One has to wonder why we are dodging this truth about what we’ve become: a nation that turns a blind eye to skimmers, scammers and legal looting.
As in the story of the Emperor’s new clothes, the onlooker who declares the obvious– in this case, that the stock market is rigged–shatters the consensus lie.In the current saga, author Michael Lewis plays the role of the truth-telling boy, and everyone who went along with the fiction that the Emperor’s high-frequency trading finery was resplendent is revealed as credulous, complicit or worse.
Lewis’ new book is Flash Boys: A Wall Street Revolt.
The high-frequency trading (HFT) scam is old news, and a number of fine books have addressed the mechanics of the skim, for example Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System by Scott Patterson.
Many in the alternative financial media have written about HFT for years. Here are two of my own entries on the topic:
The Stock Market Is an “Attractive Nuisance” and Should Be Closed (August 22, 2012)
We Need a New Stock Market (September 14, 2012)
Interestingly, Mr. Patterson outlined the solution that the heroes of Lewis’ book ended up pursuing. Here is a Q&A I conducted with Patterson in September 2012:
CHS: While there are various regulatory “tweaks†that could be put in place, I wonder if we don’t need a more fundamental “re-set†that asks what role the market should play in finance and the economy inhabited by everyday investors.Â
Scott: I think there are a lot of people in the industry wondering about whether there needs to be a massive overhaul. But it’s probably not a good idea for that to be imposed on the market by the SEC. The uncertainty would be potentially destabilizing. And I just don’t see it happening.
I think the change needs to come from within the market and needs to be imposed by its most important users–I mean, not the high-frequency traders, who are running the show at the exchanges in many ways–but the institutions, the giant mutual fund companies, the pension funds, the long-short hedge funds. They need to exert pressure on the exchanges to stop giving advantages to high-frequency firms.
