There is a very good reason that I work in a library and am not in business or finance. For one, it doesn’t pique my interest – I’m sure there’s a lot of cool things that can be done, and that are happening, but it’s all sort of a beige blur in my mind. Secondly, a lot of business and finance is competitive, and while I am a competitive person, I like to win, and since I’m pretty sure any time I would lose out would end in tears, it wouldn’t be great. Finally, I don’t have the cutthroat attitude that is occasionally required to be an active and productive participant in that world.
The boy on the other hand…he loves that stuff. And I love him, so I occasionally try to learn more about it. I watched The Big Short with him. And Billions. He keeps trying to get me to read Liar’s Poker, which is apparently the book that is assigned to finance guys in college and gets them hooked. But when another Michael Lewis book came up as available on my Overdrive list, I immediately jumped on it.
If you’ve read or seen “The Big Short”, or were paying close attention circa 2009/2010, you have an idea of what happened to cause the financial crisis. “Flash Boys” tells the story of guys at big banks and small firms playing an entirely different sort of game at a parallel time, a game to me that appears to have a still unresolved outcome. The game is this – there are multiple markets where brokers can make their trades. The prices of a particular stock at any market are usually the same, but when something happens in one market, it’s prices can shift incrementally seconds before the other markets have a chance to adjust. There is a group of traders who try to take advantage of this shift and the breath of time that it takes for the prices to readjust in order to make money. These guys are known as High-Frequency Traders (HFT) or Flash traders, since they are working in enormous amounts of trades that happen very frequently, but only exist in the market for a moment (or flash) before they are snapped up again. The idea is that if these guys can take advantage of price discrepancies by being the fastest one to the table, they don’t actually have to have a constant footing in the market, and can instead buy only when they see an opportunity to sell, and thus cause the number of trades in the market to exponentiate, and returns for the everyday consumers/investors/retirees go down a lot.
Basically, these guys made me feel the angry-face emoji the entire time I read the book.
Thankfully, we’ve got some “good guys” in this book who are worth rooting for. Brad Katsuyama worked for RBC (the Royal Bank of Canada) in trading, and discovered that when he tried to place trades, the market would shift just as he pressed the enter button, making his trades worse. He began working with people who had been associated with HFT, and tried to find ways to combat its effects, eventually coming up with an algorithm that he and his business partners would use when they left RBC to found IEX, a stock exchange based on fairness that did it’s best to counteract the effects of HFT.
Are you tired of acronyms? I know I am. The point is, that this is a book that can make even the most financial-acronym-averse among us interested and engaged in a system. Michael Lewis has this gift with his books of taking a dry and deadly dull topic (much of finance, baseball statistics, etc.) and explaining it in such detail, and using sympathetic and/or engaging characters to explain it that we feel invested in things like the ability of a market to delay all trades so that no trade has a jump on any of the others. It’s the kind of book that makes me root for a very specific kid of stock broker and finance guy…something I never thought I would say. And it’s refreshing to see that even though these guys are doing their job of trying to make money, some of them are actually on the side of investors and trying to make money for them instead of merely screwing the millions of little guys over so that they can make money for the bank they work for instead.
Have I piqued your interest at all? Is this mysterious and occasionally shady world of high-finance now only foggy, and you’d like a look in to see what’s happening? Then for you, I cannot recommend the book enough. If reading my review and its many acronyms, and the idea of any sympathetic banker is something you have a hard time believing, then I would still recommend the book to you because it’s possible. We forget sometimes that the market was not initially built so that the largest corporations could make money, but so that investors could be a part of the success (or failure) of businesses. A book that explains a group of finance guys trying to get back to that is one you might find as appealing as I did.
Details: Flash Boys by Michael Lewis, published 2014 by W. W. Norton & Company