12 ms·

Michael Lewis: The Scourge of Wall Street

62 points by pmcpinto 11y ago

tonydiv 11y ago
For those curious about the speech Lewis gave at Princeton referenced in the article, here it is: https://www.youtube.com/watch?v=CiQ_T5C3hIM https://www.youtube.com/watch?v=CiQ_T5C3hIM https://www.princeton.edu/main/news/archive/S33/87/54K53/ https://www.princeton.edu/main/news/archive/S33/87/54K53/ It's one of the most memorable speeches I've ever heard or read. A personal favorite.
- rpgmaker 11y ago
  It's very good indeed, it was particularly tailored to privileged young people but it can apply to anyone really.
sharkweek 11y ago
Every Lewis book I've read has been great. He does a fantastic job exposing any number of things that are likely desired to be kept secret. Also does a great job making things understandable, while not dumbing it down too much to the point of inaccurate. "The Great HFT Debate" is a must-watch, following the release of 'Flashboys' just seeing how defensive the market players got. https://www.youtube.com/watch?v=RcpmHyPD_PY https://www.youtube.com/watch?v=RcpmHyPD_PY
- kasey_junk 11y ago
  I'm a (or at least was) a huge Michael Lewis fan. Until he wrote a book about the industry I was in (HFT). Regardless of where you stand on HFT, Flashboys does a very bad job explaining the technical aspects that are occurring. Further it presents a completely 1 sided look at the industry, without ever quoting someone knowledgeable about the technical aspects. I don't dislike Flashboys because of its conclusions, I dislike it because of its inaccuracy. It called inot question every other book of his. Which was really disappointing as I had enjoyed them all so much.
  - deleted 11y ago
    [deleted]
  - sharkweek 11y ago
    This is super interesting to me - got any resources of people counter-pointing Lewis's writing? Would love to dive in a little deeper.
    - kasey_junk 11y ago
      http://kc.my-junk.info/hft-books/ http://kc.my-junk.info/hft-books/ ^^ a blog post where I collect this stuff as I answer this question so often.
      - toddmatthews 11y ago
        but you don't really give any specific counter points. if Flash Boys is dreadful, i would think you would have specific points to counter it
        tptacek 11y ago
        If there was a way you could have worded this comment without implying that Kasey was just making things up, it would have been a better comment. As it stands, I think you can take the time to use the search bar at the bottom of the page to find what he's written about the book on the site before.
        toddmatthews 11y ago
        in no way was i implying he was "making things up" but he has said that Flash Boys did a "bad job of explaining HFT" and on that website he links to it says its "dreadful". He also says he "answers this question so often" he made that site. but the site just lists books, but doesn't really answer any questions. Just pointing to other peoples books is not really answering a question. and i think if Flash Boys is "dreadful" he could point to a few concrete examples
- L-Logic 11y ago
  Agreed, his books are good. People should also watch the movie "The Big Short."
- andylei 11y ago
  its weird that in every industry where computers replace people, HN considers it progress, but when its making securities markets, its a scam.
  - wpietri 11y ago
    Back in the day I worked for financial traders on early automated trading systems, and I think your summary is fantastically poor. First, people have long had questions about the societal effects and costs of trading, even when humans did it. Second, the automation of trading isn't merely replicating what humans do at a lower cost. I'd call it a fundamentally different activity. Third, one of the things that has become more and more attenuated is any sense of moral responsibility. Traders were never known for attacks of the warm fuzzies, but algorithms not only don't give a shit about how the affect humans, they can't. And fourth, instead of saving everybody money, finance eats up an ever-increasing share of the economy, and I think automation is part of that. Automation isn't universally good. Sometimes it makes things better, sometimes worse. As technologists our job isn't just to automate everything. It's to use our professional skills and experience to improve the world, to improve human lives.
    - oldmanjay 11y ago
      How does one eat a share of the economy? Do I have to assume it to be zero sum for the concept to be clear?
      - wpietri 11y ago
        You don't have to assume zero sum in general. Just that some interactions can be zero or negative sum. The simple example is monopoly rents: monopolists can increase their share of total profits without increasing value delivered. By a lot of measures, the financial industry captures a lot more money than they did in previous decades. But it's far from clear that they're delivering a lot more value, and given that computers have drastically reduced their costs, it's reasonable to expect them to be smaller, not larger. As a start, this has some good graphs: http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance.html http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance... And here are a couple more general-audience articles: http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-the-day-us-financial-profits/ http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-th... http://blogs.wsj.com/economics/2011/12/10/number-of-the-week-finances-share-of-economy-continues-to-grow/ http://blogs.wsj.com/economics/2011/12/10/number-of-the-week...
larry_n 11y ago
Nice article!
cconcepts 11y ago
After reading The Big Short and discussing its contents with people who know a lot more about the financial industry than I do, I was surprised to find how much the book stood up under their scrutiny. So many popular books seem to lead me down a deceptive rabbit-hole of semi truths and poetic license given for the sake of sensationalism whereas Michael Lewis just seems to have a knack for telling the facts as a compelling story. Also, this quote from the article struck a chord with a lot of the internal dialogue I have about doing what I know is important as opposed to doing what is profitable: >> "They had been so transformed by the rates of pay and the needs it had created in them, they couldn’t escape from it. “
- elecengin 11y ago
  I have found the exact opposite with Flash Boys (and, to a certain extent, with Big Short - although that is less my area of expertise) If you have read Flash Boys and you are interested in the other side of the story I suggest reading a very well edited point-by-point rebuttal: http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F...
  - BookmarkSaver 11y ago
    I've had a couple people who work in high frequency trading say that Flash Boys is extremely inaccurate, but they still recommend The Big Short. I've not really heard anything significantly negative about TBS though I'm sure there are probably disputed opinions about it out there. And while the character narratives in TBS could be entirely fabricated (I mean, I'm sure they aren't totally false), the underlying issues and events line up with my previous understanding of the crisis.
    - remarkEon 11y ago
      My father worked at one of the Hedge Funds referenced in The Big Short for about 15 years, and was there during the collapse. I've talked to him ad nauseam about these books and the only one he didn't like was Flash Boys, but calls The Big Short "sort of scary" in how accurate it was. In reference to Flash Boys he said that the technical aspects of how HFT works were so poorly illustrated that he couldn't really take the book serious and felt that it would limit his ability to further consider future Michael Lewis books. Wish I understood more of that, but his point was, I think, that it's not as nefarious as it's often made out to be.
elchief 11y ago
"Chicken Lickens"? I'm going to assume the author means Chicken Littles. Or is that a British thing?
- deleted 11y ago
  [deleted]
- markdown 11y ago
  > Or is that a British thing? An everywhere outside USA thing.
  - elchief 11y ago
    It's Chicken Little in Canada too. I've never heard it being called Chicken Licken, even by my Scottish mother.
    - markdown 11y ago
      Perhaps a lot of your story books were imported from south of the border, or published by subsidiaries of US companies.
  - Terr_ 11y ago
    That implies popularity, but I've never heard of any of the alliterative characters mentioned in Wikipedia: > In 1849, a "very different" English version was published under the title "The Story of Chicken-Licken" by Joseph Orchard Halliwell.[15] In this Chicken-licken was startled when "an acorn fell on her bald pate" and encounters the characters Hen-len, Cock-lock, Duck-luck, Drake-lake, Goose-loose, Gander-lander, Turkey-lurkey and Fox-lox.
    - selimthegrim 11y ago
      I (American) have heard of Chicken Licken and all the other alliterative ones, but I blame my mother having grown up in a former British colony.
    - 11y ago
tptacek 11y ago
I liked The Big Short a lot, but Flash Boys was so bad that I found myself wondering how trustworthy The Big Short was. You can see part of what's problematic about the latter book just from this Guardian summary of it. The summary would have us believe that HFT is a trick employed by giant Wall Street banks to screw over smaller players. But Katsuyama, the protagonist of Lewis' book, was a big-bank trader, paid exorbitant amounts of money to tax large block orders by pension and hedge funds, and outraged by his inability to compete with algorithms that were bidding that tax down. I'm uncomfortable calling any giant financial firm "trustworthy", but if you were going to pick one firm that has come close to earning that label, it's Vanguard. Vanguard's chief investment officer has repeatedly and unequivocally stated that HFT firms have lowered Vanguard's costs and improve outcomes for its investors. Here's Matt Levine writing entertainingly about how the "Flash Boys" in Lewis' book ought to have been, based on his previous books, the protagonists, and Katsuyama the villain: http://www.bloombergview.com/articles/2014-03-31/michael-lewis-doesn-t-like-high-frequency-traders http://www.bloombergview.com/articles/2014-03-31/michael-lew...
- nrao123 11y ago
  I am a big fan of Lewis & I have read multiple accounts / variations of the sub-prime crisis. The Big Short tells only half the story but nevertheless a very important one especially by covering Michael Burry as patient zero for identifying the problem. However, the book does a big dis-service by not writing more extensively about John Paulson. He made the most amount ($15BN) shorting sub-prime mortgages & when you have a book called the Big Short but don't cover the biggest short, it seems incomplete. Gregory Zuckerman's "Greatest Trade Ever" should be read along with "Big Short" to get a more complete view of the crisis.
- mcphilip 11y ago
  Discussing the merits of HFT is similar to discussing the merits of different approaches to cryptography. Because there's such a vast amount of prerequisite knowledge required for analysis, one either has to slog through the learning curve or look for expert opinions. So who are these experts in HFT that should be referenced? Certainly not me or Michael Lewis. One source I like to follow is Eric Hunsader. One of his claims to fame is catching a leak in FOMC data that led to a policy change by the Federal Reserve [1]. My own take on the HFT debate: HFT is here to stay; the method of trading is not the problem, the danger is that no regulator can monitor the massive stream of quotes and trades and accurately sift out bad actors. What's the solution -- I have no clue, but arbitrarily slowing down trades is not useful. [1]http://www.nanex.net/aqck2/4473.html http://www.nanex.net/aqck2/4473.html Edit: Apparently no true Scotsman would follow Nanex as a source. Duly noted. :) I'd be interested to hear of other sources that at least attempt in depth analysis like Nanex.
jellicle 11y ago
It is extremely difficult to write any kind of book or movie about finance which is a) accurate b) comprehensive (covers more than a tiny slice) and c) NOT boring as hell and extremely confusing to the lay audience. Lewis does as good a job as is possible, given the subject matter. Mostly accurate, fairly comprehensive, and not boring.
ageek123 11y ago
Lewis's books are ideologically driven, not a search for truth. People don't read them critically because of confrmation bias -- everyone hates Wall Street, so everyone assumes take-downs of Wall Street must be correct.

62 points by pmcpinto 11y ago

For those curious about the speech Lewis gave at Princeton referenced in the article, here it is: https://www.youtube.com/watch?v=CiQ_T5C3hIM https://www.youtube.com/watch?v=CiQ_T5C3hIM https://www.princeton.edu/main/news/archive/S33/87/54K53/ https://www.princeton.edu/main/news/archive/S33/87/54K53/ It's one of the most memorable speeches I've ever heard or read. A personal favorite.

rpgmaker 11y ago
It's very good indeed, it was particularly tailored to privileged young people but it can apply to anyone really.

sharkweek 11y ago

Every Lewis book I've read has been great. He does a fantastic job exposing any number of things that are likely desired to be kept secret. Also does a great job making things understandable, while not dumbing it down too much to the point of inaccurate. "The Great HFT Debate" is a must-watch, following the release of 'Flashboys' just seeing how defensive the market players got. https://www.youtube.com/watch?v=RcpmHyPD_PY https://www.youtube.com/watch?v=RcpmHyPD_PY

kasey_junk 11y ago
I'm a (or at least was) a huge Michael Lewis fan. Until he wrote a book about the industry I was in (HFT). Regardless of where you stand on HFT, Flashboys does a very bad job explaining the technical aspects that are occurring. Further it presents a completely 1 sided look at the industry, without ever quoting someone knowledgeable about the technical aspects. I don't dislike Flashboys because of its conclusions, I dislike it because of its inaccuracy. It called inot question every other book of his. Which was really disappointing as I had enjoyed them all so much.
- deleted 11y ago
  [deleted]
- sharkweek 11y ago
  This is super interesting to me - got any resources of people counter-pointing Lewis's writing? Would love to dive in a little deeper.
  - kasey_junk 11y ago
    http://kc.my-junk.info/hft-books/ http://kc.my-junk.info/hft-books/ ^^ a blog post where I collect this stuff as I answer this question so often.
    - toddmatthews 11y ago
      but you don't really give any specific counter points. if Flash Boys is dreadful, i would think you would have specific points to counter it
      - tptacek 11y ago
        If there was a way you could have worded this comment without implying that Kasey was just making things up, it would have been a better comment. As it stands, I think you can take the time to use the search bar at the bottom of the page to find what he's written about the book on the site before.
        toddmatthews 11y ago
        in no way was i implying he was "making things up" but he has said that Flash Boys did a "bad job of explaining HFT" and on that website he links to it says its "dreadful". He also says he "answers this question so often" he made that site. but the site just lists books, but doesn't really answer any questions. Just pointing to other peoples books is not really answering a question. and i think if Flash Boys is "dreadful" he could point to a few concrete examples
L-Logic 11y ago
Agreed, his books are good. People should also watch the movie "The Big Short."
andylei 11y ago
its weird that in every industry where computers replace people, HN considers it progress, but when its making securities markets, its a scam.
- wpietri 11y ago
  Back in the day I worked for financial traders on early automated trading systems, and I think your summary is fantastically poor. First, people have long had questions about the societal effects and costs of trading, even when humans did it. Second, the automation of trading isn't merely replicating what humans do at a lower cost. I'd call it a fundamentally different activity. Third, one of the things that has become more and more attenuated is any sense of moral responsibility. Traders were never known for attacks of the warm fuzzies, but algorithms not only don't give a shit about how the affect humans, they can't. And fourth, instead of saving everybody money, finance eats up an ever-increasing share of the economy, and I think automation is part of that. Automation isn't universally good. Sometimes it makes things better, sometimes worse. As technologists our job isn't just to automate everything. It's to use our professional skills and experience to improve the world, to improve human lives.
  - oldmanjay 11y ago
    How does one eat a share of the economy? Do I have to assume it to be zero sum for the concept to be clear?
    - wpietri 11y ago
      You don't have to assume zero sum in general. Just that some interactions can be zero or negative sum. The simple example is monopoly rents: monopolists can increase their share of total profits without increasing value delivered. By a lot of measures, the financial industry captures a lot more money than they did in previous decades. But it's far from clear that they're delivering a lot more value, and given that computers have drastically reduced their costs, it's reasonable to expect them to be smaller, not larger. As a start, this has some good graphs: http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance.html http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance... And here are a couple more general-audience articles: http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-the-day-us-financial-profits/ http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-th... http://blogs.wsj.com/economics/2011/12/10/number-of-the-week-finances-share-of-economy-continues-to-grow/ http://blogs.wsj.com/economics/2011/12/10/number-of-the-week...

larry_n 11y ago

Nice article!

cconcepts 11y ago

After reading The Big Short and discussing its contents with people who know a lot more about the financial industry than I do, I was surprised to find how much the book stood up under their scrutiny. So many popular books seem to lead me down a deceptive rabbit-hole of semi truths and poetic license given for the sake of sensationalism whereas Michael Lewis just seems to have a knack for telling the facts as a compelling story. Also, this quote from the article struck a chord with a lot of the internal dialogue I have about doing what I know is important as opposed to doing what is profitable: >> "They had been so transformed by the rates of pay and the needs it had created in them, they couldn’t escape from it. “

elecengin 11y ago
I have found the exact opposite with Flash Boys (and, to a certain extent, with Big Short - although that is less my area of expertise) If you have read Flash Boys and you are interested in the other side of the story I suggest reading a very well edited point-by-point rebuttal: http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F...
- BookmarkSaver 11y ago
  I've had a couple people who work in high frequency trading say that Flash Boys is extremely inaccurate, but they still recommend The Big Short. I've not really heard anything significantly negative about TBS though I'm sure there are probably disputed opinions about it out there. And while the character narratives in TBS could be entirely fabricated (I mean, I'm sure they aren't totally false), the underlying issues and events line up with my previous understanding of the crisis.
  - remarkEon 11y ago
    My father worked at one of the Hedge Funds referenced in The Big Short for about 15 years, and was there during the collapse. I've talked to him ad nauseam about these books and the only one he didn't like was Flash Boys, but calls The Big Short "sort of scary" in how accurate it was. In reference to Flash Boys he said that the technical aspects of how HFT works were so poorly illustrated that he couldn't really take the book serious and felt that it would limit his ability to further consider future Michael Lewis books. Wish I understood more of that, but his point was, I think, that it's not as nefarious as it's often made out to be.

elchief 11y ago

"Chicken Lickens"? I'm going to assume the author means Chicken Littles. Or is that a British thing?

deleted 11y ago
[deleted]
markdown 11y ago
> Or is that a British thing? An everywhere outside USA thing.
- elchief 11y ago
  It's Chicken Little in Canada too. I've never heard it being called Chicken Licken, even by my Scottish mother.
  - markdown 11y ago
    Perhaps a lot of your story books were imported from south of the border, or published by subsidiaries of US companies.
- Terr_ 11y ago
  That implies popularity, but I've never heard of any of the alliterative characters mentioned in Wikipedia: > In 1849, a "very different" English version was published under the title "The Story of Chicken-Licken" by Joseph Orchard Halliwell.[15] In this Chicken-licken was startled when "an acorn fell on her bald pate" and encounters the characters Hen-len, Cock-lock, Duck-luck, Drake-lake, Goose-loose, Gander-lander, Turkey-lurkey and Fox-lox.
  - selimthegrim 11y ago
    I (American) have heard of Chicken Licken and all the other alliterative ones, but I blame my mother having grown up in a former British colony.
  - 11y ago

tptacek 11y ago

I liked The Big Short a lot, but Flash Boys was so bad that I found myself wondering how trustworthy The Big Short was. You can see part of what's problematic about the latter book just from this Guardian summary of it. The summary would have us believe that HFT is a trick employed by giant Wall Street banks to screw over smaller players. But Katsuyama, the protagonist of Lewis' book, was a big-bank trader, paid exorbitant amounts of money to tax large block orders by pension and hedge funds, and outraged by his inability to compete with algorithms that were bidding that tax down. I'm uncomfortable calling any giant financial firm "trustworthy", but if you were going to pick one firm that has come close to earning that label, it's Vanguard. Vanguard's chief investment officer has repeatedly and unequivocally stated that HFT firms have lowered Vanguard's costs and improve outcomes for its investors. Here's Matt Levine writing entertainingly about how the "Flash Boys" in Lewis' book ought to have been, based on his previous books, the protagonists, and Katsuyama the villain: http://www.bloombergview.com/articles/2014-03-31/michael-lewis-doesn-t-like-high-frequency-traders http://www.bloombergview.com/articles/2014-03-31/michael-lew...

nrao123 11y ago
I am a big fan of Lewis & I have read multiple accounts / variations of the sub-prime crisis. The Big Short tells only half the story but nevertheless a very important one especially by covering Michael Burry as patient zero for identifying the problem. However, the book does a big dis-service by not writing more extensively about John Paulson. He made the most amount ($15BN) shorting sub-prime mortgages & when you have a book called the Big Short but don't cover the biggest short, it seems incomplete. Gregory Zuckerman's "Greatest Trade Ever" should be read along with "Big Short" to get a more complete view of the crisis.
mcphilip 11y ago
Discussing the merits of HFT is similar to discussing the merits of different approaches to cryptography. Because there's such a vast amount of prerequisite knowledge required for analysis, one either has to slog through the learning curve or look for expert opinions. So who are these experts in HFT that should be referenced? Certainly not me or Michael Lewis. One source I like to follow is Eric Hunsader. One of his claims to fame is catching a leak in FOMC data that led to a policy change by the Federal Reserve [1]. My own take on the HFT debate: HFT is here to stay; the method of trading is not the problem, the danger is that no regulator can monitor the massive stream of quotes and trades and accurately sift out bad actors. What's the solution -- I have no clue, but arbitrarily slowing down trades is not useful. [1]http://www.nanex.net/aqck2/4473.html http://www.nanex.net/aqck2/4473.html Edit: Apparently no true Scotsman would follow Nanex as a source. Duly noted. :) I'd be interested to hear of other sources that at least attempt in depth analysis like Nanex.

jellicle 11y ago

It is extremely difficult to write any kind of book or movie about finance which is a) accurate b) comprehensive (covers more than a tiny slice) and c) NOT boring as hell and extremely confusing to the lay audience. Lewis does as good a job as is possible, given the subject matter. Mostly accurate, fairly comprehensive, and not boring.

ageek123 11y ago

Lewis's books are ideologically driven, not a search for truth. People don't read them critically because of confrmation bias -- everyone hates Wall Street, so everyone assumes take-downs of Wall Street must be correct.