Lewis Explains The Casino: "Why Are You Even Arguing" That This Is Not Rigged?

Tyler Durden's picture

Round 2 of the HFT vs Reality death match just took place on Bloomberg TV. Once again the clear winner was Katsuyama and Lewis version of the real world as Manoj Narang finally lost all credibility with the mind-0bumbing comment that "speed matters less in today's market than it has ever mattered." But the Tradeworx CEO was a background singer compared to Michael Lewis who explained in his clearest analogy yet how the casino works and then devoured the anchor's constant efforts to play down the "rigged" market perspective... "it's very clear that people are being front run in the market... so, why are you even arguing about this?"

Plenty of good stuff in the clip but this little exchange summed up the problem perfectly...


Lewis explains the game, exposes the rigging, and slams the mainstream media's "defense" of this...

LEWIS:  So of course the tourists get fleeced all the time in the poker games, because they don't know the deck is rigged.  The poker players pay the casino a cut of what they make.  The casinos, operators, pay the tour group - the tour group company money to bring in the tourists.


So in this case, casino's the exchange, the poker players are the high-frequency traders, and the tour group operators are the banks and the brokers that handle the stock market orders.  And I think the analogy is pretty close.  So is that rigged?  Is that a rigged game?  I think it is a rigged game. 


SCHATZKER:  Well, it's rigged only inasmuch as...


LEWIS:  Why are you so invested in the idea this is fair?  Why are you even arguing about this?  It's so clear.




LEWIS:  Yes, you seem to be. I mean, it's very interesting.  But you seem to be - you can see, it's very clear that people are being front run in the market.  There's plenty of evidence in the book. 


SCHATZKER:  Their orders are being anticipated...


LEWIS:  Anticipated and run in front of, that's right.



And then Manoj Narang comes in... and the long words surge and the credibility plummets... "there are so many assertions that are provably false... oh my gosh so many..." crickets... and then finishes off all credibility with "speed matters less in today's market than it has ever mattered."

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NotApplicable's picture

This shit would be hilarious if it wasn't for the upcoming wars to destroy all evidence.

kliguy38's picture

no shit.....and they'll get away with it.........

Rainman's picture

The stawks machine game has only one similarity to live poker ... bluffing.

Dark_Horse's picture

I put a post in the other thread, and since the story has gained traction I thought I would a little more color.

In 1999, I had discussions with a company in buildup of the infrastructure needed to get setup for HFT. This was a company in Charlotte, NC downtown surrounded by several nationwide banks. They had not completely setup the fiber infrastructure to go direct(or near direct) with CBOT at that time(yet).

The takeaway from my discussions with this early stage HFT company was "Find out where the big money was going, AND GET THERE FIRST!"

The whole business model was to employ technology to front run trades.


clooney_art's picture

Why bother with all this talk. Let FBI investigate and throw these HFT aholes in jail.

Rainman's picture

you forgot the sarc tag

Beam Me Up Scotty's picture

Hope he's driving around an old car, with no Onstar or remote technology.  Hopefully it doesn't have a sunroof either, or he might get droned.

Oldwood's picture

This reminds me of Bill talking of what the meaning of "is" is, or what constitutes sex.

clooney_art's picture

Look, I simply don't want any "return" on "investment". I simply want my hard earned money, when I need it. I live a modest living. I am pretty sure I can adjust with inflation. I will simply not need an item that's going up in price. Leave me alone out of all this circus. I am thro' with the stock market for good.

WhackoWarner's picture

You and I think alike. Simple and easy and guess what?  That was how the world was living a while ago before this garbage.

old naughty's picture

On plan, right on schedule...Keeping the sheeples enter-tainTed...

Even astrology matched (maybe other way around) !

TeamDepends's picture

We don't believe in astrology, but we are ruled by Libra.  So, if you're a bettin' man, it's not going to go down until after the "election".

Problem Is's picture

Think local... fuck global...

Seer's picture

Return on investment w/o doing anything, w/o accepting potential risks?

"I live a modest living."

You say.  Check it against reality: my wife is from the Phiippines, in which case I can assure you that your notion of "modest living" is NOT "modest."   Not a direct attack on you, just stating the realities of the world; and, since trade is global then that means, YES, you/I/we (here) ARE comparables in the Big Pool.  So, consider: there are 750 million people alone who live on $0.50/day.

"I am pretty sure I can adjust with inflation."

And how do you figure this?  Do you KNOW what inflation is going to be?  Are you SURE that banks and other interest returning entitites. all "low risk" necessarily offer above inflation?  In my view of things "interest" is "growth."  When the world's growth is collapsing then "interest" ain't going to be there.  Think about it, how possible would it be for EVERYONE to jump in just one big happy low-risk interest-returning pool?  Where would that "interest" come from?

"I will simply not need an item that's going up in price."

Imagine those 750 folks in India saying this.  I am sure that you can figure just what it is that they could arbitrage with... (hint: it rhymes with "dood").

And the flip side would be that you would "need" things that are falling in price.

Is it a real need that you're looking to deal with, or is it some sort of trade thing?

A true "need" is something that you have to have.  Perhaps if you restate with/as "want" then it works out.

Lastly, there are two definitions for inflation.  The Austrian one is centered on money supply, with it being a measure of money added or removed to/from circulation.  And then there's the more layman's defnition, which is based on the price of things: that meat that you used to get for $7/lb was steak, it's now still $7/lb, but it's now SPAM.

Things are changing, and fast.  What you measure against might not be there tomorrow, it might be moot.

I once had my retirement path all laid out and rolling on target.  Change happened.  The measure changed.  What I learned from this was that squirreling away a bunch of nuts isn't a sufficient enough plan: the number of squirrels is growing and the number of nut trees is shrinking (cause and effect I suppose).  My thinking then shifted toward an acceptance that I would never stop working, that I would never "retire."  (go through life more in a Just-In-Time mode)  The whole notion of "retirement" defies humany history as well as it does in present day for the majority of the world's population.  That you/I/we (here) can even contemplate "retirement" places us in an upper class position, one that is by no means "modest" when compared to the current and historical norms.

None of this should be taken to mean that I condone the existing "rigged" system, I do not.  I see it all in the context of measures taken in desperation in trying to force what cannot happen: perpetual growth on a finite planet; and without that growth there's no inflation to "pay" off previous debts.

disabledvet's picture

I was thinking about that cartoon I watched as a kid about "how a Bill becomes a Law" actually. ("I'm just a bill, yes I'm only a bill..and I'm sittin' here on Capitol Hill..." song.)

I mean how DARE you call this mere front running. This is running OVER your trade. Still..."gotta pay the piper" and no getting an economic recovery with all that loot means "something wicked this way comes."

Lets Buy The Dip's picture

These gus did not even compare this to the market.

All this bullshit about the FED, interest rates and tapering, was another good dip for the bulls to buy. Fancy that.

The market is crashing every 7 yeasr, and those in charge do this, these guy yelling are just moron, that do not understand the biggest picture.  market crashing every 7 years in the last 20 years wow. Check it out here => http://bit.ly/1hj3Zwr It means there could be another one comes soon, if this pattern keeps up. Hmmmm

These guys are like disabled handicapped parrots with nothing to squawk about. JESUS! LOL

Seer's picture

Rather than it being some programmed cycle/event I suggest that it might be more about a typical "product cycle," that bubbles start to form, mature and then go pop.

People need to stop playing victims.  If you do not like what "THEY" do then STOP playing their game!  Most of this is just whining that you cannot out-compete them at THEIR game; and, well, of course fucking not, it's THEIR game!  When you stop playing the role of the victim is when you can actually take control of your life and resolve these sorts of "problems."

Yeah, it's bad and it's fucked.  The reality is that nothing lasts forever.

Squid-puppets a-go-go's picture

well usually the average man could have stayed out of their games. But last few cycles TPTB widened the game to include your house, your job (or lack thereof) and likely your retirement fund

kinda hard to evade their game nowadays unless you voluntarily wanna take a medieval approach to your standard of living

CrazyCooter's picture

ZH needs to sell a new TShirt:

I BTFATH at IEX and they didn't front run me!

Anyone that is out of the market and gets back deserves the eventual outcome...



LongMarch's picture

Why fuck around with the FBI? Lets get serious and unleash the SEC!

And if we really want the HFT fucks  to shit their pants, we have the thermonuclear option: Obama will draw some red lines. / sarc

Squid-puppets a-go-go's picture

yer, we all know the fed and the sec will drop the cases as soon as the media smoke clears

TruthTalker's picture

The talk is still interesting - I like Brad and hate all the assholes trying to discredit him

Surly Bear's picture

I like Lewis and I am happy he is saying what he is saying, but this is not news to me. Every trade In the last five years, I have always paid higher and I have always sold lower than the price available on the screen. Always.

Rainman's picture

yup...It's called the vig in Sicily ..and the propina in Mexico.


react1200's picture

It's called "La Mordida" (The bite) in Mexico.  That what you do when a cop carring an AK asks for when he pulls you over for going the speed limit in a rental car.  Propina is just tip.

Rainman's picture

Thanx...USA interpretations always confuse me.

object_orient's picture

Bring on the class action lawsuits. I eagerly await the postcard that tells me I may be in class C, which pays out 40 cents in restitution after 150 million in attorneys' fees. 

RaceToTheBottom's picture

And then sends you 50$ worth paperwork about how they sent your information to the government so they can tax you.

dvfco's picture

Yup, just when the focus get put on the HFTs, the "Do No Evil" Google Queers decide to split stock into two classes and halve everyone's voting rights, but their own.  Hmm.  Maybe they paid for the book to be written.  The brass balls on those cocksuckers.  They're parking their planes on our military bases and government airports, paying government prices for their fuel, fucking the US out of all taxes, and now they decide they'll just take 1/2 the voting rights.  

Do No Evil      Don't get caught.

RaceToTheBottom's picture

It comes with being a Muppet.  We all are.

DaveyJones's picture

this site is a bit like the old men in the balcony

Kassandra's picture

DJ..I just ruined my laptop..thanks for the belly laugh.

detached.amusement's picture

Statler: Wake up you old fool! You slept through the show!
Waldorf: Who's a fool? You watched it!!

I Write Code's picture

I'll just repeat what I posted above, I've actually had good retail buying experiences through one of the major online brokers, my executions are often *better* than any book I can see.

OTOH when I use a full-service broker, which I do for an old account, I get full-service screwed every time and the obscene commissions are only a part of it.

Jack Burton's picture

Yes indeed. I am surprised that bigger traders sat silent knowing full well every trade was anticipated and front run by someone who stood between every order and the sell offer. You only could put in a buy order and have it filled AFTER the HFT Middle man used it's HFT to bid up the price and then hand off to you a higher price than the offer to sell was at when you clicked buy. Many big institutional investors, hedge Funders, Pension Funds and individual fund mangers were seeing themsleves fleeced on every transaction, yet it took one guy to finally get mad and research WHY this was the case. These investor people are supposed to be Masters of The Universe, smarter than all us other people, yet they acted like Gomer Fucking Pile in boot camp, too dum to hold a rifle or about face on command! Why did it take so long for HFT to be taken public and exposed on all these fake financial news channels?

Dr Benway's picture

Because institutional investors by definition play with other peoples money and therefore don't actually give a fuck

ghostfaceinvestah's picture

Many institutional investors are dumber than fuck, and only interested in building up AUM because that is what they are paid on.

Squid-puppets a-go-go's picture

the culture of investors is to just make money. period. few have ethical concerns about how. So,

Corruption? Rigged? Its just regarded as the price of admission.

And thats why its taken so long for someone to stand up for investors on a principle that would be obvious and well defended under retail sale or consumer law: The advertised price is the price you pay. full stop. If you cant devise a computer system to show on screen the price you pay, the transaction can be deemed invalid at the customer's discretion

in other words,  investors willingness to earn money deceptively off others is the reason so many tolerated for so long the deception against them. 

OpenThePodBayDoorHAL's picture

Jack you have hit the essential question. Why do company owners take all of their jobs offshore, even though they know their kids need to live in THIS country? Why do 850,000 workers have the same security clearance as Snowden but only HE speaks out? Why is the infrstructure of America falling down around us but all we buy is empty new hospitals in Afghanistan? The answer is: because we are one sick f*cking selfish society. You can't even really call it a society anymore: it's everybody for themselves and Kardashians for all.

LitheLyricist's picture

I trade my own money very successfully for the five years i've been trading.  I knew I was being front-run and used to give specific examples directly to the SEC or to my firm to request explanations from the exchanges, to which I never received a single response.  I imagine this is what happened to everybody that complained.  So no, not everyone is stupid or uncaring, it just takes a media spotlight to cause change.  I'm not the type to invite the limelight, even though I'm the good guy in this arena.  The SEC has been focused on going after easy targets for peanuts while everyday tens or hundreds of millions are stolen.

hobopants's picture

What a fucking circus. They should have simply gone on the offensive and asked the HFT guy " Forget all the other bullshit. Why is it profitable for another firm to buy the right to place a customer's order?"


disabledvet's picture

"don't be on both sides of the trade! don't be on both sides of the trade!" there might not be an actual "sale" when the do this shit but it's really hard to argue "this is a wash trade."

my entire trading position is exposed...long, short, convoluted and "clear loser" even...and someone is trying to say that...

Flight ME 370! Flight ME 370!

Seer's picture

I'm pretty ignorant when it comes to all the nuances, but that is one thing that I caught that made me go WTF?

As the progression of things goes it'll be robots trading for robots as humans sit around and try to explain why it's all good...

ArkansasAngie's picture

If some good ole boys don't get frog marched over this then ... well ... it'll be time to ... La La La La La La 

Tin foil hats for sale!  




laomei's picture

No, it'll end the way it always ends. There's a "serious investigation" which finds no wrongdoing, then there's a slap on the wrist fine of a few million, followed by a rules change that makes it all totally legal because reasons.  Because anything real would result in yes, some bullshit war to bury it all.