My rating: 4 of 5 stars
A great read for the view it offers into the world of high-tech trading and the complexity of modern financial markets. The ways in which modern technology has changed share-trading is really mind-blowing. But, the best thing is, a lay-man can get a top-level view of this world of big money and high-technology in a very entertaining and gripping read thanks to Michael Lewis.
Before reading the book, I never really understood what flash-trading was all about. I just thought that it was a faster way of processing market information and using it to make relatively risk-free trades that make money for the people who invest in the required computing power.
Given my understanding I really couldn’t grasp why the people engaged in this were viewed as villains and getting pulled-up by law-enforcement now and then.
But, as I read the book, I understood that what was happening was not quite so simple. The manner in which HFTs colluded with stock-exchanges to access information that was not yet available to others to make risk-less trades against actual investors was shocking.
In a normal trade both sides gain something. It is not a zero-sum game. But, HFT is presented as a tax on the movement of capital. This is over and above what is required to solve the problem of connecting a genuine buyer with a seller. Instead of “taxes” like this reducing with better technology, they are in fact made possible and allowed to do so much damage by the growing abilities of modern information processing and transmission systems.
This book documents how a bunch of guys got together to build an exchange that would give the right incentives to the intermediaries to put the interests of their customers first.
There is no excessive moralizing. Which is a huge plus! And I really liked the concept of “long-term greedy”. It is something I have believed in myself. The problem with selfishness is not the mere fact of its existence. But, the inability of people to fully understand what really is good for them in the long-term. Of course, this is an over-simplification. The point is this. You don’t have to really suffer any pain or deny yourself stuff to be of value to your society. If the system of incentives were set up in such a way that people were rewarded for the value of their work to society then people could do good merely by doing their jobs well and earning to their maximum potential.
But, when the reward system gets corrupted you can expect the guys who lack a sense of empathy to swoop in and exploit the loop-holes for their benefit at a great cost to the broader society.
Instead of focusing on individual failures of conscience, this book tries to analyse why the scalpers wound up doing what they do and the enabling environment. Also, there is quite a bit of back-ground on “front-running” and how this practice has evolved over the decades. The author clearly explains how this activity has had increasingly deleterious effects on the markets because of the technology used nowadays to implement this conceptually simple but ethically-fraught technique.
Also, another subtle but extremely important aspect of the author’s style is how he manages to convey the difference between visualizing a corporate entity as an evil and sentient being and a mere agglomeration of groups fighting pitched battles internally for survival and supremacy. Ultimately, all businesses are made up of human beings and they can never be entirely evil or completely generous.
He merely tries to point out how faulty incentives can mistakenly reward people within the businesses to put their short-term interests above everything else and thus allow/sanction the happening of bad things.
Overall, 4/5. It is a great book. But, not quite as gripping as The Big Short! Maybe it is unfair to give a lower rating merely because the author has written an even better book! But, I am a little biased that way