Chapter 4 pg 89-127, and Money Culture by Michael Lewis

  • This chapter focuses mainly on how it was legal for a handful of insiders to operate at faster speeds than the rest of the market and in effect steal from investors, how that corruption had come about, more about HFT(high frequency trading) and the role RBC played. Money Culture paints a portrait of the 1980s financial scene, and I focused on the parts about the 1987 crash, which was also mentioned in Flash Boys.
  • Money Culture; Page 100,”Pointing to the crash of October 1987, the SIA warns that,”the securities markets are extremely sensitive to regulatory and legislative developments, including unofficial remarks by policy makers”
  • Flash Boys; Page 113-114,”By the middle of 2011, roughly 30 percent of all stock market trades occurred off the public exchanges, most of them in dark pools. The appeal of these dark pools…was that investors could expose their big stock market orders without fear that those orders would be exploited”
  • Focusing first on Flash Boys and how the corruption worked, John Schwall found out about the Regulation National Market System ( Reg NMS ), which required brokers to find the best market prices for the investors they represented.The new law required a mechanism for taking the measure of the entire market, the Securities Information Processor (SIP )The thirteen stock markets piped their prices into the SIP and the SIP calculated the National Best Bid and Offer (NBBO) If everyone on Wall Street abided by the Reg NMS, the rule would have established a new fairness in the US stock market. However, the rule contained the loophole that it failed to specify the speed of the SIP. The technology was improved by the high frequency traders setting up computers inside the exchanges, and taking advantage of the cap in time between the public SIP and the private ones as well as how much the stock price moved around. I would argue that this is majorly a part of the main focus of the book, how the stock market has changed and become corrupted. I am interested to learn about what, if anything, has been done or is planned to be done about exposing the stock market and possibly correcting it. I think with the connections and wealth of the major players in the corruption, punishing them legally and possibly politically, could be very hard and I can’t think of many people who would be interested in doing so. I think it’s really interesting how oblivious the “have nots” are and how much people lost from the corruption. Schwall talks about how,”people set out this way to make money from everyones else’s retirement account. I knew who was being screwed, people like my mom and pop.” This goes way back to one of my earliest posts where I talked about my interest in the topic is partly because the effects on the average people. Underneath all the jargon and acronyms and Wall Street gibberish, thats what this book is all about, the change in the stock market which caused so many lives to be ruined. In Flash Boys it is talked about how the 1987 stock market crash, gave rise to the first form of high frequency trading. Money Culture talks specifically about the 80s, and Lewis talks about everything from personalities to the U.S culture to Britian’s culture to the RJR Nabisco takeover. I think that Money Culture shares a lot of parallels and common themes with Flash Boys, such as the effects of personality, and the corruption. I am planning on reading Money Culture in more depth and subsequently gain a greater understanding. The 1987 crash is mentioned in both books, and I am planning on finding more outside sources about that crash, because I believe that it was a key turning point in the history of the stock market.
Advertisements

One thought on “Chapter 4 pg 89-127, and Money Culture by Michael Lewis

  1. With the introduction of Money Culture, it seems like you can make a chronological case for how the market and those who trade in it have changed. Based on on my limited understanding Lewis seems to suggest there was a basic change in behavior among firms in the 80’s and that culture has sustained itself into the present, even though we have had precipitous crashes which have led to people losing money at the incompetent hands of others. However, as you suggest, the very people who are making the mistake are the very foundation of our economy, and no one is really interested in punishing them because they run the money that allows the market to function, and they have connections to the very people in government that control currency and world trade relationships. A lot to consider in any case.

    Like

Comments

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s