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.
SCHATZKER: Me?
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.
Shocked...
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."