The Angels and the Flash Boys

How reading became the silver lining to a Christmas crisis

Four years ago, we learned something weird was going on with my son’s right leg. We’d gone to a clinic thinking he might have a small break after a fall at school, but then learned it was a condition we’d never even heard of, something called osteochrondritis dissecans. A small section of bone at the bottom of Devin’s femur, at the knee, was dying from a lack of blood flow. A delicate surgery and months of re-hab followed. For a year or so we had to give up father-son outings involving hiking, football and ultimate frisbee.

Instead, we went to the movies.

One of the films was “The Big Short,” based on Michael Lewis’s best-selling book by that name, the story of how a handful of idiosyncratic investors figured out that the U.S. mortgage-backed securities industry was a hologram of greed and deceit. They also saw that it was headed inexorably toward collapse. So they placed bets (credit default swaps) against tranches of highly rated mortgage-backed securities and waited to cash in.

Lewis’s account of how they figured it all out makes for a good read. But what makes it a great story is their deeper and often incredulous reactions to what they observed whenever they looked closely at the system they were betting against.

The rotten practices ran the gamut, from fraudulent appraisals in individual loans to blatant malpractice at bond ratings agencies that blithely stamped AAA on reams of bad loans. The rancid mortgages had been bundled, like so much cordwood, into tradeable securities and then into even more toxic bonds—a.k.a. collateralized debt obligations or CDO’s—that were then sold around the world in the financial markets. In the head-spinning world of derivatives, you don’t actually have to buy a CDO in order to buy insurance (so-called credit default swaps) against the chance that it might default. And this is how the characters in “The Big Short” positioned themselves to make hundreds of millions of dollars when the shit hit the fan, so to speak.

“The Big Short” inspired one of several enriching father-son conversations with Dev that, god-willing, will continue for years to come. We’ll be in the car, on the freeway, checking each other to see how well we can explain credit default swaps and synthetic CDOs. It’s all part of a sublime a father-son study partnership. From concussions, to physics, to plate tectonics, we’re in, except when NPR’s “Wait, Wait Don’t Tell Me” is on and then we just shut the hell up and listen to the radio.

Fast forward to this year, and it was Dev’s idea that we would exchange two other Lewis books—“Liar’s Poker,” and “Flash Boys”—as Christmas gifts. After he finished “Flash Boys” in late November he just flat announced that he was giving it to me for Christmas. And that’s how it happened that I snatched “Flash Boys” from my little bag of gifts when I headed to Sacred Heart on Christmas Eve, after I learned my father was headed to the hospital in an ambulance. As many of you know, there is a lot to do during a medical emergency. Then suddenly there isn’t, and you’re just waiting for what comes next. And those were the periods during which I read “Flash Boys.”

“Where are you?” Dev would ask, over the phone, when we would touch base. He knew I was in the hospital. But he wanted to know where I was in “Flash Boys.”

“Brad just left RBC…” I started to say in one call. And he interrupted me.

“Braaaad,” Devin interjected, and then reverentially adjusting his inflection down an octave, he repeated, “Braaaad.”

Brad is Brad Katsuyama, the kind of person you’d hope your son to become.

Katsuyama is the central character in “Flash Boys.” But he’s not a Flash Boy. When Lewis introduces him, he is a young, unassuming, manager of equity trading at the Royal Bank of Canada (RBC). But Katsuyama has this transformative experience in the spring of 2007. In brokering large stock transactions he begins to notice that his offers to sell or buy large volumes of shares literally vanish from his RBC computer screen as soon as he hits the button to execute the trades. He can’t secure all the stock he wants to buy in one click, nor can he acquire it at what looks to be the given price. It turns out he (and his clients) were being systematically scalped by anonymous, high-frequency traders who were using his sell or buy orders to outrun him, by mere microseconds, through the stock market, adding or subtracting pennies or fractions of pennies to each share.

It was all being done much faster than the blink of an eye—and amounted to a hidden, multi-billion dollar tax on securities transactions. The tax was being pocketed not by any government, but by high-frequency traders. Katsuyama recruited and assembled a team of quants and technical experts at RBC to help him investigate this phenomenon. He and his team found that shadowy “Flash Boy” traders were the new predators of the computerized trading frontier.

The details of the split-second perfidy are difficult to explain, and there are a myriad of predatory “Flash Boy” techniques. But the common denominator is speed, the capability to deftly manipulate share prices literally split seconds before large securities transactions can be fully executed on the dozen or so public stock exchanges. Katsuyama and his team would eventually use white boards and large maps to demonstrate to others what was happening. When he and Lewis appeared on CBS’s 60 Minutes in March of 2014, the network was able to use animation to demonstrate how the basic scams worked.

I finished “Flash Boys” between a pair of trips to the emergency room with my father. By that time, I was a little loopy, to say the least, stretched physically and mentally. I was under a lot of stress but the accompanying fatigue also had the peculiar effect of seeming to make time pass more slowly and allowing me to consider, more broadly, what was happening around us. There was a gauzy quality to it, and likely it was enhanced by the visible fact that it was stunningly beautiful outside. The city was blanketed in new snow and from the upper floors of the hospital you could look out on the lingering orange and pink alpenglow on the mountains that form a semi-circular arc from southeast to northwest. It was like a glimpse of what heaven might look like, especially if you were a skier.


“Where are you?” Dev would ask, over the phone, when we would touch base. He knew I was in the hospital. But he wanted to know where I was in “Flash Boys.”

Inside, the demands of the moments were direct and rigid and I was doing my best to respond and be present to all that was being asked of me, from comforting the afflicted to actually helping to re-awaken an ultrasound device that had decided to doze off in the middle of a minor surgery to put an enhanced IV port in dad’s neck.

But I was also mindful of a contrast. Here I was situated amidst caring, highly trained professionals using sophisticated technology to help people in dire straits. And yet, my measure of 2016 is that it was the year that the worst came out in the American experience, that we witnessed a deeply unsettling triumph for meanness and cynicism and ignorance. It felt, and still feels, like the Enlightenment is being sucked into a black hole, or Dante’s hellish inferno. I couldn’t ignore the contrast with what I was experiencing in the hospital, in the moment. The clash somehow fused together in my consciousness, like a rich piece of music, evoking tidal forces with timpani, strings and brass.

It was hard to see my once invulnerable father, a former champion swimmer, be leveled with a nasty infection. But he fought it all the way, not just trembling and writhing as the fever crested but in keeping a positive attitude and even a sense of humor during the hardest hours of the siege. I was so proud of him. But then, as is often the case with these sort of infections, his cognitive functioning collapsed and he was mired in psychosis for the better part of three days. When he wasn’t delusional he was asking me where we were, what we were doing, and why. And then on the fourth day he greeted the winter sunrise from a chair by the window, calmly drinking tea, cheerfully asking me to walk him through what had happened.

In his prime, my father was a soldier, a science teacher and a devout Catholic who, by the way, taught evolution. He was proud that he was part of a post WWII society that was committed to education, civil rights and valued sanity and professionalism. He can’t understand what’s happening to his country now. Back home from the hospital, we were watching MSNBC the other night and he suddenly reached for the remote and turned off the TV.

“I can’t take this any more,” he said.

“I get it,” I replied.

A question Dev and I are now discussing, as we did over dinner last night, is whether the story Lewis pursued in “Flash Boys” is as troubling as the story in “The Big Short.”

On the one hand “The Big Short” (along with other important books, such as Bethany McLean and Joe Nocera’s “All the Devils Are Here”) put a dagger through the still prevailing notion that America is great because we liberate capitalism and trust the market to regulate itself. This applies to both major political parties, by the way. If you’d like a sickening reminder of our bipartisan commitment to protecting white collar criminals, just tee up the 2013 Frontlines documentary  The UnTouchables . In it you’ll see interviews by Frontlines’ Martin Smith with Lanny Breuer, the former head of the Obama Justice Department’s criminal division, in which Breuer labors to explain why no one on Wall Street was federally prosecuted for their roles in the rampant fraud that led to the crash of 2008.

On the other hand, there is a deeper cancer that Lewis carves into in “Flash Boys.” It makes for a deeply revealing biopsy, not just of the corrupted financial markets, but of our gilded society as a whole.

The “Flash Boy” trading techniques are hard to explain and visualize, in part because they literally cannot be seen in the normal sense. They unfold too fast for the eye. So Lewis opens his book with the story of a secret optical fiber cable, less than two inches wide, that has to travel as straight as possible, all the way from Chicago to a stock exchange in northern New Jersey. He describes it as a “subterranean reptile” capable of delivering data from Illinois to New Jersey in 13 microseconds.

It’s narrative purpose, for Lewis, is to cut through all the bullshit about how wonderful and efficient the modern trading of securities has become. The obsession with location and long bee-lines of fiber optic cables came down to one thing, the demand for marginal advantages in speed, not to promote efficiency or “liquidity,” but in order to execute the complex, unethical schemes used to bilk billions of dollars out of unwitting investors and shareholders. And because microseconds matter when you’re trying to rig the markets, those high-frequency trading firms specializing in these dark arts are willing to pay millions in fees to locate their computers literally within shouting distance of the computers of the dozen public stock exchanges (most in New Jersey). The fees are paid to the exchanges who are, thus, witting accomplices to the unethical, predatory conduct.

There is, I should note, a seemingly happy ending for Brad Katsuyama and his team, who left RBC and started their own stock exchange, IEX, which was designed from the ground up to protect stockholders and legitimate traders from the high-speed, predatory practices.

But the pushback against Lewis’s book, and the attacks both he and Katsuyama were subjected to, created sideshows that distract from what Lewis still sees as the essence of his exposé: this wasn’t just a tale about unmasking predatory and unethical trading practices. “The problem was the entire system.” His book made that case and it is unrefuted.

The “system” problem is a mere reflection of the broader cultural problem. We can blame it on unregulated Wall Street greedheads to some extent, but that doesn’t absolve the rest of us who shrug our shoulders at the all but open criminality and unethical conduct that is now pervasive in American business and politics. We tolerate it. We rationalize it. We find ways to either distract ourselves or resign ourselves to it. In this perilous slide, a notion took hold that the homework and accountability a healthy democracy requires is for losers and chumps who just think they’re superior. It’s easy to invoke moral superiority and absolve yourself from reading anything longer than a tweet once you figure that scientists are in cahoots with environmentalists, and scholarship has a liberal bias.

I would have less hope for my country were it not for what I experienced in my family, my orbit of friendships, and a community that includes the doctors and nurses who were working to keep my dad alive over Christmas and New Year’s. To be sure, it wasn’t a perfect experience (at one point I wanted to throw a hospitalist out a window, only to realize, in time, that this is frowned upon). But it bounced me from one experience to another that reminded me there are sane, compassionate people in our society who still do thankless remarkable things for others. To whom I’ve said, and will repeat: thanks, I needed that.

–Tim Connor

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