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Michael Lewis Talks About Flash Boys

By    |   Thursday, 03 Jul 2014 07:52 AM

This page has run articles on three congressional hearings — two in the Senate and one in the House — that have surfed the wave of publicity surrounding the release of the most recent book by Michael Lewis, Flash Boys: A Wall Street Revolt. C-SPAN's BookTV aired an interview Lewis did at the Apex Theater in Glendale, Calif., with Malcolm Gladwell, author of a number of provocative books himself.

To provide context for the presentation, it may be helpful to return to the dogma and catechism of the securities industry and note that Rep. Carolyn Maloney, D-N.Y., who represents Wall Street, is fond of saying, as if it were revealed truth and with no apparent sense of irony, that "markets run on confidence more than capital." One is reminded of a morsel of wisdom from an unlikely source, a bit player from The Sopranos: "There's no swindle without a narrative."

Gladwell advanced his theory that Lewis' books have biblical themes, but Lewis responded that he was influenced by growing up in New Orleans, which is a different culture from the rest of America and a failed one, where people are more interested in family relationships than how one makes a living. Lewis told of a family motto he said has been handed down through generations: Do as little as possible, . . . for it is better to receive a slight reprimand than to do something onerous.

Lewis said he is lazy enough to favor stories that tell themselves. He added that it was nearly impossible to explain what a collateralized debt obligation (CDO) is, so he tried to fool people into thinking they understood it and didn't want to know any more.

Lewis drew a clear distinction between himself and those who think artists should be tortured, miserable and poor. He also noted that luck is important, and he recalled that when he spoke to Princeton graduates at a commencement, he tried to impress on them that the elite owed a debt to those less fortunate. He joked about the fact that he not only did not remember anything from his own commencement at Princeton, but also did not remember attending the ceremony at all.

When the authors finally got around to talking about Flash Boys, Lewis said he was struck by the irony that a Russian kid, Sergey Aleynikov, had copied code for high-frequency trading while working for Goldman Sachs, which managed to get him arrested, because the code could be used to cause a financial crisis if it fell into the wrong hands — as though Goldman was the right hands!

Lewis mused that he never knows what kind of book he has written until he sees the reaction from the audience. He said Blind Side did relatively poorly, because it was perceived as a football book, and people who like football don't like to read. He stated he was a bit taken aback by the number of students who received Liar's Poker as a manual for a career on Wall Street.

Compared with his other books, Lewis sees the reaction to Flash Boys as "explosive." He told the audience that the securities industry realizes that the game is almost over, because with the establishment of the IEX exchange and the growing demand of investors that their order be routed to it, the banks will lose the opportunity to tax investors by front-running their trades.

He told of a former Securities and Exchange Commission (SEC) employee who observed that 200 former SEC staffers had gone to work for high-frequency traders and the lobbyists who represent them. The good news, he noted, is that the achievement of a fairer market does not require any regulatory or congressional action. Lewis looks forward to what he sees as "a war over the role of the financial sector in our lives."

(Archived video can be found here.)

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Robert-Feinberg
This page has run articles on three congressional hearings regarding the most recent book by Michael Lewis, Flash Boys: A Wall Street Revolt. C-SPAN's BookTV aired an interview Lewis did with Malcolm Gladwell, author of a number of provocative books himself.
Lewis, flash, boys, trading
644
2014-52-03
Thursday, 03 Jul 2014 07:52 AM
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