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

As some of you may be aware, one of my many hats at my day job involves being a math teacher. I try to cover as much financial literacy as I can manage, regardless of the course I’m teaching, because this is a fundamentally important topic in our society. So I’m always looking to learn more about how finances actually work in our society. We hear a lot about the “stock market,” but what does that actually mean? Flash Boys, by Michael Lewis, presents the story of a small group of Wall Street people who are attempting to create more “fairness” in the markets and preclude predation by a now-dominant paradigm known as high-frequency trading. This isn’t exactly what I would call a riveting read, but it still has lots of interesting things to learn. Let me start with why this book let me down, and then I’ll conclude with all the stuff I learned.

If there’s any protagonist to Lewis’ story, it’s Brad Katsuyama, a Canadian trader for RBC who leaves the bank to found the Investors Exchange (IEX). Lewis discusses a few other stories, like that of Sergey Aleynikov, a computer programmer arrested for taking alleged proprietary software from Goldman Sachs. He also opens the book, and then tries to bookend it, with a discussion of Spread Networks’ bid to build the fastest, most direct fibre connection between the Chicago and New York Stock Exchanges.

This is probably where I found Flash Boys. Somewhere along the way I learned the really fascinating fact that the stock market had been directly responsible for laying more direct cable between Chicago and New York, and that blew my mind. I wanted to know more, so I added this to my to-read list. To my chagrin, Flash Boys is less a Bill Bryson-esque “gee whiz” exposition on the technological reinvention of financial trading and more of an exposé-style encomium of Katsuyama and friends’ crusade. Don’t get me wrong—I am extremely anti-capitalist and am all for taking down the big guys and fighting the Man and whatnot. This is just not what I expected from the book.

Lewis also assumes a much greater familiarity with stock trading than I have. I could only barely follow his helpful attempts to explain everything with example scenarios. On the one hand, this helped me understand just how complex and unwieldy the stock market has become (more on that in a bit). On the other hand, I just didn’t enjoy Lewis’ writing as much as I have other non-fiction authors who seem to be better at explaining stuff to me.

Lewis makes a big deal out of how high-frequency trading (HFT) enables an activity called “front running,” where you can learn about someone wanting to buy or sell shares in a company and then manipulate the price before they actually do so, netting you significant profits. HFT isn’t necessarily bad, but it encourages bad behaviour when unchecked by regulations (either from the big banks or from the government). However, Lewis doesn’t really discuss the larger regulatory issues for the market. He just kind of tap dances through the whole 2008 recession—not eliding it, exactly, but only mentioning it as it relates to the characters of his story. Again, maybe this is just my unrealistic hopes for the book, expecting a larger overview of the issues with the present-day American stock market system. I still feel let down.

As I mentioned above, my biggest takeaway from Flash Boys is learning how much I don’t know. Plus, perhaps more frightening, is how much the people on Wall Street don’t know. Automation and algorithms have brought us to a point of staggering ignorance; the incentive to behave as badly as possible (without crossing any legal lines) to make money for oneself has motivated players of this game to make its rules as complicated and abstruse as possible. Any desire I ever had to play the stock market myself has been extinguished. Your “average” citizen has zero hope of ever understanding how the stock market works.

I also enjoyed learning about how these financial players interact. We hear names like Goldman Sachs, Merrill Lynch, etc., but we don’t really understand what that means. Lewis actually goes into more details about how these institutions talk to each other (or don’t), how they compete (or collude), and what the consequences are for us in general.

One last thought: one date seems to loom large over this book, and that’s September 11, 2001. Lewis invariably relates where each character was on 9/11, no doubt because so many of them were near ground zero as a result of their employment. This is not a criticism of the book. Rather, it was really helpful, in my opinion, in understanding the mindset and motivation of some of these people. We think of finance as a global phenomenon, and it’s true that trading can and does happen everywhere. Yet the concentration of trading in New York means that the whole market was immensely affected by the psychic toll of 9/11 in a way that someone like me, slightly younger and Canadian and not involved in finances, couldn’t quite appreciate until now. Lewis manages to portray the shock, hurt, and re-evaluation of one’s world-view that must have accompanied that tragedy.

Flash Boys is a bit of a disappointment for me, overall. I can see why others would love this book and everything Lewis shares in it. But I was hoping for a much more comprehensive and comprehensible takedown of the markets. Lewis’ narrower scope and limited explanations leave me wanting much more. Maybe I’ll find it elsewhere.