Friday, 2 May 2014

“What’s more irresponsible: calling the stock market rigged or rigging the stock market?”: Michael Lewis speaks at LSE

“Increments of time that it’s hard to imagine being valuable – but they’re very valuable.” This is how Michael Lewis characterises the degree to which Franklin’s old saw that ‘time is money’ has become exacerbated to degrees far beyond the venerable ‘first’ American’s imaginings. 

Lewis talks of 0.25 microseconds, the degree to which the New York Stock Exchange lags behind the high speed exchanges which line the New Jersey turnpike, as “laughably slow”. By way of comparison, the author of Liar’s Poker, Moneyball, The Big Short, and now Flash Boys: A Wall Street Revolt, explains that one of his own sneezes takes about 100 microseconds – “and I’m a pretty fast sneezer.”

As a result of this inexcusable tardiness, the New York Stock Exchange is now, Lewis claims, little more than “a backdrop for CNBC TV shows … a stage set,” while all the real action is taking place in “fortress-like places” in the suburbs, heavily guarded, deliberately opaque, and stuffed to the gills with high-octane processing power. Indeed, every aspect of the way actual finance actually works in the new virtual economy is, Lewis claims, kept as deliberately impenetrable as the buildings in which it operates.

Not that he particularly wants to change this admittedly “poisoned” system. “I am inside the system,” the ex-Salomon Brothers broker admits. While Occupy and others hoping for a better world are merely “clamouring inchoately” at the fortress walls with “no plausible ideology to flee to.”

And yet what sticks in my mind from Lewis’s talk on monday at the Peacock Theatre of his old alma mater is what may at first seem a trivial sequence of events in the life of Brad Katsuyama, the “nice guy” from the Royal Bank of Canada who first noticed that between the moment he clicked buy on his computer terminal in Toronto and the actual moment of purchase, someone was intervening; jumping the queue, buying his shares first and selling them back to him at a higher price than he ordered.

First of all, Lewis tells us, Katsuyama thought there was a problem with his computer. He slapped the side of his monitor. Rebooted the system. No dice.

Then, when he called up technical support, they told him it was his fault. In fact, as Lewis tells it, they repeatedly laid down on him all the many different ways that this problem was his own fault.

Finally, having realised what the problem actually was, Katsuyama set about explaining it to other big investors. None of whom knew about it already. But some had noticed there was a problem. One thought he had a leak in his own house, an insider trading ripping him off from his own office.

There’s something familiar about this, a kind of blueprint for capitalism’s habitual response to exposures of its own systemic failures.

Firstly, there’s a technical problem. Just a technicality. It can be fixed by a matter of engineering, more computing power…

Secondly, the problem is yours. You have made a mistake or have some defect in your character. Perhaps you should see a shrink or try these pills…

And Thirdly, there may be a few bad apples. Perhaps one or two corrupt individuals within the system. We’ll weed them out, see them punished, carry on as normal…

But the system itself? Oh, that’s fine…