Michael Lewis has had huge success with books like Moneyball, The Blind Side and Liar’s Poker and now he continues to delve into the inner workings of the US financial system.
The stock market crash of 1988 started a process that has ended with computers replacing people. The vision we have in our head of people on the floor of a stock exchange exclaiming ‘sell, sell, sell’ is an entirely false one. The stock market now trades inside black boxes. These machines are overseen by people but very few would have a great knowledge of how these actually work. Even the experts are unable to fully say what goes on inside them and so the average investor has no hope of knowing.
The speed with which a trader could operate was subject to limits. Human beings worked on the floor and all the buying and selling went through them. By 2007, the exchanges were little more than piles of computers data centres. The only constraint was how fast an electronic symbol could travel.
Michael Lewis’s book puts forward the story of how the market are rigged. In order to do so he has carried out a huge amount of research and gained interviews with insiders to get to the bottom of the workings of the system. It highlights dark pools, private exchanges run by the big brokers with secret rules known only to themselves. He shows us how high-frequency traders were able to get access to information before it was sent out to other traders The markets were designed to maximise the number of encounters between high-frequency traders and ordinary investors. It’s almost difficult to believe the extraordinary lengths these people go to in order to make their connections a few milliseconds faster in order to gain an advantage over ordinary investors and other competitors.
This could all be an extremely dry read if it wasn’t for Lewis’s ability to put a great story across. It all adds up to an extremely readable account of some very complex systems and will hopefully go some distance in helping to change the structures that are currently in place.