Author and former bond trader Michael Lewis appeared on “60 minutes” this week and declared the stock market is rigged.
Lewis said companies use high-speed complex algorithms to move in positions in a fraction of a second. The system is known as high frequency trading or “HFTs.”
Lewis said that high frequency traders are able to “front run” orders. They are buying a block of stocks, fractions of a second before your order goes through and sell them back to you at a higher price.
“They’re able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price. The speed advantage that the faster traders have is milliseconds, fractions of milliseconds.” says Lewis.
Lewis is the author of bestselling books Liar’s Poker, Moneyball:The Art of Winning an Unfair Game, and The Big Short: Inside the Doomsday Machine.
Lewis received a BA in Art History from Princeton in 1982. He then went to the London School of Economics and received his MA in 1985.
Lewis landed a job at Salomon Brothers moving to New York for their training program, which he writes about in Liar’s Poker. He then moved to London to work as a bond salesman.
Lewis, promoting his new book Flash Boys: A Wall Street Revolt on The Daily Show Tuesday said “The difference between the information the high frequency trader sees and what most investors see is a couple of milliseconds.”
He has been a critic of the wall street culture in his books. In the 60 minutes interview he declared “It’s bigger than a scam, it is the stock market.”
In a piece titled The End, Lewis wrote “I was 24 years old and had no particular interest in guessing which stocks and bonds would rise and which would fall. I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out richer in 1988.” He continued, “That a single bond trader might be paid 47 million dollars in one year and feel cheated.”
In the 60 minutes interview, Lewis said “One hedge fund manager said, ‘I was running a hedge fund that was $9 billion and that we figured that the, just our inability to make the trades the market said we should be able to make was costing us $300 million a year in someone else’s pocket.”
Lewis has been a contributing editor to Vanity Fair since 2009.