Michael Lewis Pt. 1

  • Aired:  04/01/14
  •  | Views: 34,701

In his book "Flash Boys," author Michael Lewis discovers an unlikely band of heroes who challenge rigged stock market practices. (6:43)

[CHEERS AND APPLAUSE]>> Jon: WELCOME BACK MY GUEST

TONIGHT A BEST SELLING AUTHORWHOSE NEW BOOK IS CALLED FLASH

BOYS A WALL STREET REVOLT.

PLEASE WELCOME BACK TO THEPROGRAM MICHAEL LEWIS.

SIR.

[CHEERS AND APPLAUSE]ALL RIGHT.

WELCOME.

FIRST OFF, LET ME JUST SAY THIS: YOU WRITE PRETTY.

THIS BOOK IS SO GOOD.

IT -- FIRST OF ALL WE'LLBACKTRACK.

THIS IS ABOUT THIS THING CALLEDHFT, HIGH FREQUENCY TRADING.

WHAT IS THAT?

>> VERY FAST COMPUTERIZEDTRADING ON THE STOCK MARKET.

>> Jon: TO GET AN ADVANTAGE.

>> TO GET AN ADVANTAGE RIGHT. SOTHERE ARE

13 PUBLIC STOCK EXCHANGES SELLTHE RIGHT TO ADVANCE INFORMATION

TO HIGH FREQUENCY TRADERS ANDTHEY DO THIS BY SELLING THEM

THE RIGHT TO LOCATE THEIRCOMPUTERS.

THEY'RE TRADING THE HIGHFREQUENCY TRADING COMPUTERS

RIGHT NEXT TO THE STOCKEXCHANGE COMPUTER.

SO THAT -->> Jon: SO IT'S A QUESTION OF

MILLISECONDS?

>> YES. I MEAN

THE DIFFERENCE BETWEEN THEINFORMATION THAT A HIGH

FREQUENCY TRADER SEES AND WHATMOST INVESTORS SEE IS A COUPLE

OF MILLISECONDS.>> Jon: IT'S A COMPUTER.

>> IT'S ENOUGH FOR A COMPUTER. ACOUPLE OF MILLISECONDS IS

A LOT OF TIME FOR ACOMPUTER.

THERE'S ENOUGH TIME FOR THECOMPUTER TO REACT TO WHAT DO

YOU.

>> Jon: SO THE COMPUTER FINDSOUT YOU PLACE AN ORDER FOR A

STOCK.

>> YES.

>> Jon: THE COMPUTER JUMPS INAND SAYS YOU ARE BUYING THAT

STOCK.

LET ME JUMP IN, BUY THAT STOCK,AND SELL IT RIGHT BACK TO YOU.

>> THAT WILL DO.

>> Jon: THAT IS WHAT THEY DO?

>> NO, BUT THAT WILL DO.

>> Jon: THEY INSERT THEMSELVESAS A MIDDLE MAN IN A TRANSACTION

THEY HAVE NO BUSINESS BEINGIN.

>> IN MANY WAYS, YES. THAT'SEXACTLY RIGHT.

THEY ARE TRADING AS IF THEY KNOWTHE PRICES BEFORE YOU DO.

IF YOU COME IN TO BUY, THEY MAYKNOW THAT THEY CAN BUY IT

CHEAPER BECAUSE THE PRICE HASMOVED BUT YOU DON'T KNOW THAT SO

THEY BUY IT CHEAPER AND SELL ITTO YOU.

IT'S TOTALLY UNNECESSARY WALLSTREET INTERMEDIATIONS.

THEY ARE PUTTING THEMSELVESIN THE MIDDLE OF THE MARKET

WHERE THEY ARE NOT NEEDED.

>> Jon: THERE'S SOMETHINGCALLED FRONT RUNNING THAT IS

ILLEGAL.

IF DO YOU IT WITH JUSTINFORMATION.

IF YOU FIND OUT INFORMATIONABOUT SOMETHING AND IT ALLOWS

YOU AN ADVANTAGE TO BUY ITBEFORE SOMEONE ELSE DOES THAT IS

CALLED FRONT RUNNING AND IT'SILLEGAL, YES?

>> BECAUSE IT'S A COMPUTER IT'SOKAY.

>> Jon: OH, BUT FRONTRUNNING AS A PERSON IS

ILLEGAL.

BUT AS A COMPUTER EH?

>> I THINK IT'S MORE GENERALLY APROBLEM.

PEOPLE DO THINGS WITH COMPUTERSTHEY WOULD NEVER DO AS PEOPLE.

>> Jon: WHY ARE YOU LOOKING ATME WHEN YOU'RE SAYING THAT?

SO THIS BOOK -- HERE IS WHAT ISGREAT.

THIS BOOK ISN'T JUST ABOUT THEWORLD OF HIGH FREQUENCY TRADING.

WHAT I DIDN'T EXPECT FROM THISBOOK IS A KIND OF GROUP OF HEROS

TO EMERGE.

THAT'S REALLY WHAT THIS ISABOUT.

THIS GROUP OF INDIVIDUALS THATGOT TOGETHER TO DO SOMETHING

ABOUT IT.

>> IT'S -- IT'S SUCH A STRANGESTORY BECAUSE IT REALLY IS --

IT'S ABOUT A GROUP OF PEOPLE WHOARE ACTUALLY ON WALL STREET WHO

FIGURE OUT, KIND OF AROUND 2008THAT THE STOCK MARKET IS --

SOMETHING FUNNY IS HAPPENING.

IT'S NOT JUST THE FINANCIALCRISIS. ALL OF A SUDDEN

THEY LOOK AT THEIR SCREENSAND THE STOCK MARKET SAYS

IT'S -- YOU CAN BUY 50,000SHARES OF MICROSOFT AT $20 A

SHARE.

THEY GO TO BUY IT AND IT GOESAWAY AND THE STOCK PRICE GOESUP.

IT'S AS IF THE MARKET KNOWS WHATTHEY ARE GOING TO DO BEFORE THEY

DO IT.

ONE CHARACTER. IT'S A CANADIAN.

A GUY NAMED BRAD KATSUYAMA WHORUNS THE STOCK MARKET AT THE

ROYAL BANK OF CANADA.

BECAUSE HE IS CANADIAN HE HAS ASENSE OF DECENCY.

[LAUGHTER]AND HE IS NOT LIKE SOME RADICAL.

>> Jon: HE IS A WALL STREETGUY.

>> HE IS NOT EVEN REALLY THATMUCH OF A WALL STREET GUY.

HE IS KIND OF A CANADIAN GUY.

[LAUGHTER]IT'S ODD THAT HE IS IN THIS

SITUATION BECAUSE HE ISCONFORMIST EVEN BY CANADIAN

STANDARDS. ALL HE WANTS

TO DO IS BE LIKE DOING GOOD WORKAT HIS WALL STREET FIRM.

BUT ALL OF A SUDDEN THE MARKETLOOKS RIGGED AND HE STARTS TO

ASK HOW IS IT RIGGED.

THE STORY IS THE STORY OF HIMTURNING OVER ROCKS AND FINDING

SOMETHING NEFARIOUS UNDER EVERYROCK UNTIL HE ASSEMBLED A

PICTURE OF THE STOCK MARKETWHICH NO ONE HAS REALLY

ASSEMBLED. INSTEAD OF TAKINGADVANTAGE OF IT TO MAKE MONEY OR

THE ROYAL BANK OF CANADA ORHIMSELF, HE TELLS INVESTORSABOUT IT.

WHICH IS ALSO ANOTHERKINDA CANADIAN THING TO DO.

THERE'S A CANADIAN DIMENSION TOTHIS STORY THAT RUNS THROUGH IT,

RIGHT.

>> Jon: I DON'T WANT TO SAY THENAME DUDLEY DO RIGHT BUT IT'S

HARD NOT TO SEE THE COMPARISONS.

[ LAUGHTER ]>> THE DISADVANTAGE THE STORY

HAS IS THE HERO ISCANADIAN BECAUSE EVERYBODY

KINDA GOES CANADIAN. BUT THE

>> Jon: HEASSEMBLES LIKE A RAG TAG TEAM.

OCEANS 11 TYPE GUYS.

>> YES.

>> Jon: LET ME PITCH THE MOVIEFOR YOU.

>> IT'S BEEN DONE.

>> Jon: THEY GET TOGETHER ANDTHEY START THEIR OWN STOCK

EXCHANGE THAT RUNS THINGS RIGHT.

>> THEY GO TO INVESTORS.

PEOPLE RUNNING THE SAVINGS OFTHIS COUNTRY AND SAY LOOK THIS

IS BASICALLY WHAT ISHAPPENING. THE INVESTORS --

YOU WOULD THINK THE INVESTORSWOULD KNOW WHAT IS GOING ON

IN THE STOCK MARKET AND THEYKIND OF DO.

THEY KIND OF KNOW SOMETHING ISWRONG.

THEY GO TO THE HEDGE FUNDMANAGER BILL ACKMAN WHO IS

ALWAYS BUYING COMPANIES ANDSELLING COMPANIES.

HE THOUGHT.

HE THOUGHT THEY HAD A LEAK ANINSIDER TRADING LEAK.

THE MARKET WAS SO ABLE TOANTICIPATE WHAT HE DID IN THE

MARKET HE THOUGHT SOMEONEINSIDE HIS SHOP WAS LEAKING

INFORMATION ABOUT WHEN HE WASDOING.

>> Jon: WHICH WOULD BEILLEGAL.

>> IT WOULD BE ILLEGAL.

>> Jon: BUT IF A COMPUTER DOESIT.

>> IT'S OKAY.

ESPECIALLY IF IT'S A MAC.

[LAUGHTER]BUT SO -- SO -- THIS HE GOES --

HE EDUCATES PEOPLE.

THEY SAY TO HIM CREATE A FAIRPLACE FOR US TO TRADE.

SO IN A WAY HE WAS ANSWERING ACALL.

>> Jon: AND THEY DO IT ANDPEOPLE GO AFTER THEM IN

INCREDIBLY VICIOUS WAYS, TRYINGTO RUIN THEM AND BREAK THEM.

AND THEY CREATE THIS IEX ANDIT'S WORKING.

IT'S STILL GOING ON THOUGH.

YES.

THE PROBLEM IS -- DO WE HAVETIME HERE.

>> Jon: HERE IS WHAT WE'LL DO.

I WANT TO TALK ABOUT THEFINANCIAL NEWS NETWORKS AND

THEIR RESPONSIBILITY IN THISAND WHY THEY ABDICATED AND WHY

THEY ARE ATTACKING YOU LIKECRAZY FOR JUST WRITING THIS

STORY. WHEN WE COMEBACK WE'LL TALK ABOUT.

THAT WE'LL BE BACK WITH MOREFROM MICHAEL LEWIS.

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