Modern finance is human and intellectual waste…
Mammon and His Slave, Johann Jacob Weber, 1896
From London Review of Books:
One of the most adroit things about Flash Boys is the size of its frame: Lewis tells his story and then lets the reader draw her own conclusions about its meaning and consequences. He keeps the focus tight. That’s one reason the book has done so well: avid lefties and ardent free-marketers can fully agree with pretty much everything in it. If you want to, though, you can see large questions lumbering into the background of the shot. One of them is: to what extent is the story of the flash boys just the story of the flash boys, and to what extent is it a story about the nature of modern capitalism? In a New York Times op-ed, Paul Krugman argued that the important point isn’t so much the specifics of Lewis’s story, as the big picture of a dysfunctional and predatory financial sector: ‘Never mind the debate about exactly how much damage high-frequency trading does. It’s the whole financial industry, not just that piece, that’s undermining our economy and our society.’
Lewis would disagree with the ‘never mind’ part, but I suspect he’d agree with the rest. The story about finance that he began to tell in his first book, Liar’s Poker, the exuberant and uproarious account of his time as a bond salesman at Salomon Brothers, and continued with his credit crunch book, The Big Short, is getting steadily darker. In the prologue to The Big Short, Lewis wrote that when he sat down to write his first book, ‘I hoped that some bright kid at Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Goldman Sachs, and set out to sea.’ Instead, and of course, ‘six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State University who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.’ After finishing Flash Boys, I found it hard not to think about those missing oceanographers, the computer geniuses and engineers and physicists and entrepreneurs, all those brilliant minds, all that passion and energy disappearing into the black hole of money, lost to all the more productive and interesting things that we humans can do. It’s hard not to feel a sense of loss when you think of what these people would have done, if they hadn’t been sucked into the enterprise of making money out of money. If we ever get enough distance to look back with some sense of perspective on the delirium of modern finance, I think this is what will stand out clearly: that sense of human and intellectual waste.
That ought to be enough gloom to be getting on with, but Flash Boys left me with an additional thought. The story of high-frequency trading is, more or less, the same story that is being told by Thomas Piketty. Lewis is about narrative and Piketty is all about analysis and data, but these two big books about modern capitalism are both accounts of how capital became more and more ruthless; how the very richest got even richer. You could well see Flash Boys as a case study in the story of Capital in the 21st Century. ‘It is tempting to believe that people who think this way eventually suffer their comeuppance,’ Lewis wrote about Wall Street, in his epilogue to the 2010 reissue of Liar’s Poker. ‘They don’t. They just get richer. I’m sure most of them die fat and happy.’