Wednesday, July 1, 2015

Flash Boys

Flash Boys: A Wall Street Revolt
Michael Lewis (W. W. Norton & Company, 2015, 2014)

   My grandmother used to say that her favorite grandchild was whichever one she was looking at. I feel that way about Michael Lewis's books. They are generally great, and Flash Boys is amazing. It tells a story that could very easily have gone unreported, but which has undeniable implications for the whole financial world. (I'm being a tad hyperbolic: in footnotes, he mentions a couple of other books that I know I'll want to look for.)

   Flash Boys is structured around the story of Brad Katsuyama, a trader with the Royal Bank of Canada. His job was to take large institutional blocks of stock that a client wanted to trade and break them up so that they could meet the market at a fair price. In 2007, he noticed that the price information he saw on his computer screen wasn't stable enough to work with. As soon as he hit 'Buy', most of the offers at the price he was looking at disappeared, and he'd wind up paying more than he intended.

   Was it a problem with his hardware? No. With his software? No, again. It was with the markets themselves; and that plural noun is a telling detail. The New York Stock Exchange and Nasdaq became public, for-profit corporations in 2005. “Once competition was introduced, the exchanges multiplied. By early 2008 there were thirteen different public exchanges, most of them in Northern New Jersey.” All this activity was mediated by computers, of course. Fiber optic cables carried signals at two-thirds the speed of light, and trades were executed in a few thousandths of a second, with no further human intervention.

   What Katsuyama, and Lewis, learned is that some traders ('high frequency traders', or HFT) were working so much faster than the official average price that showed up in RBC's offices that they could run ahead like the big bad wolf reaching Grandma's cottage. They'd find out about RBC's need for ten thousand shares of AnyCorp at forty dollars each by offering to sell one hundred shares at $39.99; within a fraction of a second, they could corner the market on any shares under $40.05 and sell them to RBC with a nice little premium of a few hundred dollars for themselves. When the HFT computers are in the same room in New Jersey as the exchange's computer, they can easily trade rings around a brokerage on Wall Street whose information is always fifteen thousandths of a second slow. And even if their margins are measured in a few pennies or dimes per hundred dollars, this adds up to billions of dollars a year.

   The proliferation of markets, including 'dark rooms' or private exchanges set up within brokerages, only encouraged this scalping. As the name implies, dark rooms operate under rules that are opaque to investors, and indeed to regulators. That would be fine if they were truly honest brokers, but the evidence is clear that they usually aren't. Worse yet, “[E]ven if the Wall Street bank resisted the temptation to trade for itself against its own customers, there was virtually no chance they resisted the temptation to sell access to the dark pool to high-frequency traders.”

   The people who helped Brad Katsuyama figure this out came up with a high-tech solution. They wired their computers to transmit orders to arrive at all the public exchanges at the exact same moment, depriving the scalpers of their time advantage. This system, dubbed 'Thor', put the RBC traders back in the position of making the trades that appeared to be on offer.

   In a meeting with an arm of the Securities and Exchange Commission, Katsuyama had a startling experience: an SEC staffer told him there was something wrong with his new system: “What you are doing is not fair to high-frequency traders. You're not letting them get out of the way.” In other words, Thor was forcing traders to honor bids that had not been offered in good faith. Another staffer, an older man, argued back: “If they don't want to be on the offer they shouldn't be there at all.” The SEC hardly ever argues like that in public, but clearly they were not going to take the lead in finding a solution to this problem, especially considering how many people move from the SEC into lucrative jobs with high frequency trading outfits.

   The game is well and truly rigged, and we hardly dare to know how much; the HFT business works in response to the last set of regulations, from 2007, but that's just the latest in a seemingly infinite series. Every new regulation makes new loopholes. In 2012, Katsuyama and his team had a radical idea: start their own exchange, with a simpler and more transparent structure. He left RBC and assembled a crew of people with expertise on all sides of the business. By the end of 2013, IEX was taking orders, and they are now processing about one per cent of the market.

    After reading Flash Boys, I can see why index funds are so much likelier to make money than actively managed funds – every single time a fund manager goes into the market, he's the prey. You can't win, you can't break even, and you can't get out of the game. Now, however, there is literally one honest broker out there. My individual trades weigh nothing, but I dare to hope that the people who run my IRA funds are getting fair prices on IEX. If not, why not?

Emailed July 1, 2015

Monday, June 1, 2015

H is for Hawk

H is for Hawk
Helen Macdonald (2014, Grove Press)

   A few months after her beloved father died, Helen Macdonald brought home a young goshawk. She let go of her graduate studies at Cambridge, and lived by herself, hand feeding the hawk raw meat. This is an odd thing to do, but not as strange for her as it would have been for most people: she had been interested in falconry since she was a small child, drawing birds obsessively and collecting the major literature on the subject by the age of eight.

   Macdonald is shadowing an experience she read about as a child. Terence White is best known for The Once and Future King, a book a certain kind of bookish kid used to fall into in the days before Harry Potter. Long, dense, and magical, the book also bears a strain of melancholy; the more we get to know White, the more we see why. In his late twenties, he trained a hawk he called Gos, and wrote a small classic about it called The Goshawk. What's remarkable about this is that he made a complete disaster of training Gos, and even at eight, Macdonald could sense this, and find it disturbing.

   She's actually well qualified to handle her new bird, having had other, smaller hawks and falcons, but a goshawk represents a special kind of challenge. They are somehow more ancient, more reptilian, more wild even than other birds men keep. “Half the time she seems as alien as a snake, a thing hammered of metal and scales and glass. But then I see ineffably birdlike things about her, familiar qualities that turn her into something lovable and close.” So lovable, in fact, that she calls her Mabel, “from amabilis, meaning lovable, or dear.”

   Her days, and the book, are filled with close observation of Mabel; and it's as if she can see the world around them through Mabel's eyes. On one of their first trips outside together: “Joggers! Like bats leaving their roost, their numbers build incrementally. ...By the time Mabel and I are halfway home it feels as if we're in a nature documentary about the Serengeti. They are everywhere.” She describes the countryside in acute detail; she's almost always hawking by herself, so she has to trot across woods and fields, and plunge into thorny hedges. The goshawk has no conception of property lines, and Macdonald doesn't always know where she'll come out.

   Since the major characters in H is for Hawk are two dead men and a wild animal, we spend a lot of time in the author's own head. There's an authorial sleight of hand, by which Macdonald describes herself losing her place in human society, almost to the point of losing language, in the most beautiful and precise language imaginable. Is she losing her mind, going feral, going mad with grief? She must have recovered enough to write the book in your hand, but you can't always see how that will occur. “Some deep part of me was trying to rebuild itself, and its model was right there on my fist. The hawk was everything I wanted to be: solitary, self-possessed, free from grief, and numb to the hurts of human life.”

   But of course, people are not meant to be wild animals. Macdonald is in conversation with the dangerous example of White's attempted retreat from society; her criticism of him is seasoned with compassion. He had a frightened, lonely childhood, and was never free from sadistic urges that he would have been ashamed to put into practice. But Macdonald remembers in time that the bloodthirstiness of the goshawk is natural to the goshawk, and not to people. “Goshawks are things of death and blood and gore, but they are not excuses for atrocities. Their inhumanity is to be treasured because what they do has nothing to do with us at all.” 
   Macdonald has extraordinary control over this material. The descriptions of the natural world are beautiful, and I was surprised how much of it there was within fifty miles of Cambridge. She can cite sixteenth century falconers, and in the next breath see how her own bird gives them the lie. H is for Hawk is also a wonderful memorial to her father, who passed on a way of seeing the world that is to be treasured.

Any Good Books - June 2015

Friday, May 1, 2015

Between You & Me: Confessions of a Comma Queen

    Mary Norris's career at The New Yorker began with a lucky connection, but continued by dint of patience, perseverance, and talent. Between You & Me is Norris's cheerful memoir of three decades as a proofreader, fact checker, and copy editor. Some of what she's learned has to do with grammar and usage, but she also treats us to history lessons and field trips.

     Naturally, Norris encounters some marvelous writers, including John McPhee, the great natural history reporter. “When McPhee uses an unfamiliar word, you can be sure it's the only word for what he's trying to say, and he savors it, he rolls the syllables in his mouth as if words were food and he were licking his chops.” Then there are others, who go nameless: “There were writers who weren't very good and yet were impossible to improve, like figure skaters who hit all the technical marks but have a limited artistic appeal and sport unflattering costumes.”

     This being The New Yorker, even the proofreaders are legendary. Norris draws a memorable portrait of Eleanor Gould, grammarian and query proofreader. “Clarity was Eleanor's lodestar, Fowler's Modern English her bible, and by the time she was done with a proof the pencil lines on it looked like dreadlocks.” Right next door sat Lu Burke, who “patrolled the halls like a prison warden–you could almost see the ring of keys at her side–and she terrorized anyone new in the copy department.”

    These women schooled Norris in standard spelling and grammar, and in the quirks and shibboleths of The New Yorker's style. She has interesting things to say about hyphens and commas; she explains what a dangling participle is, and why it can't always be fixed.

     I have my quarrels with a few of her stances. Norris places overmuch confidence in the stylings of Strunk and White, though I suppose that is natural in E. B. White's old bailiwick. I don't quite trust her discussion of 'that' and 'which'; and I'm readier than she is to embrace 'they' as the pronoun when 'he' or 'she' can't be determined, for whatever reason. Her
review of the other nominees for that post, however, is extremely entertaining: “Shem and herm sound like Noah's offspring; ho, hom, hos, if they ever had a chance, would have succumbed to the 'ho' problem; se and hir are apparently used by an online group devoted to sexual bondage; ghach is Klingon.” Compared with these, is a simple 'their' really so offensive?

    But it is difference of opinion that makes horse-races, in the immortal words of Pudd'nhead Wilson, and a lively argument can be more fun than immutable authority. Norris does a challenging job well, and writes about it entertainingly. This is her first book, and I'm eager to see what she'll get up to next.

Email edition, May 2015

Wednesday, April 1, 2015

Christ Actually

Any Good Books

April 2015

Christ Actually: The Son of God for the Secular Age
James Carroll (Viking Penguin, 2014)

Every year around this time, local musicians perform Bach's Passions, almost always accompanied by some effort to detoxify the murderous role the stories assign to the Jewish people and their leadership. The structure of the story demands enemies for Jesus; The Gospels of Matthew and John fill this role with Jewish high priests, though Rome is clearly the executioner of Jesus. Why is this so?

In Christ Actually, James Carroll probes the first-century origins of Christian anti-Semitism. For the sake of a book that will fit between two covers, he brackets 18 centuries of misunderstanding and ill will. He places the modern point of his compass in the Nazi's war on the Jews; he places the other end in 70 C.E., when the Gospel of Mark was probably written. That was also the year the armies of the Roman Empire destroyed the Temple at Jerusalem, a critical context for all of the Gospels.

Carroll, digesting a great deal of modern Biblical scholarship, shows how the various gospels were written for communities undergoing tremendous losses at the hands of the Roman Empire. It wasn't religion, per se, that made the Romans make war on the Jews. The Romans were accustomed to violently subduing populations who put up resistance, and the Judean territory lay across valuable trade routes. But it was religion that made the Jewish resistance so valiant and tenacious. To this day the Jewish calendar commemorates losses in that war.

The hundredth-generation ancestors of today's Jews and Christians were two tiny groups of Jewish survivors who, out of the wreckage, made new stories of God's plan for them. For the rabbinic survivors, Torah study and the Sabbath replaced the Temple at the center of their religious life; for the Jesus followers, the story of Jesus Christ filled that place. Over time, these groups elaborated the contrasts between them, a story Carroll has told elsewhere, but in the context of the year 70, they're like the primal shrew-sized mammals living in the age of the dinosaurs: you could never tell from looking at them what they will grow up to be.

If we actually grasp that the Gospels are stories written forty to eighty years after the events they depict, a lot of things make more sense. Anything Jesus says that appears to predict the destruction of the Temple, for instance, doesn't necessarily mean that he has extra-sensory perception. Rather, it's a way of placing him in a larger story the first audience already knew. There are also many passages in which the Scripture is said to be fulfilled, at least partly because the narrative is structured to echo prophetic books of the Hebrew Bible.

The book of Daniel, in particular, is full of Messianic language about the Son of Man coming in clouds of glory. Dating from about 165 B.C.E., Daniel's vision “was both realistic –acknowledging present violence–and hopeful, in that it insisted that the violence would not be vindicated in the end.” Carroll posits that this is part of what John the Baptist was preaching in Galilee when Jesus was a young man. In that case, Jesus calling himself the Son of Man was a revolutionary and radical act–but still a very Jewish one.

Generations of retellings would render that reality obscure, and soon enough, invisible. The violent hand of Rome, too obvious (and later, too dangerous) to record would also disappear from memory. If you have that context available, on the other hand, the idea that Roman governor Pontius Pilate needed Jewish assistance or encouragement to execute a single dangerous man is absurd.

Christ Actually is a meaty book, rich and dense. Carroll introduces insights from the work of many scholars and theologians, notably Dietrich Bonhoeffer, from whose letters he takes his title. In the end, Carroll is looking for a way to be a Christian in the twenty-first century, in a way that insults neither the intelligence nor the conscience. Our understanding is inevitably partial; But alongside the manifold sins and crimes of the church, there's a strand of memory and practice that endures and is continually made new. We can still pray and break bread together, we can still serve the poor and visit the sick and imprisoned. We may always understand Jesus imperfectly, but we can follow him.

Sunday, March 1, 2015

Notes from No Man's Land

Notes from No Man's Land: American Essays
Eula Biss (2009, Graywolf Press)

     Right out of the gate, Eula Bliss's essays are arresting. In “Time and Distance Overcome”, Biss researches the early history of telephone poles, which were initially met with resistance, because they looked so ugly and unnatural. The New York Times carried stories about the workers putting up poles being threatened with tar and feathers, and other places where the city fathers ordered poles chopped down.

      Even more stories from the times concern telephone poles being used in violence against black men. “In 1898, in Lake Cormorant, Mississippi, a black man was hanged from a telephone pole. And in Weir, Kansas. And in Brookhaven, Mississippi.” The New York Times took a peculiarly dispassionate tone about these events; Biss lets that speak for itself, though she notes that “[m]ore than two hundred antilynching bills were introduced to the U.S. Congress during the twentieth century, but none were passed.”

      The string of facts does not necessarily appear tightly knit. Double spaced on the page, they might rather be the stone of a mosaic. But then there's a little burst of concentration: “The poles, of course, were not to blame. It was only coincidence that they became convenient as gallows, because they were tall and straight, with a crossbar, and because they stood in public places. And it was only coincidence that the telephone poles so closely resembled crucifixes.”

      In this collection, Biss shows us all kinds of ways our history lives on in our landscape, and in her own biography. (Her grandfather worked putting up telephone poles, having his back broken when one fell on him.) She has interesting things to say the differences between New York, Chicago, and San Diego, and about how she navigates her white identity while working for a black newspaper or living with a black cousin. 
     Biss can venture into very touchy territory, speaking of guilt, fear, politics and power, because she is light on her feet. She roots around in history that should not be forgotten; she offers a vision of things we customarily look past, one that might make our own neighborhoods, and neighbors, more visible to us. 

March 2015