Flash Boys – A Review

June 3, 2014

Is the stock market rigged? And what does “rigged” mean, anyway?

Some people say that the market is controlled by a few shadowy individuals who manipulate news and world events so they can buy low and sell high. Some do actually rig the market by trading on inside information or illegally manipulating company financials – very occasionally getting caught. And there are a few penny stocks that are largely traded as part of pump and dump scams.

Michael Lewis’s “Flash Boys” says that the market is rigged, in that high frequency traders (HFT) learn what you want to buy or sell a few milliseconds before the rest of the market. Armed with this information, they can cut in front of everyone else, change the price, and play you (or your mutual fund) for a sucker. It’s like insider trading, but completely legal and riskless.

Flash Boys tells the story of HFT, from the point of view of its victims.

The hero of the book is Brad Katsuyama, a nice guy at the nice Royal Bank of Canada who makes a nice living (a couple of million a year) trading stock for large clients. Let’s say Fidelity wants to buy 10,000 shares of AT&T. If they try to buy it all at once, then the market will react, and they’ll have to pay a premium. Brad’s job is to spread the trades out so Fidelity pays a more reasonable price. It’s not clear why this couldn’t be done by a computer program, saving a couple of million dollars a year, but that’s another book.

Brad runs into problems, though. To do his job, he needs to know what the market price is. But whenever he tries to trade a stock, the price changes before he can do it – the market price doesn’t exist. Brad investigates, and ends up going down the rabbit hole of HFT, eventually putting together a team that builds an exchange that can’t be front-run by the HFTers and will give fair prices for all. Hurrah!

That’s the main story, at least. There are a couple of other bits on someone building a straight-line data route from the Midwest to the East Coast, and a computer programmer who’s sent to jail by Goldman Sachs for taking code when he leaves. Both work well.

How important is HFT? The heroes think it’s a major threat to capitalism and a massive swindle on the ordinary American investor. The book isn’t quite clear on how big an effect it has, but people who work in finance tell me it’s more like the man who takes a penny from everyone’s bank account – he can get rich, but you as an individual don’t notice much. In fact, maybe it’s beneficial in that it provides liquidity. And besides, competition among HFTers should drive arbitrage profits down to near zero. And you can minimize loss to HFT by not trading a lot, which is probably a good idea anyway.

So is there nothing to worry about? Not quite. The strongest point against HFT is the flash crash, when many shares traded at ridiculously high or low prices for fractions of a second. If everything is for the best in this best of all possible markets, then why did the flash crash happen?

Looked at a different way, is it a good thing that so much effort is being devoted to shaving an extra millisecond off the time for orders to reach market? It seems hard to imagine that we couldn’t put our best and brightest to use in some more socially productive fashion. But under our current system, what would that be? These days, if not finance, all the mathematicians are busy figuring out which ads to show you on the Internet, and how much companies should pay for them. On the other hand, in previous years, they were figuring out how to find enemy submarines, or calculate how many tractors Donetsk should produce, so perhaps we are better off now. And at least creating the straight-line routes needed led to some construction jobs in the depth of the recession.

How is the book as a story? Good, but not Lewis’s best. One of the problems is that the main character does not have much depth. Brad is portrayed as a Dudley Do-Right – a minority who doesn’t think of himself as a minority, who works hard and sails into a job at the RBC, and whose main concern in life is making sure that investors can trade at a fair price. His steadfastness to his principles is admirable, but the lack of character development does not make for the best story. Even Jesus got angry, tempted, and despaired. Brad works with an Irish tech guy, Ronan, who has the same single-minded devotion to the cause, but with more swearing.

Overall, the book moves along nicely, though, and does a reasonable job of making the dry subject matter interesting.

Should you buy this book? As far as I can tell, it doesn’t lie, but it does give the anti-HFT viewpoint an extremely uncritical platform. Maybe we should be encouraging Lewis to try harder, but you can buy it with a clear conscience.

Will you enjoy this book? Are you interested in how HFT works, and how a stock exchange might try to stop it? If so, then you will find this book interesting. If those details seem kind of technical, then this is not the book for you.

Flash Boys ends happily for all concerned. On the page, Katsuyama’s fair IEX exchange is a success. In the world, Lewis’s book is a best-seller and being cited approvingly in Congress. And if you’re in the market, then perhaps you’ve noticed a few pennies more in your account.

Notes on Crimea

April 4, 2014

The most important thing about Crimea is that Crimea is not that important.  What does it have?  Some beaches that are nice enough if you’ve never seen Hawaii.  A few natural resources.  The Russian Black Sea fleet, their key to projecting power in the Mediterranean, if you forget about Istanbul being in the way.

Putin’s seizing of Crimea is a crime, of course, and one that should be protested, but it’s a curious one – like a mugger who holds you at gunpoint, but is only interested in taking a lucky penny.  In fact, Ukraine is better off without Crimea – it’s poor and full of ethnic minorities suspicious of their central government.  Plus Ukraine no longer has to pay maintenance on the Ukrainian fleet which turned out to be even more useless than the Russian Black Sea fleet.  Crimea was only in Ukraine in the first place because Khrushchev put it there.  Why?  Nobody knows, but then nobody knows why Khrushchev did anything he did.

But isn’t Crimea like the Sudetenland – Russia’s first step to global domination that will end up with the reconquest of Alaska and the annexation of San Francisco’s Russian Hill?  Not really.  First, the Sudetenland was actually useful.  Second, Germany was an economic powerhouse.  And most importantly, the Russians have somehow saddled themselves with nationalism – an ideology even less appealing to the rest of the world than fascism.  The Nazis said most of the rest of the world was fit only to serve Germany, but still managed to get allies in France, Italy, Eastern Europe – even Japan.  Who are Russia’s friends?  Belarus, Serbia, and half of Syria.

This is not to say that Putin has no ambitions.  If you’re a non-NATO country bordering Russia, you should probably Finlandize now and save yourself the trouble.   But on the list of things the West should be worried about, this is pretty low.

What should the administration do?  Formal protests, some sanctions, maybe toss Ukraine some money, have a couple of exercises defending the Baltic states against unspecified aggressors – basically nothing.  Luckily, gridlock and a sputtering economy means that the United States now has doing nothing down to a fine art.

Double Down – A Review

March 3, 2014

“Double Down” is a behind-the-scenes look at the U.S. 2012 election and primaries.

We already know the broad outlines – Romney was the best of a bad bunch of Republican candidates, but limped from gaffe to gaffe.  Obama had a lackluster performance in the first debate, but landed a knockout punch on Benghazi in the second, and cruised to a big victory.  So the book reads like a director’s commentary on a familiar movie.

What do we learn?  Obama’s heart was not in the debates initially, and his mocks were consistently bad.  Partly this was because of his general ambivalence to the whole process, and partly because he didn’t feel his second term agenda had anything big worth running on.  But with a lot of drilling and prep from his team, he was able to get the job done in the end.

During the campaign, Biden came out for gay marriage before Obama.  It turns out that this was a simple blunder rather than a move in five-dimensional chess – the administration had planned for the President to make a big announcement at a particular time, but neglected to let Joe in on the plan.  Biden comes off reasonably well – not the most polished, but ferociously loyal to the President, realizing that their fortunes are inextricably linked.

Also interesting in the light of recent events – Romney had considered Christie as a VP, but rejected him as there were too many unanswered questions in his background.  Romney felt mistreated by the media, and this book indirectly claims he had a bit of a case, whether it be the NYT writing the misleading “Let Detroit Go Bankrupt” headline for his op-ed, or Candy Crowley breaking debate rules to fact-check him over Benghazi.  On the other hand, he should have known that going in, and been more cautious in wording his article, or finding out just what Obama said.

What does the book miss?  It only touches briefly on Obama’s hugely successful analytics team, and Romney’s analytical fiasco.  Nate Silver is not mentioned, though he is arguably the most important non–partisan figure of 2012.

Indeed, the central puzzle of the election is why Mr. Fix-It Romney was unable to fix his own campaign.  Partly it’s that hostility to mainstream media blinded him to useful truths (e.g. that he was losing, or that independents didn’t think of Benghazi as a big strike against the administration), partly that he had to run against his moderate record (e.g. Romneycare), and partly that his success in business didn’t signify as much as you might think.  Having worked for would-be Romneys, there is often less to them than meets the eye.

Should you buy this book?  The main argument against is that we should not be encouraging this type of personality-driven narrative – fundamental demographic forces, and data-driven fundraising and microtargeting were much more important to the election than anything Clint Eastwood or Valerie Jarrett did.  I’m sympathetic to this view, but feel it misses some important points.  First, Obama’s initially poor debate performance had a noticeable impact on the polls.  Without at least a reversion to average, Romney would have won.  More fundamentally, it’s not enough to just have the ingredients for victory – “dust does not sweep itself”, as Mao said.

Will you enjoy this book?  If you’re a Democrat, and follow political trivia enough that you could recognize Axelrod or Messina, then you will love it.  If you’re a Republican, then you will hate it.  Everyone else will bored.

“Double Down” is the sequel to the successful “Game Change” and includes many of the same characters.  The authors are probably tossing around names for their 2016 book right now.

Memoirs by Rachel Dratch, Julie Klausner – review

February 15, 2014

Rachel Dratch’s “Girl Walks into a Bar . . .: Comedy Calamities, Dating Disasters, and a Midlife Miracle” and Julie Klausner’s “I Don’t Care About Your Band: What I Learned from Indie Rockers, Trust Funders, Pornographers, Felons, Faux-Sensitive Hipsters, and Other Guys I’ve Dated” are similar – memoirs by modestly successful Jewish comediennes.  Rachel is a bit more successful and famous, having broken into the vernacular as SNL’s “Debbie Downer”.  The big difference is that Rachel is in her forties, Julie her thirties.

Julie’s book mostly recounts her misadventures in dating, of which there are many.  Typically she falls for a man who treats her badly, but who is great in bed.  There is the occasional dalliance with someone she connects with (or at least likes the same music as), but who won’t sleep with her.  Dollar-book Freud would say that the important thing for her is to avoid the combination of physical and emotional intimacy at all costs.  At the very least, something strange is going on if you’re a New Yorker looking for dates in Tulsa, Oklahoma, as she once does.  But she generally resists such self-examination, and for most of the book you wonder “Will Julie really sleep with this clearly unsuitable person?  Even if she doesn’t really like him?  Or find him physically attractive?”  Yes she will.

Making it as a writer is clearly important to Julie, but we don’t get to hear much about this.  A misjudgement – many of us have dated crazy people, but few of us know what it’s like to write for a TV show.

Rachel’s book is similar, but those extra ten years or so give it a bit more depth.  She is more self-reflective than Julie – at one point deliberately changing her dating pattern to avoid guys in show business.  This turns out to be a good move, and she meets a nice guy and accidentally gets pregnant when she thought she had no chance.  She talks more about her career in general – after SNL, she was on 30 Rock in guest roles for the first season, but then the work dried up, leaving her only with offers to play “comic” old and obese lesbians.  And there are some inside insights – what is interviewing with Lorne Michaels like?  What’s working for SNL like?  Her behind-the-scenes skewering of the allegedly dreadful film “Her Minor Thing” in which she had a “wacky lesbian” role almost makes you want to watch it.

Rachel and Julie come from similar backgrounds, but have different public personas.  Julie is the cool kid who cuts class, makes fun of lots of things, and expects you will too.  Most likely she will casually trash one of your favorite bands before the end of the book.  Rachel is the A student who works hard, tries to do the right thing, and really wants you to like her.  You would probably go to more exciting parties with Julie, but be more comfortable hanging out with Rachel.

Should you buy these books?  Rachel seems like a genuinely nice person who would put the money to good use.  Julie can be a bit mean at times, but some of that is an act.

Will you enjoy these books?  If you like 30 Rock, then you will like Rachel’s book.  Not that it mentions 30 Rock that much after the first chapter, but the sensibility is pretty similar – comedy, dating, and showbiz, with Rachel being close to Liz Lemon, but without Tina Fey’s leading-lady looks.  Rachel was originally considered for the Jenna Maroney role on 30 Rock, and if that fact doesn’t interest you, then you probably won’t like the book.

What about Julie?  Her book falls more squarely into the vicarious experience genre – here’s what it’s like to go to law school / enlist in West Point / date a bunch of crazies.  Useful if you’re curious but don’t have the LSAT scores, upper-body strength, or lack of self-respect required.  If you haven’t dated enough dysfunctional people, and are interested in learning what that would be like, then this is the book for you.

One note: Julie also writes the “How was your week” podcast, which largely consists of superficial industry snark delivered at a slow pace.  Very different feel to the book, and not recommended.

Rachel Dratch and Julie Klausner’s books are available at the usual bookstores, or as audiobooks read by the authors.  They are generally light listens suitable for the commute, and they do good jobs reading them.

21 Dog Years: Doing Time @ Amazon.com – A Review

November 6, 2013

“21 Dog Years” (alternatively subtitled “A Cube-Dweller’s Life”) is a book by Mike Daisey about his experiences working at amazon.com, first as a customer service grunt, then as a business development executive.

You may know Mike Daisey for his recent piece on public radio’s “This American Life”, about horrific working conditions in an iPhone factory.  It was moving, eye-opening, and largely made-up.  TAL investigated, and disgrace followed, with Daisey being interviewed and condemned on-air by host Ira Glass.  At the end of each episode of TAL, Ira has a little jokey aside, saying “Management oversight by Torey Malatia, who says…” and he uses some humorous quote from the show to gently make fun of his boss.  I only remember him deviating from this formula twice – once when Torey’s father died, and once for the Daisey-excoriation episode.  The shame was so great that Daisey considered suicide, but is now back onstage story-telling in NYC.

All this is to say that reading this book is like watching the first episode of a TV show after you’ve seen the series finale.  Can we look at it on its own terms, or do we have to read it in the context of what’s happened later?

Is the book truthful?  Daisey says that “Some facts were injured in the telling of this story,  The truth, however, remains unharmed.”  Who knows what that means?  Were there really sirens that went off in the customer service department whenever metrics fell below a certain level?  Or is that like the armed guards Daisey invented for the iPhone factory – something that paints a vivid picture and gets to the essence of a situation without being “true” in the sense of having actually happened?  The problem is compounded by Daisey’s being admittedly untrustworthy – he shortens his average customer response time by simply hanging up on people after a few seconds, and is promoted to BizDev on the strength of a PowerPoint using completely fictitious data.  When someone explains their deceptions to you, are you sure that they’re not just playing a long con?

Truthful or not, Daisey does know how to tell a story, and the main thrust of what he says matches what’s more recently described in Brad Stone’s “The Everything Store”.  It makes an interesting complement to that book, with Daisey giving low-level details that Stone doesn’t talk about from his C-level perch.  Daisey also skillfully incorporates another point of view via the skeptical interjections of his fiancee, who likes that he finally has a job, but not that he works so hard at it.

When Daisey wrote the book, just after the dot-com bubble burst, amazon.com looked to be on the verge of collapse.  His writing reflects this, painting amazon as just one level above a scam.  The overall tone is “How could we have been all so blind?”  Of course, with hindsight he underestimated the company, but was not out of the mainstream in this.  “21 Dog Years” is not a business book, but using his experience at BizDev, Daisey quickly and entertainingly demolishes CueCat (a forerunner to QR code scanners) and pets.com.

Should you buy this book?  Daisey is a liar and con artist, but so are many people with interesting stories to tell.  Your surfing the web probably generates as much revenue for many more unsavoury types.

How do I rate this book?  Following amazon’s review system, I give it 4 stars out of 5 – dropping a star because it’s not quite clear what’s fact and what’s fiction.  But perhaps we should view it as a novel in the same insane-workplace genre as “Microserfs”, “The Circle”, or “The Devil Wears Prada”.  For this I give it 5 stars.

“21 Dog Years” is available at Powell’s, Barnes and Noble, and other online bookstores.

How To Be Black – A Review

October 18, 2013

“How To Be Black” is a satirical book by Baratunde Thurston, a comedian best known for his work at The Onion.

Well, actually, it’s about one-third satirical.  The book has three main strands – satire (example sections – How to be the Black Employee, How to be the Angry Negro), memoir, and ruminations on various black-related topics by groups of his friends (including the white Canadian author of “Stuff White People Like”),

The satire is very good, and I wish there were more of it (“Skiing, my sister?  Are you so obsessed with whiteness that you must frolic in it?”).  The memoir is O.K.  Baratunde has led an interesting and varied life (father killed in drug deal gone bad, lily-white private school in the week, Afrocentric youth group on weekends, Harvard, strategy consulting, and comedy), but one which lacks the access to important events you might find from a Barack Obama or a Spike Lee.  He is also a little guarded.  For example, as a teenager he was completely opposed to the military (and kind of obnoxious about it), but he implies that his consulting work included Defense Dept. business.  It would have been interesting to learn about his maturing (or selling out, from his original point of view).  And what is it like to write for The Onion?

As for the ruminations, these are generally skippable.  The friends are nice enough, but don’t generally come up with much more interesting than “If a black person does it, then it’s a thing that black people do”.  Maybe this is the “No False Scotsman” argument?  One of his friends is a (the?) black woman libertarian, who explains that she just loves liberty (as opposed to the rest of us Stalinists?)  We shouldn’t expect somebody to give a probing interrogation of his friends, but some questions could have been useful, such as “Is government action useful to remedy past injustices?”  “Should businesses have the freedom to racially and sexually discriminate?” and “Did you vote for Obama, or should we just tear up your black person card now?”

So should you buy this book?  The answer is yes, because black writers could use the sales (and, as the author notes, it will count as one point towards your Black History Month obligations).

Will you enjoy this book?  I suspect the answer depends on how close you are in background and outlook to Baratunde.  Are you black?  Do you like The Onion?  Are you proficient in Excel?  Do you remember Lynx and Pine?  The intersection of these sets is much smaller than it should be, but to delver deeper into that would take us into Angry Negro territory, and Baratunde has already done that, in a pitch-perfect satire suitable for all races.

Why TV will be around for a while

January 5, 2013

Suppose you were predicting the future of media, politics, and culture in 1963.  You would note that television was clearly the medium of the future, of the young.  Radio was dying – unable to compete against the new and superior technology.  Ad dollars were moving en masse to TV, and TVs were becoming more affordable and higher quality all the time.  You would point to JFK’s TV-assisted debate victory and declare that radio would have almost no role to play in the new world – everything would be based on images.

Well, here we are, fifty years later.  Who is the leading political figure on the right?  Rush Limbaugh – a physically unappealing radio demagogue.  And who’s the leading cultural figure on the center-left?  Ira Glass – host of the radio show “This American Life”.  And what would our prophet of 1963 have made of podcasts – people listening to radio shows of lower production quality than available in the ’60s, even when huge Hi-Def TVs were available?  Somehow the medium that was supposed to die, didn’t.

In 2013, advertising experts claim that TV is doomed, and the future is mobile.  But they are making the disruptor’s error – they see an exponential change, but overestimate how far it will go.

So what can save conventional TV from obsolescence?  A few things:

1) Big screens are big.

People like big TVs, and they’re prepared to pay really big money for them.  Until Apple comes up with a way to make iPads that you can unfold and put on your wall, you can’t do big on mobile.

2) The mass market is massive.

We hear so much about microtargeting and the long tail these days that we forget that there are plenty of advertisers that just want to reach a lot of people.  TV does that, and in a finely-tuned brand-safe way.  And, even better, people want to watch what everyone else is watching, at more or less the same time, so they can talk about it, like a book club or a movie opening.  And best of all, everyone likes the same things anyway.  You would only need ten different well-chosen TV shows to make sure that 95% of people in the U.S. loved at least one of them.  With fifteen, you could get 95% of the world.

3) TV just works.

Press the on button, and something will appear on your TV.  If you’re in the right demographic and do this at the right time, it’s pretty likely to be something you like.  And that’s all you have to do.  No passwords, no search terms, no network connection, no playlist, no seeing what your Facebook friends recommend – just press one button and there it is, and many highly-paid people work long hours to make sure that you will like it.  What could be simpler?  What could be better?

Now, you might object that these obstacles could be overcome – companies could produce videos for iPads with high production values and mass-market appeal that could be quickly and easily seen on a big screen with minimal selection required.  This will be a revolution, but of the Animal Farm variety, where at the end we will look from TV network to internet media company, and not be able to tell which is which.  Or, as I expect to hear at advertising conferences shortly – “Small Screens Good, Big Screens Better”.

Grandpa, what’s a Republican?

December 4, 2012

- Grandpa, what’s a Republican?
– Republican? I haven’t heard that word in a long time. Where did you hear it?
– It’s for a school project. We have to talk about something from old-people times, like record players or dial phones.
– I see. Well, the Republicans were a big political party once.
– Like the Democrats?
– Kind of, but more right-wing.
– What did they stand for?
– Well, they were pro-life, for one thing.
– You mean they were vegetarians like the Greens?
– No, people didn’t really think about food politically in those days.
– So they were for gun control and against the death penalty?
– No, not usually. They thought everyone should have a gun, to be safe.
– They thought we shouldn’t have an army, like the Libertarians?
– No, they wanted a very big army, and they used it to invade some other countries.
– Grandpa, I think you’re confused. Maybe you mean they were pro-death?
– Maybe. It was kind of confusing.
– What did they want to do about global warming?
– Well, they really didn’t think it was a problem.
– You mean because people didn’t know about it?
– No, I mean they didn’t believe in it. It was before the Great Fires, you see.
– Oh. OK. But everyone else believed in it?
– Kind of. But nobody really thought it was a big deal. Back then you could do all sorts of things. Everyone had a car, even poor people, and they could drive it whenever they liked. And there were machines which would give you as much water as you liked – even ice – even in the summer.
– It sounds pretty wasteful, Grandpa.
– Maybe it was. But things were very different then.
– So how come there aren’t any Republicans any more?
– I’m not sure. I think they just started winning fewer and fewer elections, and eventually they just gave up. We could ask your other grandpas, or we could Google it.
– That’s OK. I think I have enough to write about now. Oh, but Grandpa?
– Yes?
– What’s a Google?
– Let’s talk about that some other time.

Republican political correctness

August 15, 2012

The latest mini-flap? Biden’s saying to a partly black audience that Republicans want to put them in chains by reversing Wall St reform. Team Romney has vigorously objected, but it’s hard to see why. First, there’s plausible Bidenability – the VP has such a gaffe-prone reputation that nobody cares what he says. Second, the audience didn’t object. Third, Republicans should be spending all their time talking about the economy, and avoiding this sort of distraction. But most importantly, Republicans never look good when they play the “political correctness” card. Republican Meg Whitman’s campaign for California governor was generally uninspired, but her complaining about Jerry Brown’s associate calling her a (political) whore did her no favors – it just made her look whiny. Unfair? Probably. But Audre Lorde told us that the master’s tools will never dismantle the master’s house. Republicans are learning that you can’t build the master’s house with the slave’s tools.

Civ game 236 years old

June 12, 2012

I have been playing a game of Civilization for 236 years now, and have got somewhat stuck.

My country is running out of money, and has a lot of citizens sitting around doing nothing. Production has fallen, I’ve abandoned the space race, and most of my tax revenue goes towards luxuries and maintaining a large military. I’ve tried to increase taxes, but the Senate keeps overruling. Pollution is not too bad at the moment, but there are a few ice cap squares that have melted.

Any suggestions? I’ve thought about a military victory, but all the major AIs have nukes, so I’m reluctant to do that. Should I be changing governmental type?

Thanks in advance.

(See playing same civ game for 10 years)


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