Michael Lewis is out with a new book today.
Flash Boys: A Wall Street Revolt is about how Wall Street banks are using high frequency trades and various algorithms to make trades milliseconds ahead of the rest of the market. Sergey Aleynikov who was profiled by Lewis in Vanity Fair last fall is featured in the book, along with Brad Katsuyama, the founder of IEX, a new exchange with an interesting speed bump (60 km of cable) aimed at thwarting high frequency trading. Interestingly, the book seems to have been kept a secret until a day or two before its release.
More at International Busines Times:
The controversial practice, in which firms strategically locate servers and use sophisticated computer algorithms to accelerate transactions by mere microseconds — and thus reap huge profits — is the subject of a probe by New York Attorney General Eric Schneiderman. Last week, he announced an inquiry into how such traders have gained an unfair advantage in the timing of their trades by paying fees to exchanges such as the New York Stock Exchange and Nasdaq to locate their servers in the exchanges’ own data centers. “I have been focused on cracking down on fundamentally unfair – and potentially illegal – situations that give elite groups of traders early access to market-moving information at the expense of the rest of the market,” Schneiderman said in a speech. Several regulators, including the Securities and Exchange Commission and the Commodity Futures Trading Commission, are exploring new regulations of high-frequency trading to limit such abuses.
On 60 Minutes, Lewis say, Flash Boys is, “The story of trying to restore trust to to the financial markets.”
Michael Lewis looks at the case of Sergey Aleynikov, a brilliant computer programer who was sent to prison after sending himself some of Goldman Sachs proprietary code before leavinhttp://m.vanityfair.com/business/2013/09/michael-lewis-goldman-sachs-programmerg the company. Although the code he took was pretty much useless to him, and not usable at his next job, Goldman Sachs reported the crime to the FBI, and had him arrested and prosecuted. Because it seems as if no one prosecuting the case understood what it was about, Lewis convenes a panel of Wall St programmers to act as a jury.
“If Person A steals a bike from Person B, then Person A is riding a bike to school, and Person B is walking. A is better off at the expense of B. That is clear-cut and most people’s view of theft. In Serge’s case, think of being at a company for three years and you carry a spiral notebook and write everything down. Everything about your meetings, your ideas, products, sales, client meetings—it’s all written down in that notebook. You leave for your new job and take the notebook with you (as most people do). The contents of your notebook relate to your history at the prior company, but have very little relevance to your new job. You may never look at it again. Maybe there are some ideas or templates or thoughts you can draw on. But that notebook is related to your prior job, and you will start a new notebook at your new job which will make the old one irrelevant. . . . For programmers their code is their spiral notebook. [It enables them] to remember what they worked on—but it has very little relevance to what they will build next. . . . He took a spiral notebook that had very little relevance outside of Goldman Sachs.”
The real mystery, to the insiders, wasn’t why Serge had done what he had done. It was why Goldman Sachs had done what it had done. Why on earth call the F.B.I.? Why coach your employees to say what they need to say on a witness stand to maximize the possibility of sending him to prison? Why exploit the ignorance of both the general public and the legal system about complex financial matters to punish this one little guy? Why must the spider always eat the fly?
And I’m still waiting for Liars’ Poker to be made into a movie.
Michael Lewis gave the graduation speech at Princeton this spring and discussed luck.
The book I wrote was called “Liarâ€™s Poker.” It sold a million copies. I was 28 years old. I had a career, a little fame, a small fortune and a new life narrative. All of a sudden people were telling me I was born to be a writer. This was absurd. Even I could see there was another, truer narrative, with luck as its theme. What were the odds of being seated at that dinner next to that Salomon Brothers lady? Of landing inside the best Wall Street firm from which to write the story of an age? Of landing in the seat with the best view of the business? Of having parents who didn’t disinherit me but instead sighed and said “do it if you must?” Of having had that sense of must kindled inside me by a professor of art history at Princeton? Of having been let into Princeton in the first place?
This isn’t just false humility. It’s false humility with a point. My case illustrates how success is always rationalized. People really donâ€™t like to hear success explained away as luck â€” especially successful people. As they age, and succeed, people feel their success was somehow inevitable. They don’t want to acknowledge the role played by accident in their lives. There is a reason for this: the world does not want to acknowledge it either.
I’ve read similar thoughts to that second paragraph before. People who are successful want to believe they’re special. Sometimes they are, but often they’re just lucky.
Michael Lewis’s latest chapter length depresso is about California and how many of the cities there are pretty royally fucked because of pension promises that will begin to come due very soon, and in some cases have already begun to cause problems. One thing I learned, the states won’t ever have to bust their budgets because they can force more and more costs on to the cities. (I guess counties can do this, too, because this is exactly what happened in Topeka yesterday, where the city council voted to decriminalize domestic battery in order to force the county district attorney to start trying these cases again. He stopped last month citing budget concerns.) Anyway, we’re screwed, so here’s Lewis talking about a bike ride he took with Schwarzenegger.
He hauls a bike off the back of the car, hops on, and takes off down an already busy Ocean Avenue. He wears no bike helmet, runs red lights, and rips past do not enter signs without seeming to notice them and up one-way streets the wrong way. When he wants to cross three lanes of fast traffic he doesnâ€™t so much as glance over his shoulder but just sticks out his hand and follows it, assuming that whatever is behind him will stop. His bike has at least 10 speeds, but he has just 2: zero and pedaling as fast as he can. Inside half a mile heâ€™s moving fast enough that wind-induced tears course down his cheeks.
Heâ€™s got to be one of the worldâ€™s most recognizable people, but he doesnâ€™t appear to worry that anyone will recognize him, and no one does. It may be that people who get out of bed at dawn to jog and Rollerblade and racewalk are too interested in what they are doing to break their trance. Or it may be that heâ€™s taking them by surprise. He has no entourage, not even a bodyguard. His former economic adviser, David Crane, and his media adviser, Adam Mendelsohn, who came along for the ride just because it sounded fun, are now somewhere far behind him. Anyone paying attention would think, That guy might look like Arnold, but it canâ€™t possibly be Arnold, because Arnold would never be out alone on a bike at seven in the morning, trying to commit suicide. It isnâ€™t until he is forced to stop at a red light that he makes meaningful contact with the public. A woman pushing a baby stroller and talking on a cell phone crosses the street right in front of him and does a double take. â€œOh . . . my . . . God,â€ she gasps into her phone. â€œItâ€™s Bill Clinton!â€ Sheâ€™s not 10 feet away, but she keeps talking to the phone, as if the man were unreal. â€œIâ€™m here with Bill Clinton.â€
As a bonus, here’s a profile of Lewis from NY Mag.
Michael Lewis is finally writing a screenplay for Liar’s Poker. Finally. I’ve only been clamoring for it for two and a half years. “John Requa and Glenn Ficarra of Crazy, Stupid, Love will direct“. Liar’s Poker tells the story of Lewis’ time as a bond salesman at Salomon Brothers, the firm that pretty much created mortgage bonds. The leveraging of which, you might remember, were at least partly responsible for our current economic troubles. Why wasn’t this movie made 2 years ago?
I went through my archives to see how many times I talked about them making this movie. 9 times. 9 times since February, 2009 I’ve wondered why the movie hadn’t been made. 1, 2, 3, 4, 5, 6, 7, 8, 9. Now what am I going to write about?
In Nature’s Casino is a Michael Lewis article from the NY Times Magazine in 2007 nominally about hurricane insurance, but also about making money in chaotic and hard to predict markets. It’s fitting today, with Irene fever gripping the East Coast. I’m pretty sure I posted this already.
But there was an exception: an American so improbably prepared for the havoc Tropical Depression 12 was about to wreak that he might as well have planned it. His name was John Seo, he was 39 years old and he ran a hedge fund in Westport, Conn., whose chief purpose was to persuade investors to think about catastrophe in the same peculiar way that he did. He had invested nearly a billion dollars of other peopleâ€™s money in buying what are known as â€œcat bonds.â€ The buyer of a catastrophe bond is effectively selling catastrophe insurance. He puts down his money and will lose it all if some specified bad thing happens within a predetermined number of years: a big hurricane hitting Miami, say, or some insurance company losing more than $1 billion on any single natural disaster. In exchange, the cat-bond seller â€” an insurance company looking to insure itself against extreme losses â€” pays the buyer a high rate of interest.
The article is fascinating. Load it up on your iPad now so you can read it by battery when your power goes out on Sunday.
Here’s a bonus Lewis column from 2005 I found while looking for the above. It was written a couple months after Katrina and talks about how someone was about to make a buttload of money in New Orleans.