In "Flash Boys," author Michael Lewis does something impressive. He takes a complex and esoteric subject — the shadowy practices of Wall Street's high-frequency traders —and makes it accessible to the average reader.
This is a topic that could easily bog down in the minutiae of computer engineering and financial jargon and fog the mind of the most determined reader. Instead, Lewis engages us by turning into the story into a classic battle between good versus evil, even David versus Goliath.
By focusing on the people and not the technicalities, Lewis brings the story alive with a smoothly moving narrative. He describes how high-frequency traders armed with powerful computers profit by detecting investors' buying and selling orders, then racing ahead to get to the stock market first. The high-frequency traders can then shift the price before the original order arrives, forcing investors to pay more when buying stock or get less when selling.
This all happens in less than a blink of an eye — it is a business measures in milliseconds. It is also a risk-free way for the high-frequency traders to make billions at the expense of investors.
While Wall Street promotes itself as open marketplace where buyers and sellers can meet, Lewis says the reality is a murky world where dollars disappear into "dark pools" where insiders enrich themselves. Even most Wall Street bankers don't understand how the high-frequency traders are sucking money out of the market, Lewis says.
Into this bleak scenario, Lewis introduces a small group of men — the "Flash Boys" — who set out to expose the problem and right the wrong.
Lewis does a lot right in this book, but I'm frustrated because he doesn't do many things that would have made the book even better.
First, there are no pictures, not even of the central characters. He says of one person, "He didn't look like a Wall Street trader." Ok, but why not include a picture and let us decide?
Then there's chapter two, which describes the laying of fiber cable from Chicago to New Jersey just for the use of high-frequency traders. This chapter screams for a map, maybe even two or three. But there are none.
Third, a book of this density, with many characters, companies and concepts sprinkled throughout, could really use an index. There is none.
Similarly, because many people come and go in the story, sometimes with big gaps between appearances, a guide with thumbnail descriptions of the characters at the start or back of the book would have been helpful.
As the book goes on, the "Good vs Evil" theme runs out of steam. Even the main figure, Brad Katsuyama, eventually comes around to say of the high-frequency traders, "They are much less of a villain than I thought." He concludes that they are only doing what is expected on Wall Street. "The system has let down the investor," says Katsuyama.
As for the good guys, Lewis portrays them as so squeaky clean that it strains credibility. Everyone else on Wall Street is greedy as hell, but these guys are purely altruistic? It turns out that each of the Flash Boys are themselves quite rich, so the David versus Goliath analogy does become strained.
The latter part of the book slows as it focuses on what the Flash Boys consider the solution — a new stock exchange called IEX that Katsuyama and his colleagues are setting up. They claim IEX will level the playing field and eliminate the chance for high-frequency traders to cheat. There is no great final showdown where the villains are vanquished, but there is a small window of hope.
