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Book review: Flash Boys

1 May 2014 by Tom Otley

Flash BoysMichael Lewis is still probably best known for his first book Liar's Poker, published in 1987.

Describing his time as a young trader in New York with Salomon Brothers, it was intended as a salutary comedy (he was a bond trader who didn't really understand what bonds were). Instead, it was seen by many as the perfect introduction to a seductive world of money and fast-moving adventure. The Oliver Stone film Wall Street had a similar effect, acting as a recruitment video for anyone who wanted to earn huge amounts of money and have Daryl Hannah as a girlfriend. 

This Law of Unintended Consequences also features in Lewis' new book – Flash Boys. It concerns the rise of high speed trading, as companies try to manoeuvre themselves into a position where they can gain an edge on rivals by receiving information on stock prices a millisecond before their competitors. That might sound a legitimate use of technology - after all, no one would want their stock information to be delayed. In fact what Lewis discovered was that High Speed Traders were using various underhand methods to ensure that whatever happened, they could make a profit on every trade. In fact, in the case of one company, it hadn't made a loss on a day's trading in five years. 

On the face of it, this is a an unpromising subject, of interest only to those who work in the finance industry, but in Lewis' hands not only is it a page turner, but it has also led to high-level calls for reform of the financial system. (We might also reflect that the losers in most of those trades were our pension funds or those of us who buy and sell shares occasionally.)

As with his previous books – most notably The Big Short (click here to read a review) – Lewis succeeds because of his talent as a writer. He is funny, knows how to create a real narrative drive to his work and understands that for us to enjoy a whole book describing the antics of bankers, he needs to find some appealing characters

In Flash Boys, he starts with the challenges facing an entrepreneur wanting to build a high-speed line connecting a data centre on the South Side of Chicago to a stock exchange in northern New Jersey in order to shave some more of those milliseconds from the trading speed. But rather than asking us to admire the undoubted ingenuity of this scheme, he instead focuses on someone else – his hero of this tale, an unassuming Canadian called Brad Katsuyama. It is Katsuyama who gradually unravels the antics of the High Speed Traders, and who instead of finding ways to profit from his dicsovery, sets out to create a new trading platform that they cannot dominate. In the best tradition of Hollywood, he also assembles a disparate team of technology experts, including a foul-mouthed Irishman called Ronan Ryan. You can read an excerpt in the International New York Times here. Here's how Lewis introduces Ryan:

"Ronan Ryan didn't look like a Wall Street trader. He had pale skin and narrow, stooped shoulders and the uneasy caution of a man who has survived one potato famine and is expecting another. He also lacked the Wall Street trader's ability to seem more important and knowledgeable than he actually was."

Superb. Funny, acerbic, politically incorrect and a great introduction to a character who spends the rest of the book swearing gloriously at the events unfolding around him.

For those who don't work in finance, the book confirms all we fear about how markets are rigged, oversight lax, and the majority of participants quite happy to do whatever it takes to get rich, with not a shred of morality among them.

Lewis isn't asserting that laws have been broken, only that the system has been rigged so that the few get rich at the expense of the many. Let's hope that the outrage lasts long enough to have a positive result.

Norton, £15

Tom Otley

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