Wednesday, April 2, 2014

Flash Boys: Accessible and Thrilling Tale of Microseconds, Pennies and Billions in Skimmed Profits

Review: Flash Boys: A Wall Street Revolt by Michael Lewis

When you characterize a business practice as "flash", doesn't "in the pan" immediately follow in your mind? And would you want to have to apply that term to your investments?

In Flash Boys, Lewis has presented the up-to-date (final events occur in early 2014) tale of a skew gradually built into the U.S. stock markets following each market crisis. His premise? Over time, regulatory interventions have tilted Wall Street into practices that are certainly flash, and could even be legitimately labelled "scalping" or "skimming." Certainly not the investment environment we want, post bank-bailouts!

The story shows a compelling glimpse of these practices. They may not be illegal, but they tread very close to the primeter of insider trading, and add nothing but complexity and opacity to the markets.

Lewis does an excellent job of wrapping the different people who are involved - engineers, computer "technologists" and programmers, financial wizards and brokers, bank managers and salespeople - with recognizable faces and engaging (though not always pleasant) personalities. He also resists the temptation to neatly tie up all the loose threads at the "end." Instead he leaves us with a new puzzle and just enough clues to encourage us to take part in the next act of this financial play.

"Flash Boys" may be a misnomer, because most of the main characters are engaged in what might be called "anti-flash". Their enterprising answer to misconduct in the stock market, once it has been identified, is as brilliant as it is realistic. The pace is thrilling, and the financial jargon is made accessible (although doubtless the explanations are over-simplified - certainly the programming discussions are just deep enough to convey a sense of the complexity, but no deeper).

I devoured this book in a single pass, and will probably re-read it once my anger has cooled. If you have any investments in the stock market, anger upon learning how a few "elite insiders" have profited at your expense is a valid response. 

I would rather read it as an account of how a few insiders found a way back to an honest, open trade.

Liner Notes:

  • If Michael Lewis' name rings a bell, it may be because he is also the author of The Blind Side, Moneyball: The Art of Winning an Unfair Game, and Next: The Future Just Happened, among many others.
  • By itself, the description of the super-fast cable project is worth the time invested in reading the book. In my opinion, of course; my engineer's eye likes the superbly visual way Lewis lays it out.
  • Since this review was first posted, I have reread Flash Boys twice. It is still compelling.