelling as a story about a poor orphaned kid who's adopted by a rich white family and then goes on the play in the NFL, but it is a pretty entertaining tale nonetheless.