
Michael Lewis: The Scourge of Wall Street - pmcpinto
http://www.theguardian.com/film/2016/jan/17/michael-lewis-big-short-wall-street-crash-book-film?CMP=share_btn_tw
======
tptacek
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-
lew...](http://www.bloombergview.com/articles/2014-03-31/michael-lewis-doesn-
t-like-high-frequency-traders)

~~~
mcphilip
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.

~~~
patio11
_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._

Thomas, Erin, and I possess voluminous experimental evidence that suggests
generalist engineers can know more about market making than Michael Lewis
(and, if one assumes Lewis is not committing malpractice with regards to
framing quotes, Brad Katsuyama) in under two hours.

This is not a commandingly high bar. An order book is just a data structure.
It tends to have a lot of money associated with it, but that is also true of
at least some hash tables, and you understand hash tables.

I am frustrated with HN discussion of HFT occasionally for the same reason I
get frustrated with HN discussions of some privacy technologies: there exists
a political valence to the discussion and some participants treat that
political valence as carte blanche for just ignoring that we are talking about
actual codebases which have actual rules which can be described in words,
including words which definitively falsify some claims about them which feel
right to people due to political valence.

~~~
drewblaisdell
> Thomas, Erin, and I possess voluminous experimental evidence that suggests
> generalist engineers can know more about market making than Michael Lewis
> (and, if one assumes Lewis is not committing malpractice with regards to
> framing quotes, Brad Katsuyama) in under two hours.

After which level in Stockfighter is it likely that I know more about HFT than
Lewis?

~~~
patio11
Depending on how exactly you decide to solve it and how good of a mental model
you have about what your code is doing, level three. Again, a high bar Lewis'
level of understanding is not.

I know it feels like this is an abrasively combatative statement from me, and
it's quite uncharacteristic about any topic other than Bitcoin, but if you've
coded a trading system and then read Flash Boys it's like several hundred
pages of "I used a GUI to query optimize the traceroute with MongoDB and a
red/black tree." Those words, individually they have meaning, but in that
configuration it is resoundingly unclear that the speaker understands what is
going on. It is _resoundingly_ unclear that Lewis understands what an order
book is, what order types are (other than (paraphrase) a mechanism by which
sophisticated operators cheat mom-and-pop hedge funds out of their hard-earned
2 and 20), etc.

If you'd like this critique at literally book length, read Flash Boys: Not So
Fast. It's brutal. It's a point-by-point and page-by-page refutation which
brings in lots of crunchy detail (which Lewis scrupulously avoids), quotes
extensively from experts (including ones who would be incentivized to say the
opposite thing except for a respect for the truth), comports with the
understanding of our informal advisors, and does not require me to suspend
belief in core principles of math, physics, or computer science, which Flash
Boys does multiple times.

------
cconcepts
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
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-F...](http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-
Frequency-ebook/dp/B00P0QI2M2)

~~~
BookmarkSaver
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
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.

~~~
Nrsolis
Look, HFT as a concept is already black magic to people who trade.

It's a fundamentally simple idea but when you actually try to apply it to a
real living breathing market, it becomes indistinguishable from electronic
warfare because that's what it is!

A lot of the shenanigans that people point to are just different techniques to
try and suss out the market microstructure and are in effect no different from
trading techniques that evolved in the 1920s.

The best HFT book I ever read was "Reminiscences of a Stock Operator" because
if you look at what he's saying and then replace the people in the book with
electronic agents, you end up right where we are with HFT.

~~~
remarkEon
Thanks for the book recommendation. I'll definitely take a look and pass it
on.

------
sharkweek
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
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.

~~~
sharkweek
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
[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
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

~~~
Nimitz14
[https://scottlocklin.wordpress.com/2014/04/04/michael-
lewis-...](https://scottlocklin.wordpress.com/2014/04/04/michael-lewis-
shilling-for-the-buyside/)

Quote:

> I think this is the crux of this story: according to Michael Lewis and
> Katsuyama, we’re supposed to trust people like Einhorn who have been
> convicted of insider trading, people who are suspected of insider trading
> (buy side is by definition rife with this; particularly firms that do merger
> arb and special events), J.P. Morgan, Goldman and Morgan Stanley: we’re
> supposed to trust these guys more than we’re supposed to trust a bunch of
> tiny little market making firms who had been inconveniencing them by taking
> away some of their flow. Lewis tries to make this seem like a battle between
> the underdog “good guys” and the evil establishment. To believe this, you’d
> have to believe that Goldman Sachs and people like Einhorn are underdogs,
> rather than the actual establishment. To believe this, you’d have to believe
> the tiny industry of HFT traders actually rules the world and buys off
> congressmen and the SEC more than … J.P. Morgan and Goldman. [...] Yeah, I
> might believe that. I might believe that if I were a dribbling retard.

~~~
toddmatthews
Still this is all just Ad-Hominem attack on the characters in Flash Boys and
seems a bit over the top "Yeah, I might believe that. I might believe that if
I were a dribbling retard."

doesn't really answer why Flash Boys does such a terrible job of explaining
HFT

~~~
tptacek
Yes, it does. You didn't read it carefully enough.

The whole premise of the David and Goliath story Lewis wants to tell is that
HFT is a device used by the Wall Street establishment to screw over the rest
of the market.

But in fact it's more the opposite: HFT firms are upstart prop trading and
market making shops that are pissing off giant banks like Goldman and JPMC by
making it harder for them to skim profits off block trades for pension and
hedge funds.

 _Also: the use of rhetoric like "dribbling retard" isn't what makes an
argument "ad hominem". An ad hominem argument is one whose logic rests on a
claim about its opponent and doesn't account for its opponent's argument. The
logic behind the quote you're commenting on doesn't do that._

~~~
toddmatthews
i said that comment is a bit over the top. i was talking about "either Lewis
is a credulous idiot who is not competent as a journalist, or Katsuyama is an
idiot who was not competent as a trader" it seems Locklin's goal is to say
Michael Lewis is an idiot, which is ad-hominem attack. The need to call him an
idiot, combined with the "retard" comment is really not needed and doesn't add
anything.

i do appreciate your explanation for how the goal of Lewis's book is based on
a fallacy

~~~
tptacek
You're missing an important piece of context.

The argument being made here is about Katsuyama's complaint that the prices
he'd see in his terminal would suddenly move away from him if he tried to
trade large blocks of stock at that price.

What makes Katsuyama sound incompetent is his apparent lack of understanding
of the price pressure his own large block trades put on the market. Lewis
makes Katsuyama out to sound as if he can reasonably expect that if FCOJ is
quoted 29.78-29.80, he can sell 100,000 shares at the quoted price. Of course,
not only can he not expect to do that, but the influence that large trade has
on the market is _the whole reason Katsuyama is paid by RBC to trade for its
clients_.

Hence: either Lewis doesn't understand his subject well enough to report on
it, or Katsuyama doesn't understand the basic function of his job.

In any case: not an ad-hominem, sorry. There's a popular Internet fallacy that
says any argument that uses insulting language must be an ad-hominem. Insults
aren't usually productive, but they don't automatically produce flawed
arguments.

~~~
toddmatthews
How about him saying "looking a little scaly, bub" for a caption for lewis.
Surely what Lewis looks like has no relevance on the argument. Seems Lacklin
has it out for Lewis.

I guess calling him an idiot is not ad-hominem in that he's arguing he doesn't
understand what he's talking about.

~~~
tptacek
If you're on a mission to spot all the unproductive rhetoric in a substantive
criticism of the book, that's fine, but I'm not interested. It takes a couple
minutes to think out and write up an explanation of what these criticisms are
about, and when you respond to one of those explanations by changing the
subject to a snarky caption on a photo, I'm made to feel like I wasted my
time.

~~~
toddmatthews
Sorry, didn't mean to waste your time.

A) I agreed with your last comment

B) was just pointing out that the snarkyness comes across strong in the blog
post. So it's possible that frame of mind affects the writing and it affects
the reader, argument aside.

------
tonydiv
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
It's very good indeed, it was particularly tailored to privileged young people
but it can apply to anyone really.

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

~~~
markdown
> Or is that a British thing?

An everywhere outside USA thing.

~~~
Terr_
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.

~~~
markdown
> In the United States, the most common name for the story is "Chicken
> Little", as attested by illustrated books for children dating from the early
> 19th century. In Britain and its other former colonies, it is best known as
> "Henny Penny" and "Chicken Licken", titles by which it also went in the
> United States.[note 1]

[https://en.wikipedia.org/wiki/Henny_Penny](https://en.wikipedia.org/wiki/Henny_Penny)

------
ageek123
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.

------
jellicle
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.

