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Michael Lewis has explored the flaws of the financial market in a series of books. In his latest, "Flash Boys: A Wall Street Revolt," he details how he thinks Wall Street is rigged by high-frequency traders for their own gain.
While the new book continues to raise controversy, Here & Now's Robin Young asked Lewis where he thought we were in terms of regulating Wall Street six years out from the financial crisis.
"The whole subject of government regulation of our financial sector is very frustrating, and it's very frustrating because, one, the subject's complicated and the system doesn't handle complexity very well," Lewis said. "Two, money has a huge effect on our political process, and the financial sector has a lot of money to spend to influence it. Where we are is, you know, there's been some attempt in the Dodd-Frank legislation, for example, to address the problems that led to the financial crisis."
"The technology’s good, but that’s not the point. The point is that Wall Street is capturing still too much of stock brokerage revenues."
Lewis says the wiring of the stock market allows high-frequency traders to know when an average investor hits a button to buy a stock, run ahead of that order, buy up the stock before the investor, and sell it back to that average investor for a tiny profit per share.
All this happens in split seconds, and the flash trader only earns a penny or two a share, but it amounts to billions of dollars a year out of the pockets of smaller, individual investors.
"Where we are is in a kind of murky, uncomfortable, unhappy place where the financial sector seems to have had a large say in how it's regulated, and, as a result, possibly not regulated enough," he added.
Young asked him about criticism of his book, including people like Joe Nocera, who says it's too pat, and others who say that high-frequency trading is actually a positive because it lowers borrowing costs for all traders by by using technology to bypass traditional middleman traders who charged a much higher amount to make the market work.
"I don't disagree that the technologies offered huge benefits," Lewis said. "That's not the point. The point is, the technology's also this kind of scalping operation in the middle of the markets, where the markets are, basically, systematically rigged in the favor of a handful of participants who pay for special access, both to the stock exchanges, and to the bank broker's customer orders, and have, you know, basically no risk in their training. So what I say is, yeah, the technology's good, but that's not the point. The point is that Wall Street is capturing still too much of stock brokerage revenues."
In his previous books, Lewis has shown how Wall Street both gamed the system to make money, in part by creating a fog of complexity, and how that complexity in the end fooled many on Wall Street into complacency about the dangers of things like highly leveraged mortgage derivatives.
In "Flash Boys," Lewis writes of Wall Street: "What had once been the world's most public, most democratic, financial market had become, in spirit, something more like a private viewing of a stolen work of art."
- Michael Lewis, author and financial journalist. His latest book is "Flash Boys: A Wall Street Revolt."
This segment aired on May 15, 2014.