TODAY   |  April 01, 2014

Michael Lewis calls Wall St. ‘unfair playing field’

Best-selling author Michael Lewis, who has written a series of books taking Wall Street to task, joins TODAY to chat about his latest work, “Flash Boys,” in which he claims that the financial markets are rigged.

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This content comes from Closed Captioning that was broadcast along with this program.

>> lewis has written a series of books taking wall street to task. in his latest, "flash boys," he claims the financial markets are rigged. and he says it all comes down to timing.

>> look at it like this, imagine there's a girl you want to ask out, so you send her a text message , but another guy sees what you're doing and decides to ask her out, too, only he has the most advanced phone around and his text gets there before yours does and he gets the girl. imagine instead of losing out on a date, you're losing out on billions of dollars of computerized trading. of course, the whole thing is a lot more complicated than that. michael lewis , good morning.

>> good morning, matt.

>> it's not completely accurate, but i'm trying to make the point, you're being beaten to the punch when it comes to computerized trading in the stock markets .

>> exactly. the market moves at two speeds. one speed for people who pay for access to the exchanges, who put their trading machines right next to the black boxes that actually now the exchange is. and everybody else . and we're everybody else . everybody else being kind of investors in the stock market .

>> there's a version of this called front running. the version you're talking about in the book in this book is legal, and in your opinion infuriatingly legal.

>> you know, i think we're going to find out whether it's legal or not. because the attorney general and the fbi have suddenly opened investigations into the practices. but yes, it seems like the sec is fully aware of what's going on and it doesn't seem to bother them that much.

>> basically, high-volume traders, michael, and investing in the fastest possible technology, in some ways, they see your trade before it reaches its destination and they go in and trade before you get there.

>> that is exactly what happens. they actually -- the average investor -- and by that i mean everybody from the guy sitting at his etrade account to the biggest pension funds and hedge funds in the world are seeing old prices compared to the high-speed traders. high-speed traders are seeing the market in more like realtime. and are trading against people who don't know the market.

>> here's the way you write about it in the book. the u.s. stock market was now a class system rooted in speed of haves and have nots. the haves paid for nanoseconds, the have nots had no idea that nanoseconds had value.

>> and the problem is that the haves are generating so much money, they create a eco system on wall street around themselves. they pay the exchanges, pay the banks to be involved in it. so it's -- as soon as this profitable business arose, it created kind of its own logic.

>> why shouldn't i applaud these guys? for using technology to their best advantage? isn't that what the system's all about? don't we want speed in trading?

>> we do want speed in trading, but i think we want every dollar to stay on the same chance and it's an unfair playing field . it's crazy for investors to be trading against people who have essentially knowledge of the prices before they do.

>> you are shaking a stick and knocking it into a hornet's nest. and that hornet's nest is fighting back, it's stinging. here are some of the things people are saying about your book. that you are misinformed, that you're unfair and irresponsible, that you have simplified your story. the advocacy organization for high-frequency traders modern markets initiative said flatly, the markets are not rigged, saying otherwise is a broad generalization that lumps bad behavior in with a few bad actors. they say the system you're talking about actually provides liquidity in the markets.

>> what else are they going to say? i don't know where to begin there. but the story isn't my story. the story i tell in the book is a story of people who are actually wall street insiders who realize kind of starting around 2008 , the market's behaving funny. the markets on their screens is no longer the market they can act on. every time they go to trade, the market seems to know what they're going to do before they do it. and the story is their investigation of this market. and involves people from exchanges, people who work at high-frequency trading firms, people who came out of the big banks.

>> these guys, these insiders you're talking about are whistleblowers to an extent and they're hearing from other whistleblowers in the industry.

>> yeah, in fact, the last few days, to describe what's going on in the exchanges. so this is -- i mean, this isn't michael lewis making grand pronouncements, i'm following a story of people -- actually wall street insiders trying to figure out how this stock market works because they, themselves, don't understand.

>> one word answer, this is going to prompt people to want to take their money out of the markets, should they?

>> no, i don't think that's the right answer. because you're talking about scalping, pennies each trade. it shouldn't go on, it's unnecessary, wall street intermediation, but the stock -- it's crazy to miss out on the investing in the stock market just to avoid being scalped.

>> typical writer, that wasn't a one-word answer.

>> sorry.

>> good to see you again. again the book is "flash boys."

>> 362 words, michael. april fool 's.