strengthening india, a much more complex power relationship. so that i'm reminding the reader i'm very cautious about everything i'm going to write henceforth, to keep in mine this history of southeast asia. >> please join me in thanking robert kaplan. congratulations on the book. [applause] >> mr. kaplan will be here signing books. you can throw another question at him. just buy the book. >> i'd like to thank steve for being a wonderful moderator. >> thank you very much. >> thank you all for coming tonight and as steve said, bob has agreed to stay here for 30 minutes in the back, so if anybody would like to ask him to sign your book, i'm sure he will be happy to do. so thank you again.

[inaudible conversations] [inaudible conversations] >> we'd like to hear from you. it really gets to me because i get to know these young men and women when i'm out there, and i keep seeing some of them killed or amputated, and i want out of there as fast as anybody else. and let the afghans fight their own fight. i just think we have to do it in a prudent way. but what i try to say the ghost

mothers when i'm talking to them is we can't get too hung up on the defects in -- of iraq and the defects of karzai and the afghan politics. we have to keep a larger perspective that those who have died did not die in vain. if i had said to anybody in 2001 that ten years later there wouldn't have been another attack on the united states, most of you listening would say, you're wrong, it's going. it's because we did take the war offensively to al qaeda, and, sure, a lot of mistakes made, but if you stand back from the particulars we're safer today than we were in 2001, and we are well on our way to crushing al qaeda and crushing the jihadists, and so i think overall, that we have done a successful job with our military.

>> vietnam vet, assistant defense secretary during the reagan administration, analyst and author, bing west. will take your questions in depth, live for three hours, sunday, on c-span2 2's booktv. >> you're watching book tv on coons c-span 2. now joining us live is the author of "flash boys." michael lewis, what is a flash boy. >> guest: the heroes of the book are the flash boys, and they're people who discover that the stock market has something funny going on and seek to find out what it is and then build a mechanism to prevent predators in the stock market from getting the prey. it's called "flash boys" for a couple of reasons. one is, the solution that the main characters come up with requires them to be faster than the high-speed traders who are the predators in the stock market. they have to be -- i wanted speed in the title and wanted a

kind after superhero in the title because these characters at the center of the story, i felt -- they're not doing anything unnatural but they do have these weird powers in the financial markets right now, in the powers that are -- powers explain complicated things to people. the power to kind of engender trust in others. but the last reason it's called "flash boys" is i knew i wanted "flash" in the title because the markets have taken this term, flash crashes, and flash orders, and flash trading. and i had a title that was kind of an inert title. "slash trap." i was driving with the kids and they asked me the name of the book. i said, trash trap. they said that's dull same you come up with another one. say they what's it about. and if said it's guys that

figure out rich people or stealing middle class people and they try to do something about it. and he goes, rich people stealing from poor people? that's awful. yeah, balls that's what happening. they're going to fix it? that's like robin hood. they said call it "flash boys." i thought, there's my title. never told my publisher that, where it came from. that's writ came from. >> host: how in your view are people stealing from others on wall street? >> guest: well, stealing is -- i think everything that is going on, as far as i know it's legal. i don't know if it's illegal or legal. but the -- the stock exchanges have become unfair places for investors and it's happened pretty rapidly over the last six, seven years, where the 13 public stock -- on the 13 public stock exchanges, they're all scatteredded through new jersey,

high-speed traders are provided by the exchanges for fee, for lots lots of money they pay the exchanges for special fees which enable them to see moving stock prices before ordinary investors. so they know it's only a couple of millisecond advantage, the amount of time involved is very, very slight, but they know today's prices and we know yesterday's prices and the ordinary investo knows yesterday's prices. it's a bit like someone knowing the result of a horse race before it's been run. walking into the track and starting to be able to bet with other people betting on the horse race. there's this unfairness in the middle of the system. so that's the problem. and that problem is -- nobody quite knows how big the problem is in terms of the sums of money that are being essentially taxed out of investors by wall street interimmediate interimmediate

areas but it's billions of dollars a year. >> oo because of these milliseconds. >> guest: yes. >> host: isthis is something you write: over the past decade the financial markets have changed too rapidly for our mental picture of them to remain true to life. the picture i'll bet most people have of the marks is still the picture of a human being. a ticker tape runs across the bottom of some cable tv screen with alpha males in trading pits hollering at each other. that picture is dated. the world it depicts is dead. >> guest: that's the picture i had in my head when its got into the story. i didn't have any great sense of what happened in the market. only three or four years ago woworred hearing the phrase, high frequent frequency trading, and it's national the last decades the marketes have been automatic.

all trades are essentially matched inside a commuter rather than by human beings on the stock exchange. it's funny. it's a problem and it's also literary opportunity to describe, but what this new world is, but you can see how hard it is for people to get their minds around what -- not just the stock market but all the financial markets because they cling to the old picture. when you watch the tv and there are reports about the stock market, pictures of people on the new york stock exchange and those people are at the center of the market still. the old picture is still sort of being used because the new picture has not been drawn. so, one of the things i'd hoped to do, almost by the by but to leave a reader with the sense of a different sort of picture, and -- but the problem is in order to generate that mental picture you almost have to imagine time the way a computer does. that is what is happening.

a computer can make a thousand trades in the time it takes a human being to make one. computer time, a it's like geological time. the time it takes to form mountains and valleys and rivers. hard to get your mind around what can be done in the a millisecond. >> host: if you were to draw that picture today, michael lewis, would you draw it at the new york stock exchange on wall street or draw it in new jersey? >> guest: i would draw it in new jersey. the exchanges are all housed in data centers, very heavily guarded data centers? weehawken, see caucus, carterrette, and -- in new jersey, and you go in them, which what you see is rows and rows of black boxes. one set of the black boxes if the exchange itself, called the matching engine. where buyers and sellers are

connected. where price of the stock should be because of the buyer and the seller agrees to meet at that price. then you have around that matching engine the boxes of the high-frequency traders who pay $50,000 a month, $100,000 a month, whatever it is to connect a line directly into the box to get information about what is happening on the exchange before everybody else. >> host: what is front running you talk about in "flash boys"? >> guest: front running is -- the idea is almost like tickets. imagine a ticket and a scalper. one who figures out the show will be sold out, runs out, buys a ticket at the box office price and sells them at doubling the price to people who walked up to see the show. in the stock market, what is happening often is that traders

with faster machines are able to anticipate orders to buy and sell stock from investors, and every kind of investor, little to big. and buy the stock before them and sell it back to them at slightly higher prices. >> host: you're talking about a millionn't of a second. >> guest: a thousand -- talking microseconds. high frequent see traders now are making decisions to improve speed i by nano seconds. so a millisecond is a thousandeth of a second. and a nano second is a thousandeth of a microsecond. the increments of speed are mind-numbingly small. very hard -- but the point is that they-the ability to divine your intentions and act faster

than you creates this opportunity for front running. it happens quite a lot. what was interesting to me about this story about this young man, this young canadian who figures out for himself what is going on, a trader on wall street, but he finds himself being front run and he can't figure out how people are doing this. once he figure is it out and wanders around even the offices of the most sophies tick indicatessed investors in america, big hedge fund investors, everyone senses the front running is going on but nobody understands why, it's in the plumbing of the mark. so bill atman, buys himself big chunks of companies, said before the main character of the story came into his office, he thought he had an insider trading issue. he was thinking about buying some stock, he was going out and looking to buy some stock, and the stock would move on him.

eat try to buy and it it would go up as if someone knew he wanted to buy and then sell it back at a higher price. that catches the flavor. it's people learning what you want to do before you do it, and doing it to your disadvantage. >> host: michael lewis is our guest. his book is call "flash boys." also the author of several other books. you might have seen him on "60 minutes" last week, and that piece on "60 minutes" we have him live here on booktv to take your calls. we'll put the numbers on the screen 202-585-3880. eastern, 583-3881. mountain and pacific time zones. i if you can't get through on the phone lines get through on twitter. you can send a tweet. >> host: what is your history in

the financial markets? you're work history. >> guest: my personal history. >> host: yes. >> guest: brief. it brief but lucrative. i stumbled into a job at the now defuncts soloman brothers when i was 24 years old in 1985. and i was trained by solman brother for six months and i spend two years a derivatives expert. i would -- and bond salesmen. i learned -- this is when the financial markets were starting to get very complicated and financial options and futures were becoming the rage, and my job was to explain them to investors. i was given a crash course in what this stuff was, and we go out and proselytize. i quit in 1988 and wrote a book

called "liars poker "about working on wall street. and then sense then i've been an interloper. i've written about a lot of other things, for my family, my high school baseball coach, whatever it is. politics. but since the financial crisis, i found myself drawn back into wall street to write big narratives and there's been three. a book called "the big short" about the credit crisis. a book called "boomerang boy about the way the cries expressed itself in different cultures and showed you something about the cultures, and then in "flash boys," the wail the stock market has evolved really almost since the credit crisis, and my interest in -- so my interest is different when i was working on is obviously. these books are different from "liar's poker" put what happened

is because of my history of writing about wall street, i've had some access to really just fabulous narrative stories that happened to have merged from wall street in this time. and wall street, i think, at this moment, is really rich vein of material for a storyteller. >> host: in "flash boys" one theme is a federal regulation called the regulation national market system. what is that, or reg nms. >> guest: it was implemented in late 2007. and it was a response to the fear of unfairness in the market. the possibility of unfairness. caused by the fragmentation of the market. the stock market was basically the new york stock change and this thing called nasdaq with tech companies and you traded the stock in one place or the other. so, -- that's changed.

the stock market is now 13 public exchanges, and 40 something private exchanges called dark pools, run by goldenman sack and morgan stanley. >> host: you can't participate. >> guest: you can participate if you're a big investor, you i can give the order and they may execute it in a dark pool, but you can't see in real time how your trade fits into the larger trade in the market place. there's a lot of opassty.com mess equipment. so protect investors the sec came up with regular mns which is it's against the rules for a broker to handle a stock market order to trade outside whatever the national best offer is. let's say you the investor want

to buy shares in microsoft, and the current -- if you took a con conglomeration of all the prices for microsoft in the 50-something markets and you added out up, the of offers to buy and sell, the market microsoft is 29.99. some people are willing to buy at 29 99 and some people are willing to sell at 30. if you come in to buy, the broker's not allowed to execute your order at a price higher than 30. there's an offer there of 30 somewhere in the market. so to protect investors from being cheated by the complexity and opassty of the system. the problem is with regmns is how the best bid offers

calculated. they're calculated slowly. it takes a long time for all this information to be gathered -- >> host: whoa that would you mean by slowly, day, week, minute? >> guest: we're talking milliseconds. we're talking milliseconds differences. but the technologyes slow, nobody has an interest in making -- nobody in wall street has an interest in making it faster. so, that market, that official market, is a stale market. the people who have faster access to information of what's going on inside all of these exchanges know that maybe microsoft is cullly -- between the time your order has gone in and you -- it gets executed, the microsoft would have collapsed the next millisecond, down to -- well, down a lot. it's collapsed. so that the high frequency

trader can now buy it cheaply and sell it back to you at a sale price of 30. that's what happens. so the meaning this intent of the regulation is very good. to stop people, investors fork. being screwed by the complexity of the mark. the problem is the market figured out a way to game the regular luigs by creating two markets, slow market the innerve vestors see and the faster market that the insiders see, and once that happened the gap old between this old stale official price and the insider's knowledge. the sums of money mad were vast. there are estimates, all nonsense. ment the closest to something i believe is what my main character starts to calculate from the individual predator strategies, but many billions of dollars a year. what those bills of dollars are method by those traders, two are

paying these though exchanges for the faster, faster, and faster information, and paying the brokers, the banks and the brokers, for the right to trade against those orders that are kind of dumb in the sense they're -- all they know is the slow market -- everybody is in on it. the banks and the broke issues get paid a lot of my by the high frequency traders the high frequent see traders get very, very rich. the him in is basically opaque. the investors have a hard time figure ought what is going on in the stock market. the skim is so slight they don't feel the pain but collectively the pain is vast. so an echo system rises and no one on wall street has any interest in exposing it or talking about it and this is why to finish this soliloquy -- sorry -- the stock market has weirdly become incredibly secretive. why it takes detectives to go and figure oust what on earth is the stock market? how on earth does it operate?

because people on the inside, just like everybody on the inside, doesn't want to talk about. >> host: michael lewis, one more question before we go to calls and tweets and e-mails. about the cultural of wall street. you quote one you've your main characters assaying. i. i it's a whole industry of bs. and in reading the book i notice -- >> guest: a wall street person. >> host: i noticed it was white smell the f-word is thrown around a lot. >> guest: everytime i come on c-span i'm called out about that. i admire your willingness to attack those who use bad language. and defends the language. purity of the language, but it's true. a lot of -- it's a lot of males. a -- some weird way more of a men's world than even when i was there. in some ways that's not true but

the world of tech and trading is ridiculously male. i said many times i thought if you wanted to reform wall street, get rid of the guys and put in women for a few years and actually the decisionmaking jobs and everything would be cleaned up. everything would be fine. the women would not do what the men are doing. there's something about mail overconfidence, tessing to at the reason, competition ex-when it connects to the financial markets is toxic. anyway, ryan is irish -- a lot of the, whichs in the book, the radical trying to fission wall street, are immigrants. but ryan is an irish guy, and his whole life from the age of 19, when the family moves him to -- 16 when he moves to connecticut from ireland, the discovers investment bankers and financial people because that's who lives in connecticut and he wants nothing more than to be a wall street person and spends 12, 13 years, desperately trying to get jobs on wall street, and he can't.

all he can get is jobs helping guys who call themselves high-speed traders. get faster by knowing the technology. he knows about technology. he works in telecom, where fiber on tinge lines are raid and what boxes you buy to make your treads go faster. a they call him speed in a box. so he tries to get himself in wall street and finally gets hired but the hero of the book, and paid a million dollars a year to be a big figure on the wall street trading floor. after a year he says, why did i even want to be here? he can't believe the mystique was so different from the reality, that he becomes almost instantly disillusioned. >> host: michael you his is our guest. bernie from new york, you're the first caller. >> caller: thanks, mr. lewis, for writing the book. i want to point out something. you probably know about it already. but it's been bothering me. level two quotes, real-time level two quotes, my feeling is

that -- i used to be able to look at that and make a decision as to the depth of the market, but it changes, the bids and the ask and the sizes change so quickly, it's become meaningless to me. it's my contention that these high-speed computers are corrupting the information. >> guest: when you say you used to be able to look and make a decision, what actually -- what are you looking at when you look at your screen? >> i'm looking at level two -- the bids and the ask on and she size -- >> guest: who is providing you with the information? >> caller: aku trade. >> host: what do you do for a living? >> caller: i'm retired. >> host: but you're an investor or trader. >> caller: i used to be. not anymore. >> host: what is a level two quote? what does that mean? >> guest: are you asking me? >> host: yes, sir.

>> caller: a level two quote is -- on an investment screen, you will see a list of -- you'll pick a stock, any stock, ibm, and they show you a list of the orders at different levels, often in pennies, $100 plus ten cents, and on the other side $110 and 11 cents. and they'll tell you how many shares are offered on each side. and i used to be able to see that on a steady basis, and i could digest the information but now, these numbers change so quickly. the size changes, and the bids change so quickly, that the information is useless to me. so i stopped. >> guest: that's interesting. a big discussion here and what you really want is the subjects of my book here to explain what he is talking about. they do it better than i.

but the exchanges enable the high frequency traders to use quotes as tactically. so to submit offers to buy or sell stock, not because they want to buy it but to make the market see something it isn't. so he would be looking at -- what he is talking about, think, is that high frequency traders will spoof the market. they will make look like they want to buy -- there's a lot of demand out there for the shares in procter & gamble. but they're able to move so fast that the minute anybody, any personal like him is trying to act on it, it's gone. the information is meaningless. so it's -- that in itself a problem between traders in some way. it's a act of deception, short-term traders trying to deceive each other about what the market really is. but the bigger problem is

spawned by this is that the exchanges, to enable that kind of activity, have to make the exchange itself a software incredibly complicated, and to satisfy the needs of high-frequency traders in all the tactics they want to deploy and fool people into thinking the marketes one thing rather than another. they create instability in the system and this is why -- i don't mean to expand on this too much -- one one of the things interesting about the story is one big wall street bank, goldman sachs, when presented with the story that brad, the main character of the story, has to tell, and a choice, an exchange that is simple and fair and designed for -- with the sole purpose of making -- creating quality among all investors. not one trader on the exchange an advantage over another. goldman sachs basically said, you know, this is a moment of choice for us.

it's a gut check moment for us, because we actually think, we -- the head of stock market trade agent goldman sachs actually think what has been done in the u.s. stock market to doomed high-frequency traders is creating conditions for a catastrophe and with don't actually make the right choice to direct the stock market on to fair exchanges, that this catastrophe will happen and we'll get blamed for it. and it's all a result of changes the plumbing of the mark. that is, really just to accommodate -- to maximize profit ford high-frequency trader. >> host: michael lewis, don i'ms in, if front running is illegal why isn't writing the software illegal? >> guest: great question. one of the questions i asked myself when i was writing the story is -- you always ask this -- why is this story available to be written? why hasn't there been more outrage. and there wasn't that -- it

wasn't that nobody had noticed. like something weird was happening. a lot of people were noticing,ed inners noticed. it wasn't every now and then someone had not cried out about it. they were some gaps in the industry and critics in the industry but it was that people were numbed. the public generally was numbed, and i think people inside the markets're numbed by two thinks. one in the course of the story the stock market has been booming so whatever grift there is, what skim there is, isn't noticeable in the cob text of a market that triples from the financial crisis. everybody is making money so they aren't thinking very much about is this sound? the second thing is his point, which is between the lines of hi questions, what it's done -- when it's done by a computer, people have not just deniability, they have a sense

that, nobody -- there isn't wilful human action behind it. just the computer did it. the computer is doing it. and they also have a level of comeplexty that is hard to parse, to actually understand the front running and to prove it. you actually need to parse the algorithms written by high-frequency traders. so it creates a smoke screen, and it creates an internal moral defense in a funny way, that if you're directing a computer to do something, you will -- i think a human being will credible a computer to do something they would never do themselves. if they actually had to physically do it. >> host: linda from georgia, that do you think of the idea of collecting a small fee, one or two cents, on each stock trade and then apply the fees generated to our federal and state needs, even the national debt, pennies would be turned into billions of dollars by virtue of the volume of

transactions. >> guest: so, the issue of taxing. to levy taxes, nationally is distortive in the market. maybe this is a good way to distort the market. but as a solution to this particular problem, any sort of tax is going to have all kinds of unintended consequences. may actually get the bad guys. may get some service -- satisfaction there and you have to think about what the tax would do. there is a solution. this is what is so great about this story. it's like a choice our societies being presented with. it's a very small part of our society, our stock market, but actually all of our financial market and that market is so important. so reflective of who we are and the choice is between fairness and unfairness, and this fairness -- exchange has been

built for -- as the solution to the problem is transparency. people understanding how their stock market orders are being handled, and people being given a choice, which way to direct their stock, in spite of the well-s and the needs of their broker, and if they choose, whatever market is actually been created that is fair, you will gut the system. well will reform the system a way, say, occupy wall street never would have. >> one, do we reel ya need hedge fundses and derivatives and hedging in. >> guest: do we need them? no worked in love. we need food and water. but do we need hedge funds and derivatives and leveraging? >> host: he's going into the

complexity. >> guest: a very good point. a good useful discussion. in the broader discussion, if you look back in the innovation that occurred in the financial systems since the early '8s so, you can see that things were created, collateralized debt obligation, specializes access for high-frequency traders, that look like innovation, that were masquerading at efficiencies and are accepted as such because they were complicated and have this metaphor in every other aspect of our economy, innovation seems like a good thing. it is really true that innovation the financial sector conclude maligned, can seem like it's progress and is not progress. i would not say -- i would not list as a malign influence the structure of a hedge fund.

just the -- just a structure for a money manager to use. leveraging, depending on writ is, can be useful actually. the problem is we have a little built of -- developed too much of a test for and it don't recognize the social cost. so that's a problem. and derivatives, well, some of the derivatives should have never been allowed to be created. if you could kind of -- i don't now -- if there could be a watch dog who had to -- if you introduce the government you spree introduce a whole another set of problems but if you could wave a wand over wall street and never have created credit default swaps we would all be better off. >> host: from the cbs news site on this story from "60 minutes," i don't know if you had a chance to look at some of the comments that people made on the story but here's one from star flyer: i like "60 minutes" but this piece is a crock. maybe if it was true, it affects

large buyers, one percenters in mutual funds. however, can limit any buy i put in by price and if i don't get it, that's fine with me. from what i got from show, we're talking a few pennies a share. >> guest: we are talking a few pennies a share. let's talk about this. what -- this question is, the damages are minor. if there are any damages at all. and the person who says that, rightly, no doubt is thinking, they've been incredible improvements in my ability to trade in the stock market because of technology. totally true. we're much better off because of computers in the stock market, trade neglect stock market, then we were before it was automated. much less expensive to trade. the problem is, that instead of the benefits of technology flowing to investors to customers, the way the benefits of technology flow to people who

mak telephone calls, incredibly cheap to make now compared to the way they used to be. wall street has captured some of the benefits for itself totally unnecessarily by brew introducing these inefficiency in the mark. so, then the question is, what's the cost of that? what is the cost of, like, letting wall street insert itself unnecessarily in lots of transactions between buyers and sellers and take out a few pennies each time. you could say, yeah, for him, it's not that big a deal, and and he is very happy with the computer and whatever he is losing trivial to him. over the market, few pennies share, not even that probably -- is -- adds to to many, many billions of dollars a year. whatever it is. that's a tax on investment capital. that's a pure tax. levied by the tax on the economy, levied by the richest people in the economy. so, that's offensive but maybe who cares. even it every $20 billion.

who cares? i'm willing to go that far with you if had a couple of glasses of wine but i'm already getting worked up. then i think, hu, what have they done in order to secure this -- what have they done to the structure of the market in order to make the $20 billion grift possible. they compromised the structure of the mark. this is a collaboration of banks, exchanges, and high fresh si traders. much less stable than it could and should be. highly unstable. we have things like flash crashings, ipos going poof. we have outages at the exchanges. what does that cost? that causes a decline in trust in the market. that is good-gets right at the core of capitalism. the whole thing runs on trust. so what is the cost of this? well, very hard to measure but it is not cheaper for corporations to raise capital in the stock market because when it

goes up. what happened then? corporations don't invest in -- costs them nor rates the capital investment. jobs don't get created. start talk bath broad economic effect. let's say you're withing to go that far and say, who cares, few -- little bit of growth in the economy, little trust, who carolina with trust wall street, et cetera, et cetera. we go that far. we are creating in our financial system, and have for now 20 years, a model of success in life that is pernicious, and it is -- people are able to feel like -- and are celebrated as agrees successes when what their job is to figure out how to take money basically from middle class people and transfer it to themselves and to rich people. so, what does that do? it compromises our educational system. the best schools in the country send people on to wall street to do this. it perverts amibition.

it creates -- i mean, at bottom, it's a moral problem. it's a technical problem, moral problem. and this problem of -- whatout get in the enis what we have right now, which is a financial system that nobody trusts, that can't persuade anybody to trust them because they watched what they did in the financial crisis, and whose interest in the centers are completely out of line with those of the larger society. there are many, many good people in the financial system, great people. some of my best friends work on wall street. they don't want that relationship. we don't want that relationship. the society can't function if those -- if the interests aren't aligned. then what you get is people with money influencing the culture, influencing the political process, the direction of regulations, you get two beasts that can collaborate and that's the problem we're facing and this is a microcosm of the

problem. so you're only losing a penny but the store is much more complicatessed than that. >> host: up next is sean battleground, washington. you're on with michael lewis. >> caller: it seems that conservatives like charles murray and all the conservative think tanks, they project on to poor people all of the corruption and wickedness that they themselves are guilty of. 15 years ago in the summer of '99, roger ailes was a guess with brian lam, and i called him up and roger ailes was instrumental in starting fox news and cnbc and rush limbaughs a career, and i asked mr. ailes.kellogg about the specialist firm that was front running the tape, and of course he blew off my question, but then five years later, the sec live veried something close to $250 million worth of fines on

the specialist firms for front running the tape. so i was wonder if if you could address the questions of conservatives projecting -- i think the country will be surprised to know that our nation is run by cocaine snorting frat boys. it's really a crime if liars poker isn't turn into a major motion picture. i just saw "the wolf of wall street" and i think "liar poke we're be better. >> host: we have a lot of caller, let's leave it there. can i one in run particular direct -- >> host: anywhere are youon. >> guest: i hemmed hollywood listen to what he said. it would be great. i don't wouldn't to get trouble over that. the thing that -- one worry have for the story i just told, it's clearly caused an uproar.

more of an uproar than anything i have ever written in my life. only thing reminds me of -- a smaller sphere, was money money ball" which disrupted the world of baseball. an entrepreneur rethinking an environment, in this case you have destructive entrepreneurs introducing reform through the mark in wall street which is a much bigger stage. but my fear is that because -- the story that when eric holder as he did yesterday, announces, they should, a justice department investigation that all of a sudden it becomes liberal versus conservety. democrats against witch wall street guys, and then republicans line up because they can generate campaign opportunities behind wall street and find arguments to make that may be spurious arguments but

become -- we get 0 back those poisonous sort of, we're back in the poisonous debate where everything is zero sum. well, what i love about the story, it isn't that way. conservatives should see that this is a market solution, that these people -- the spirit of the heroes of this book are -- it's a very conservative spirit in way. they're not looking to the government to fix the problem. they think the markets can fix the problem. i think, the broader way, who is to blame whether wall street is properly regulated, i think it's more complicated than a party political problem. the problem is that for a bunch of reasons, wall street all of a sudden started making much more money that's used to make. i'm talking about a break happened in the world 30 years ago, and it's very hard for a society -- for regulatessors to regulate an industry in which

people are so much better paid. should be some law that if the person is being regulated makes more than ten times the regulatessor, the the regulation will never happen. something like that. and you're dealing -- in every case where regulation is called for, it is -- ends up being an are -- arcane argument by both siteses and the public can't participate. too complicated. unless you spend your whole life paying attention to that one little regulation. so ended up being by nature kind of backroom deal, and whether you have backroom deal and a lot of money in the frontroom, it's part of the backroom deals achieve what the greater society would like them to ahe could. >> colleen, forth, oregon, you're on with michael lewis. >> caller: i'm not worried about goldman sack but i'm wondering

how you can fix this problem and not spook the market. the only market we can invest in, and not jeopardize the portfolios of the little guy. >> guest: the market is pretty clearly already uneasy -- made uneasy by things happening in the market. the things like the flash crash. the problem of confidence in just the market structure, is not 0 problem of appearances. it's a problem of reality. if the market structure is inherently unstable, eventually, even if people temporarily have confidence, that confidence will be shattered. so, how do you fix the problem? you expose the problem, and you work with people who have a solution to the problem. and so that's what the story is about. about fixing the problem. why people who actually figured

out a way to make the market stable and reliable and trustworthy, and i i'm not worried about goldman sachs either because the found their way behind it as have a number of other actors in the market. so i think that -- i feel like the first half of this book is kind of depressing when you're learning about what actually happened but the second half about these guys figure ought the solution is extremely hopeful, and that the choice is not so stark between fairness and unfairness, and there's so much noise about what they've done, i think it's all very hopeful. >> host: somebody we haven't talked about. who is sergei olinikov. >> guest: is how i am personally became interested in writing the book. telling the story. this was a first time high frequency trading caught my eye really and anybody elses are. he was a high-frequency trading computer programmer at goldman

sachs. in 2007, 2008, and he leaves goldman sack in 2009, and before he leaves he mails himself some of the computer code, some of which he has been working on, some of which he had not been working on. and goldman sachs sees this former employee -- he quit to go work for high-frequency trading firm, and goldman sachs panishinged and instantly, like in a matter of hours, days, called the fbi and the fbi instantly arrested sergei and a trial is held eventual eventually and he is sentenced to 17 years in jail for stealing gold magic sack's commuter code. his conviction was eventually reversed and he spend a year in jail. i had three questions. one was, we just come through this financial crisis, with goldman sachs had a lot to do

with. the only person who ends up in jail is the person that goldman sachs wants puts in jail. that's very strange. why? so, what did he do? what was such a big deal that the -- he deserved to go to jail but people who helped tank the entire economy don't have any kind of criminal exposure? so, the second thing was, the prosecutors who went after him said, after he was arrested he couldn't be let back on the street on bail because it was so dangerous to have someone who had access to this computer code, the code could -- i can't remember at the language but the effect was like crash the financial system, like disrupt markets. and they said, if this code was in the wrong hands, that ah would happen. i thought, goldman sachs is the right hands? so we're supposed to believe that these wall street firms have code that can be used to do really bad things in the market but that's okay. and this guy who is left -- his

hands, we can't trust him. have to put him in jail so he doesn't hit a button on the computer and crash the market. so that made me curious. the other thing was he was engaged in high-frequency trading. i don't think the term hit the newspapers. everybody says they know what it is but i didn't know what it was. half to the people on wall street didn't know what was. that was clearly so valuable it caused goldman sachs to hit the panic button. call the fbi? you don't do that an wall street other. ways to handle the problem. so, i started to ask around about what this was? high-frequency trading. the is where i stumble bed upon brad this main character of the story. that opinion he had been wandering to you the office office the biggestman managers

on the planet and tell them how he fund -- what he found out about what high-frequency traders were doing in the market and goldman sachs was among them, and they -- people said to me, look, a lot of noise about this subject right now, there's no one who can describe this in 2009 like this guy, and shay say he works for the royal bank o canada. i have no idea how he knows it. he is canadian. and led me to him. and i went to him to figure out whether it was really valuable or what is was or should he be guilty. he helped me understand that really the tragedy that happened in the judicial process, which couldn't understand any of this and the jurors -- no way anybody who sat through the trial left with a true understanding what happened. but in him explaining sergei, he was explaining this thing that happened in the stock market,

and i thought, my god, what a story. so that became -- sergei became a book -- became a magazine piece, some of his story is in the book but the real guts of the story was this young man who was trying to figure out and reform the entire u.s. financial statement. >> host: wire talking with michael lewis, "flash boys" his most recent book. jim in iowa. >> caller: thank you very much for your book. it's brought public attention to this phenomenon which is been a problem for a long time. wondering if these high-frequency trader are playing any part of the obvious manipulation of the gold and silver markets for example, where they offer to sell some astronomical amount of metal and then trigger sell stops and manipulate the market on behalf of possibly even governments. this is affecting the global

monetary system. are they going to -- >> guest: i have no idea. in the interests of trying to say something that doesn't bore the people who are listening, there's an observation that you can't -- one who has been watching the commodities market, the foreign exchange market, the interest rate market, over the last five or six years, can't help but make and that is it is amazing how much manipulative activity in the prices of things has been going on, accusations of it, in the liker scandal in london, foreign exchange trading scandal, and also raises the question, is this always been going on and we didn't know, or are we in this great age of manipulation of marks by the giant actors who now sit at the center of the markets and the stock market being one of those markets? and i don't know the answer to that. but i have a suspicion. and my suspicion is that broadly

what has happened in the financial system is that technology, computer, has -- information technology has greatly reduced the necessary role of wall street. that it isn't what it -- wall street used to make money doing, standing between buyers and sellers, is not needed anymore, and so the firm, the actors, have been forced to fine other outlets for revenue and one is creating complicated things that people that sell them to don't understand and they can take the other side of the trade. another may be mucking around in markets in ways that really they shouldn't be mucked around in. but i do not know the answer to his question. >> host: after all this research, michael lewis, how much -- what's your understand offering the market? do you think you understand it fully? >> guest: no. the stock market? i understand it well enough to write the story. i am convinced the deepest understanding the mark is held

by the main character in the book. but it's breath takingly complicated. there are -- for example, there are 150 basic different order types now. the high-frequency traders can use to commit to the stock market, most of which are to create perceptions -- not to trade, to move the price around, and i don't know all of them. i know eight of them. i know enough of the -- one of them is allowed is incredible. i could not give you an authoritative account of the order types but i can give you a broad description of what they do and a few examples. i could tell you this. i know now enough about the stock market that i know i don't really want to know anymore. and what really needed to happen is it needs to be simply identified and clarified. this market is at the center of our economy and needs to be

understandable. doesn't need to best the complicated. >> host: are you in the, that? >> guest: sure. my first reaction to learning what i learned, i'll just take some of my money out over the mark completely just so if this calamity that seems like it's possible happens i don't foley a fool for having these people to tell me to watch out for and i didn't do anything. i didn't do that very much with my savings. what i don't do is actually bother to pick stocks. think it's fool's game. i think -- certainly for me -- i just don't have the interest. i just try not to lose my money. i am in the market in two ways. basically buy index funds, and i -- another version of this is i give my money to warren buffett and let him worry about me. i figure, whatever happens, he will be positioned to exploit it, and what happens he can defend me, and what i really

want to do is not think about it. want to think about writing stories. so that's how i'm in the market. >> host: bill, tucson, arizona, please go ahead with your question or comment. >> caller: yes. i have not read your book but i've been in love with the market for over 50 years. my question is regarding the corporations that have their stocks listed on the new york stock exchange and other exchanges, and what their reaction is to high-frequency trading and the feeling their stock prices are being manipulated by these high-frequency traders. >> guest: that is a great question. a question that -- i'd been a better writer, i would have found some way to weave into she book. you look at the interested parties here, and the book is framed as a story essentially a dance between predator and prey, and the prey being the -- the prey being investors in the market, people who are buying and selling stock and holding

stock for more than a millisecond. and the predator being the high-frequency traders. but it's true -- there's another party to the transaction, you never hear from, and probably should hear from. and that is, like the real economy out there, the purpose of the stock market is to channel investment chap cal to people who can put it to use. it's a lot of unnecessary financial intermideastation. so, how do-door to some corporations feel about its stock? the people at facebook were not happy about their ipo. i talked to people about that kind of thing, where the glitches were so obvious they threw up the hands and say how can it be like this? but i think that is a constituency that needs to start to speak up to go to capitol hill and say, look, this meddling and mucking in the marks, its may be in the -- much

the dollars these guys are take i can out, we need this mark to be sound and stable, our stock prices to feel like they're reflecting something, and i -- so this is a long way of saying, it's part of the story i just never got to i never actually intent interviewed corporate executives how they felt about these people meddling in stock praises. in my guess is most cases they don't know about that. it's not high on their list of concerns. they're busy running their business. maybe now they'll get interested. >> host: john, madison, alabama. >> caller: hi. mr. lewis, i certainly appreciate hearing what you have to say today and what you have done about your book. the question i have is with the federal reserve and the u.s. treasury and all -- i'm trying not to be political like you said earlier, too. ai agree with you about that. with all of the things that -- and he money being put in by our

government, how is this impacting that and then is this making it more unstable or is that -- anyway, if you get the gist of my question. >> guest: i think i do. the question is, is the stimulus that has followed the financial crisis creating instability in the financial market? and the stimulus takes many forms. sear rove interest rate policy i by the federal reserve. quantities tatetive easing, buying bonds in the market to try to lower long-term interest rates, to stimulate economic activity. a big, big discussion, and everybody will be stupider if i dilate on it for too long. but what you need is a panel of economy complieses to disagree with each other so everybody can see that nobody knows. what is clearly true is that the stock market is a huge beneficiary of this -- of easy

money. and also seems true that for some time now the federal reserve in my view, has spent too much time worrying about levels in the stock market. i feel like government policy seems to respond to stock market levels as if keeping the stock market up a goal rather than something that should happen -- should go where it goes. does it contribute to instability? it certainly doesn't in any direct way play into the story of market structure that i'm telling. so i would say, no. and i'll also ad that the problem that ben bernanke faced when the financial system basically collapsed in 2008, were -- i mean think the decisions they made to deal with the problem, with money, was, i

think, a very -- whether it was ultimately right or wrong, it was a very brave decision. probably right. in the given that the government was not -- pass paralyzed. the one way to prevent a depression from happening, and everything that happened after that is a secondary concern. so i actually think ben bernanke is an american hero. i do. i think what that man did is incredible, and he has taken allgyns of grief, and i've said nasty things about him. its botherses me he didn't see the subprime market coming but given the hand he was dealt to play, he did what he could and i think a lot of people would have done the same thing, knowing what he knows. anyway. >> host: do you foresee a class action suit given what you have written? >> guest: you just want the problem to be fixed. that's like a hate -- zero sum

bickering between political parties. you just want people actually in a room to fix the problem. they give you a solution. here's the solution. let's just do this and let's not worry about lynching people, figure ought the names of the he-frequency trader who have done this, embarrassing people on national tv. it's not necessary. the more of that there is the less likely there's a solution because the people whoa have been perpetrating the problem feel like they're exposed. sort of like -- that's just fix it. ... exposed. and so let's just fix it. >> host: the thing that we can start looking at this problem? >> guest: yes, i do. the money is funneled into the process with these advantages on these exchanges are the overwhelming debate. and we will see this fog machine