Who would pay $10.6 million for access to an optic fibre line that reduces signal transmission time from the Chicago Mercantile Exchange to the Nasdaq in New Jersey from 16 milliseconds to 13 milliseconds? Why would Goldman Sachs call the FBI on a programmer who had copied some code, based on open source code, to his personal library? Michael Lewis searches for answers to these questions and more in this highly interesting book.
If you, like me, have wondered what new method banks found to make billions of dollars in profit after the 2008 crisis, here is part of the explanation. High frequency trading is the name of the game, where the game is played in micro and milliseconds, and middlemen take all the money. Dark pools are another trick, exactly what the name says, private stock exchanges run by banks where money goes in and money comes out and nobody knows what is happening.
The book follows Brad Katsuyama, founder of the Investor’s Exchange, as he tries to unravel what is happening to the world of trading in the US, and fix it. I found it interesting that it was a Canadian guy working for a ‘nice’ Canadian bank, who exposed the new twistedness in the US financial system- it seems that the Americans were too busy chasing after the money to give a damn. Lewis writing style is simple and engaging, and does not require you to know high finance to understand what’s going on. He also points to a few other books that explore the new murky world in more detail, and I will try to read those sometime; the numerous ways banks try to game the system is indeed morbidly fascinating.