Michael Lewis is one of the great non-fiction authors of our time. He brilliantly tells tales involving highly technical details in ways that are entertaining and engaging, and–like any great artist–he makes the feat look easy. Lewis uses the colorful character and language of his subjects and weaves their personal stories into the greater picture.
The topic of Flash Boys is high-frequency trading (HFT). High-frequency traders utilize the fastest hardware, software, and internet connections–all carefully located–to engage in arbitrage schemes that suck billions of dollars from investors by beating their trades to the exchanges and raising the prices. What is most disturbing is how so many of the exchanges, banks, and brokers enable it, profit from it, or are complicit in it.
Flash Boys follows the men who exposed this dark underworld of Wall Street and set out to create their own alternative stock exchange that would play by its own rules, rules that are fair to investors. It also follows two other stories connected the HFT movement. This is a great story told by a great storyteller, and it is essential reading for anyone who desires a better understanding of how the world works.
Timothy Geithner was President of the Federal Reserve Bank of New York from 2003 to 2009 and U.S. Secretary of the Treasury under from 2009 to 2013. Many people would have loved to be a fly on the wall in some of the meetings that Geithner was in during the financial crisis, the Great Recession, and the recovery. Geithner provides some insights, but he is also overly concerned with addressing his critics, especially those he calls “moral hazard fundamentalists.”
He makes some good analogies, although he repeats the same ones again and again, and I don’t think he addresses the fundamental problems that his critics are trying to get to. Sure, TARP assuaged the market by injecting capital into the struggling financial sector, and the taxpayers made a profit off the program in the end. Perhaps moral hazard arguments in reference to TARP are overblown. However, does this really settle the argument about whether or not the government should be bailing out companies? Should calming a volatile market really be the role of the federal government? Continue reading “Book Review: Stress Test”
The Big Short is more technical and more entertaining than I had expected. When it comes to coverage of the 2008 financial crisis, there are few in books or media who do an adequate job of explaining the mortgage-backed securities, collateralized debt obligations, credit default swaps, and other technical finance concepts involved. Michael Lewis manages to make sense of a complex system of debt speculation that the people who were responsible for understanding didn’t seem to understand. It is exactly what one might hope to get out of this book, but it’s not the thing that makes this book truly special.
What is really surprising about this book is its tone. Wall Street investors can be very brash. The investors covered by Lewis are outsiders. They share many characteristics with Wall Street stereotypes, but for various reasons they don’t fit in to those social circles. They are rogue investors, searching for any niche they can find, striving to be contrarian. They speak with a colorful vernacular; Lewis doesn’t bowdlerize. In fact, Lewis adopts a bit of the voice of his characters to better tell their story.
As the story progresses, the tone drastically changes. The events that unfold have huge implications for capitalism, democracy, and the history of the world going into a new century. Seeing how the men who predicted it profited from it and eventually reacted to it is what The Big Short is really about.