you can watch live coverage starting at 9 a.m. eastern. and on c-span 3, former state advisors discuss the muslim brotherhood in the middle east over the years. edison was a plant scientist as well as interest in the other sciences. the story is he knew it didn't freeze in fort myers. so a lot of the interest he had in this area were based on his love of plants. by the 1920's the united states was relying on foreign rubber and we were headed into war. they decided the plant material and the process to be done in this country. edison ford and firestone were

collecting plans from all over the world and had hundreds of thousands of people collecting plants and sending them back to fort myers to find a source of plant material that could produce rubber. the laboratory was put here because they could grow the plants on site and do the preliminary research on site. the laboratory was interesting for many reasons. there was no patent process for plants, chemical patenting. this lab caused the united states government to come forward with what was called the u.s. patent law that said if you invented something with plants, and it was a process that was worthy of patening, it was

issued a patent. >> looking at the history of fort myers, florida including a stop at edison's research laboratory. >> megan mcardle argues that united states is unique in letting it's citizens and businesses fail and this is what has made the country successful. this hour long program starts now on booktv. thank you, everybody for coming. i am timothy carney. i am a visiting fellow and a senior columnist at the examiner. i am involved in the culture of

competition where we talk about competition and subsidies in crony capitalism and the other thing i work on is called the program on human flourishing where we talk about happiness and both of thes are talked about in the book we are here to talk about which is "the up side of down: why failing well is the key to success" we have the author megan mcardle who is written at the news week and the columnist. and tyler cowen is our respondant from george mason

university. a couple quick comments about the program. if you have a cellphone, turn it off, first. feel free if you want to do twitering stuff about this. we just don't want phones. there is time for questions but it will not be formal. it will be something like a question. think about making your question as concise as possible. we will break up at 6:30 for wine and cheese and we are selling copies of the book outside. if you like what you hear, i recommend you buy them. i am in favor of people buying books they find interesting. >> me, too. >> thank you for coming. megan, i read the book. i loved the book. i thought there was a dozen interesting things in here. more than that.

stories from all sorts of things ranging from bad date to failed companies to drug addicts. my favorite line was if you don't already have trouble with delayed gratification the best way to get there is develop a drug habit. i am probably misquoting it. >> no, that is right. >> we have a washington crowd, what do you think is the most interesting thing you came across while writing or they will come across reading it? >> i think we know failure is a learning and we learn by failing starting with learning to walk all of the way up to how the economy learns. most products and companies fail and even successful business people who have done this before has a 7-10 chance of failing the

next time he tries to start a company. the biggest thing was how bad failure attitudes are to change. as a writer i have what is called a fixed mindset. there is two ways you can approach a challenge. you can approach it as an opportunity to learn something and expand your brain or you can approach it as a dipstick that is measuring your in it level of talent and ability. most writers are the latter. they call that a fixed person. gross mind people take on better and learn more from the challenges they do face and they do it again and develop more but it is hard mentality to develop. you look at the way most bright kids go through school it is easy and you learn that success is about finding work easy and when you get to the big leagues that is no longer true because you are competing with all of

the people that found it easy and you have to have the grit and resillgence to take on things you might fail and to learn from them. so talking to carol deck who is the psychologist what came up with this through here research and i said at the end of the interview i said i feel like i am a fraud because i am a fixed person. i feel like every time i take on a challenge and fail i didn't have what it took. and she said me t, too but i changed and i knew i changed when i said i suck at this, this is really fun. and i thought i am never going to get there. i don't like doing things i am bad out and over the course of writing the book, i did. and it wasn't because a lot of these are 12 steps to help

through failure but this was jus reminding myself of the truth which is when we take on things you don't know how do to. you think about tennis. you didn't sit down and think of a theory of tennis physics. if that was the way to win then wimbledon would be won by a guy with glasses at mit. you learn to hit a ball that doesn't go where you think it was. and by accident you hit it in the right direction. and your brain makes a connection and you say that is how it feels. you don't know what you did so the next time you hit it doesn't feel like it but overtime you develop that habit by finding the way that works by hitting it many many wrong ways. developing that ability to embrace that isn't a matter of having a 12-step program it is

just a matter of reminding yourself this is true. and saying i will probably not be at this but i can get bet skwr and the way is by not being good at it. and things with unemployment where you attribute things that happen to the agency of some person. this person which someone is mean to you in the supermarket. you think that was a terrible person and you don't think she probably had a bad day. and just reminding yourself it is probably because their mother is sick does change how you interact with people. it is easy to describe the ways in which it is hard to fail but i was surprised at how easy it is to merely by describing them

get better. >> tyler you have thoughts and continues on every subject whether it is thai food or what not and when you read megan's book what struck you as most interesting? >> this is a great book and you should all go out and buy nine copies it. we should be calling the up side of up. i learned we should teach young children to play chess because you cannot be good at chess so you have to learn failure and it is measured and you see everyone around you failing and you know how bad you are but you have have way of learning how to do better and you can measure your progress and this is one of the most important skills to teach people early on is how to fail.

and we need to think about this more in educational terms. when i think of failure and how to move toward success i think immediately of issues concerning children. to say that one had a child and you are asking yourself what can you do to make this child learn the lessons of this book. that is the big question coming out of this book. we have learned these lessons as nation and i am afraid we will forget them and there is a future with so little future and little measurement that we will lose the up side of down and become a society where second-chances are more difficult. and i am intrigued by the idea where failure is good for you in areas but disastrous in others.

the bitcoin incident where the money is gone. 13% of all bitcoin in circulation is the number? >> i don't know the number. but it is large percentage. >> megan thinks this might be the end of bitcoin. and we don't say they will learn something from this. there is a fixed architecure to bitcoin. so the architecture and the mistakes to scale multiple and things go poof. think about the cases we see learning in the austrian sense.

what are the conditions where you get one outcome other the others. i would say read the up "the up side of down" and the sequel which i predict there is going to be >> i am teaching my son and daughter to play chess and as a result i always win. and now my brother challenged me and i was afraid to play him because i got so used to handling. on a policy front, your book end with a discussion of u.s. bankruptcy code and how that is so different from the rest of the world and in general, and in fact your book starts in the forward with a comment on how america is sort of unique compared to at least europe in our approach to failure. a story i was told by a european

cabinet member and this might have been angela merkal. this top official told a group of us travelling there wasn't a lot of business formation and somebody said my and she said europe has been historically two people the risk takers and those that fail and then those that just go by what they say and she said the first group all went to america. what is that about >> bankruptcy is a modern invention. there is something that looks a little like it in british common law. but in our constitution it says the federal government has the power to create a bankruptcy

code. and you cannot prove this because this is because so many founding fathers were in debt. when thomas jefferson died they were taking up a collection to pay off his massive debt. he was a very good writer and not good at running a plantation. and that actually ends up showing up, i think, in a lot of national characters. our bankruptcy code is so much more generous and people are surprised to hear that harsh, mean american is lenient if you get into finance trouble. i went to memphis, the bankruptcy capital of the world, as a journalist, to go look at. we are the bankruptcy capital of the world and memphis is the capital of the united states. 1% declares bankruptcy every year. if that were normal, half of the

people you would know would have declare said bankruptcy and that is not the case. i went to memphis and you would expect screaming mothers throwing their feet at the -- themselves at the feet of the judge but no it is like i don't have the money. i tried to describe what the new reform looked like. and my colleagues said you have to reform that. and i said that is the new reform. because in no other country in the world can you say i cannot pay and the judge says okay you don't have to go in peace. it is so different that early in the book i was interviewing an

ex pe expert on another topic and he started makie fun of theing -- making fun of the code because he thought it was absurd you could borrow the money and weasel out. so the law is federal but the exemptions are state. so if you shield more from creditors you get a higher rate of entripenursh and in 1998, wh set-up the final bankruptcy code -- 1890s -- all of the people in the west like the people in the west had two senators and said make it easy for me to get out of my debt and

they did. in america we tend to view people that declare bankruptcy not as rich people trying to get out of playing their taylor but really it is. these things build together. and i was asked today could it be genetic and i am sure there is part of that. i was talking to a historian who said the vikings are the violent race and then turn into sweeds and what happens? well the violence and war-like ones left and now in minnesota. so, that could be part of it, too. but i think a lot is the culture and institutions because when you see people moving to a state of high level of people starting

out they are participating in that culture. >> the other side is worries about moral hazard. any time you have thing saying if you fail you are okay and you are encouraging excessive risk taking and by all accounts the collapse was from this. there was ubber support behind the banks that were only allowed to fail so much. it is causing as much harm as the cushcushioning is causing. >> this moral thing is real. i disagree about the 2005 bankruptcy reform i was against it and he was for it. but he said you will see the

rates of bankruptcy drop and he was right and i was wrong. i think we can infer there was abuse and people that didn't need to declare bankruptcy were. and most people that could benefit from bankruptcy don't use it. by far. percentage is many more people don't use it when they could than do when they should not. in general, we focus a lot of on abuse and moral hazard because it ticks off. we ask be angry that these people. but the optimal level of abuse isn't 0. you talk to banks and they don't say this, but it is wildly known they tolerate some level of embezz embezzlement because the reduction isn't 100% because getting the last 10% is so much more expensive you have consu s

consumed. it is like your immune system. you don't want it attacking everything because you get autoimmune and die. i attribute to the desire and belief you are engineered the risk out of the system. i was reporting on something called the great moderation when i started and whole careers and ken rogue said whole severe careers have been build on the dissertation of the great muderation. i don't know what happened to those people. >> what is that idea? >> that regilators got so smart and good at their jobs we would not have a financial crisis again. it wasn't possible like in the

united states or eu to have a crisis like we did in 1930s. the bankers, you would talk to them about debt and mortgage bonds and they would say things like for this to be a problem you would need a sustained nationwide decline in house price and we have not have one of those since the great depression. with the implication since the great depression was impossible i think of the financeal crisis mostly as a story of everyone getting the same bad signal from the market. the regilators were easing off in various ways and what they saw was nothing happened, the economy degree and inflation was level and everything looked great. bankers were loosening credit restrictions and they saw the faults were going down. it wasn't dangerous to make a sub-prime loan for about ten years. every year they inched it wide

skwr and the defaults were fine and now we know house prices were rising so you could sell your house. everyone saw home owners got rich b b with buying a house and installing a pool and you can retire on that. when you get to a place where you are safe it probably means you have reduced number of bad things happening, but increased the shock and you are not prepared. >> megan says it was more the suspension we were not going to fail that led to the crisis. i remember reading an article

called the inequality that matters and bankers were banking on the fact they can not let us all go out of business. so you bet on a catastrophic event. do you buy into his mass idea they are save or moral hazard that they will not let the bank fail. >> i think you have both factors. it isn't like the banks said i am going it take a risky gamble and if it goes bad someone else will pay. they are not cynically playing mor moral hazard. the explanations are fully

complimenting each other. today in the united states, as a result of financial crisis, we have the long-term unemployed and they are keeping their wages high and they are less mobile and they as a group of people haven't found the key to success. and what is the variable that makes them different than say you ended up with a job doing wonderful things? >> part is systemic. i was unemployed for three years. i had little jobs but nothing looking like a full-time employment opportunity. 2001 was bad but not as bad as 2008. if you lost your job after 2012,

you are back in the labor mark of 2007. people who lost jobs between 2008-2013 are still stuck. your resume ages and you are in real trouble. even back in 2011, i observed you had two groups of people and this is a bit of a simple equation but you had people freak out and did whatever they could. i knew one guy was working for his uncle's pizza place and opened up frantuochisfranchises. it turned out he liked making pizza. it was the people who were willing to do anything.

and this is often not what you would hear. i cannot take a job at walmart it would look bad. but you see the people in starbucks saying you are good at selling come work for me. every time you do something you are opening up the possibility of opening up something better. part of it is moving around. part of it is i liken unemployment to a dark room where they shove you in, and you cannot see anything. you need to find the enterance. it is dark and square scary and you will not find the opening if you don't move around. you don't enjoy failure. when you are unemployed and

every time you go and look for work you are saying do you want to reject me and most people say i do. so the people that kept trying anything. and one of my favorite stories is harland sanders. he is a serial failure. his wife left him. and she came back but they fell apart. in his 40's they get together and he has a cafe now and the state of kentucky built a freeway and he lost his business. he is 65 and takes up with a pressure cook and goes door to door and says give me five cents

a chicken and i will show you the best way to cook. and he asks a thousands people and one took him up on and the rest is history. is everyone going to be kernel sanders? obviously not. but how do you have the best shot? keep moving. and i think policy wise we make mistakes on that. we are looking at north carolina's unemployment benefits and we see it is causing problems because it is the worst feeling. ...

we really need to be thinking of this personally. the main thing to do is keep moving and do something, it doesn't matter what. took a job walmart. do something that will be back connected to the labour force and then work from there instead of waiting for something to happen. on the policy -- to be our national priority right now, this anomaly stupid waste of human capital. it's bad for individuals because of plant has about the worst in the can happen to you in a modern society short of death or

dismemberment, but we're already losing labor force participation people are retiring. baby boomers are leaving the work force. we cannot afford have these people out of work. >> i want everyone to come up with a question and a minute, but my last question for you now call everybody contemplates and all your question. the talk about blame in the book. sometimes owl it is almost instinctual for us to bring people. i think that in my mind that ties in with kind of their -- the american mind set that made us so upset about the bailouts and other things. you did something wrong. you want to suffer. sometimes i wonder, a loss of compatriots who are conservative, if that is part of their opposition to a generous safety net. they think if you're not rich is no one's fault but your own. let yourself. is that a natural thing, an

american think? is the problem at that we need to have some sort of blame? >> sir, the mistake is to say it let's try to make it not happen. but it should and have very specific way. an example of really bad philly, feeling that his prison where you kind of screw up, do something wrong the 20 or 100 times and then we locked away for 25 years. it's not a good way. you destroy a human life which is serious, even if they've done something wrong. most people in prison have done something wrong. i spent a week in the system which would be enough as a journalist. they did actually locked me in a holding cell for a minute. i thought, would do anything, i

would be on my knees in front of a judge sitting out or never go back there. it was amazing to me. but it is a really bad way of handling it. i think americans, our answer to the crime wave been hitless to make sentences longer. that didn't work. will we should of been during was making the more sick -- consistent. so i think that way with bankruptcy. bankruptcy desert, and it should . most people in bankruptcy did make mistakes. they don't just end up there because of financial whirlwind came by. most of them borrowed money that they could not repay or borrowed money that if anything went wrong there would not be older perry. many people in this from our wages say if there were out of work for a year would not be able to pay their debt because that's generally true of most americans. i'm not picking and you guys.

most people live that way of the people who got, live in a way. and so generally is not that there is a more and we don't need to punish people will focus too much on it. a problem with it is first of all we tend to do this thing brainstorming. the sit-down. that tends to make people overlook the systemic. okay. now we fire the guy who feels sure that every so have exactly the same system a problem. so generally i think it's not that you don't want to be consequences of failure should not feel good even if you didn't do anything to deserve it because otherwise you won't. what you want to do is figure out, are we making the planes the right kind of pain or not? probably did not to a great job. on the other hand relic of the great depression. >> those guys are still rich.

>> well, the bank ceos -- >> i don't think that's right. if you went to a person, if i lost my job and a person in tanzania has been a while sad about it and i was i well, summer house and move to an apartment. hot and cold running water. your not going to be hungry all -- it doesn't work that way. you don't think a well. i guess i don't mind losing my job. they feel the same way. people are special in that way. everyone is losing status. everyone hates losing 95 percent of what they have. so you know, i don't know how much -- the acted like an idiot. it's hard to read about what he did not think he acted like an idiot. he acted like an idiot in a way that many people in the world act like idiots. do are what the single amount?

if you were not for him acting like an idiot everything would of been fine. attended think there would have been some other it. >> before we go to questions you have any -- >> i've been thinking about what is the social wedge here? that say you take biology, bad for the individual animal or human being, but they may be good for the species as a whole. evolve, change, develop. so on that overall by you saying that it's something that is good for society or good for america but actually bad for people? with need to subsidize, take more chances for mutual benefit. if everyone does better will be good for most people, or you saying that it's something which if we did a bit more about the margin would be good for ross. we can't do it because we're weekend graven in we need to be

nudged in that direction? and will be good for individuals and be good for the broader policy. now, you're saying the latter, the implications for children and education. one thing interesting in your book, very little in hear about children which is quite striking how one would deal with the child, a very good, cutting edge question. there you just care about the child. you don't care about the social benefits. so in general what your views are, the wedge between private and social benefits, what can subsidize, what are the behavior of imperfections and do we as purely selfish individuals actually want to take to repel which would mean we take more chances and have all that pain in the meantime? should we take more? we should take more. >> i say this is somewhat weird. i may not be entirely objective.

the downside in america is just not that far down. as i say, the worst thing that happens to most people lose their jobs that they end up living in a smaller house. it is not that the end of starving to death or that they end up dying of some disease that we know how to cure but did not bother to. and given that, on the margin we should be willing to take more risk than we are. we tend to think about this as a freer still out on the belt so wired and if we screw up we could get eaten by a saber tooth tiger. actually don't know if saber toothed tigers live there, but sailing gracefully of words, for individuals it is also better to take more weird bills. is not always such a happy place to be because he's been too much time trying to give your place

in it. and i think of this as education i did have a chapter on kids in the book. since i don't have kids that did not want to be chief of hate, i have a lot of great child parenting tips for all you folks are actually doing it. but so to let the with the educational system works. it's a good example. i think it's reasonable to say that 60 years ago college education in america actually was a way in which people were acquiring skills and actually sort of bettering their productivity in their chances. now what you are looking at, there's not nearly so much pressure. you went to college. you could afford to work your way through college. the cost of it was minimal. the upside was pretty good. now college is mostly about as far as i can tell, people in the upper middle class are desperate to make sure their kids can't possibly fallout of the

upper-middle-class. now everyone wants to send there kids to believe schools with exactly the same number seats in 1973 more laughs and a lot more kids trying to go through the funnel so that when i was admitted in 1990 it was about one-third of the class. now it's under 10%, and that's the second-highest. and it's making people act insane, and everyone hates it. all the parents to spend all the time being terrified of the children will end up homeless. reacts to that by spending all their time shepherding their children to 97 activities designed to ensure that there about a champion concert violinist an award winning soccer player as well as being a straight edge students of it looks go to college education. they hated and feel like they can't stop. we are now in this euros some competition where we are doing more and more things no one wants to do merely to ensure that we stay in this narrow gap. >> while. my kids lose lots.

questions starting in the back. wait for the microphone. we have a microphone coming on the back row. great. >> much obliged. you know, among the lucky folks. could you survey the gulf, all of the points you made. >> it's a big difference. it's actually interesting. we are not the best. we should make it a lot easier. just in terms of the paperwork. one way in which we're doing worse of this, america is getting worse of this a lot of ways, the state of radical uncertainty where talk to a guy

who started the business. he could not tell whether he was in compliance. this guy was a pretty liberal guy. he was not just a railing against big government purpose. u.s. out against regulations gazetted not know. apparel company would just give him on the dollar charge of something and he would have no way. he would hope there were doing their jobs are because he couldn't tell whether there were in compliance with the parole laws which is a pretty liberal heavily regulated state. on the other hand, and to be the danish entrepreneur and he was like, it's great. they come in and tell you. you try to fix it because i now want to see. it was a totally different and -- attitude. though we are good that, gentlemen gray story what it in such throwback. some to have heard in other ways to my the people. you know, here it would be like

if you were -- issue a general kaytoo is getting married. or would you leave a good job and a solid company. that's because i'm not as kind. we could be better. we're very adversarial. on the cultural side with the fledgling better. >> he tell the story of the photographer. >> is been basically, he had to lay off a lot of employees in 2001. in denmark have to pay employees and to enter in six months of wages. this is the same time the business is going under. he was still trying to pay off

that debt in 2012. the same amount of debt. and he was on the verge of losing his house because of it. and that kind of just tying people told bad decisions, and it wasn't even a bad decision. a photographer and a hint in photography changed. got a lot more competitive. there was a lot more like spring interscope. he's still working as a photographer but not expanding and can't do anything. he can declare bankruptcy because creditors will lead. [inaudible question] business that had failed. >> talking to an entrepreneur who city actually only likes to hire people who fail a couple of times because back when something goes wrong is gonna be like, yeah, we tried that. that doesn't work.

you really wished we done this other thing to read also when things fail generally because they've been through it at all freak out and start right around like chickens with their heads cut off. here are three ways to do with it. >> all right. more questions. appear in the front. >> a want to go back to the higher education issue. it seems like all of the political stakeholders involve, state government, federal government, think tanks have brought in to the degree and all costs idea. we have more buyers as ours, if so fast co. how do you convince all those people that it skills. >> that's really difficult. as a great pope which starts about the ways in which states have to make things legible in a systematic way. many things that they can see pretty clearly. the degree is easy to observe.

that is part of the reason that we are getting into this mindless correctional as an. something that do will is trying to move away from because of stupid. no offense to a college professor. he teaches real skills. similarly if your politician you can say i am proposing that we do a million more college graduates a year. our number. you can describe how to get to that. it's actually a lot harder than it sounds because it turns out that the marginal people tend to be much more likely to find out of the people who are already there. something to you can pretty easily outline a plan to do with financing. it's really hard to say to want to make american students 7% better at handling failure and 12 percent better at doing basic math. you can kind of describes it.

we've been pushing on that. the basic not for a long time. it's slow going. people tend to describe the credential instead of the thing that the credulous supposed to represent. >> your observations in academia, tyler. >> i don't think we need so much to talk people out of that model. a revenue model was collapsing from the labour market side. a four year college graduates earned a higher average salaries in the year 2000 and they're earning today. we had somewhat of a bubble and student at which is now more less over the media have wages coming down, student at a previous levels being a thing of the past. politicians can say what they're what, but a lot of schools are going to see sluggish and roman commander going to see two sets of responses which will be a kind of nightmare. people who drop out altogether and stop trying.

we make it the worst of those two worlds, but i don't think were going to have a problem of more and more throughput. in no way we may envy the days schists. >> more questions. >> yes. john and with the orange park. celebration of denmark's victory >> michael barone with the eye and the washington examiner orion mccauley of times on both accounts. megan mention that one of the reasons progressive works is there is stigma to. it seems to me that much of american life, we give people second chances. we have to keep up balance. you could argue that in the 1970's we reduce the stigma on divorce. a lot of people got divorced, which turned out to be sort of

bad. and as our colleague pointed now , well credentialed, affluent people stopped getting divorced. people and fish town are still getting divorced are never getting married. how do we maintain that balance if they're is a moral component to it? i don't think you address that a lot. i would be curious about theiler's idea. there's some way to quantify that. >> i think this is usually important. we to enter really underway. there's a lot of thinking. people tried the reconstruct the former soviet union. markets were just the absence of government, this natural areas that we have it turned out the dow was wrong.

there's an enormous amount of software. the hardware, the capital. then you can think of the operating system as the institution in that country, the cultural capital you have that helps the hardware run, but makes it worth something. and it's a little things like standing in line. this sounds down, but the way you stand in line matters a lot for how you manage big crowds of people moving somewhere. it's also the sense that i spend money all the time. this and mist of back. i think of fred -- >> are talking about it was the purchases. ebay in amazon. >> but it's phenomenal how much of that is trust. it would be -- a lot more fraud could be happening and just as an. it's because we have this

culture, he see a lot more from happening. if you don't trust -- trust strangers is hard to do and takes a lot of work to make happen. similarly i agree with you that we have a lot of cultural capital of around marriage and family. we decided -- i would actually trace this to the 50's. we decided some time on the 1950's that that was all stupid. there's a description, the problem of chesterton. a guy says this is done. there's no reason for it to be here. thus the last person who should be allowed to tear it down. the fenced and just grow there. someone put it there for reason. if you know what the reason is you can say that no longer applies. if you just say this is stupid and we should destroy the fence then you are dangerous and

should not be listened to. and we did that with a lot of stuff around marriage and families in the fifties. we just decided the for some reason our ancestors or all morons and then we knew better and that we are going to get rid of these ideas about marriage and children and so forth. i think that we are paying the price for that now. it's true that marriage is great and is never been better and the elites. you meet this person, you have huge numbers of interest. you like vacation together. of the bottom we need to figure out how to put that back together. maria is absolutely right. the valleys are not perris they actually practice. as a lot more like early 1950's america and they work. they're better places to raise kids. the better for the people, battered have someone else to lazar back.

those things are important. i don't know how to get there. how do you do cultural change? one of 300 million people out of time. >> i may be more pessimistic about a stigma. i think a lot of human beings as naturally being fairly cranky and prejudiced and a lot of ways our chores variable is how much stigma can we apply? so i'm pretty happy for stigma as a whole to be weekend because it means a lot more tolerance for groups which otherwise suffered. it means you lose stigma against a lot of past activities also. but i think it's been a big gain to have stigma weekend. even with marriage weakening my reading of that is that a pretty big chunk of men are just run. may be born so. what has weakened marriages women at lower income and education levels a sudden they don't want to be married to

rothman. notice can be bad. there are native social externalities' but on all i think of that as a will for an improvement, to be married to some guy. he beecher, other things happen. she's better off on her own launches using that. so even at current margins i would rather still sees stigma as a whole is somewhat weaker and we be more tolerant and less prejudice and incurred a social cost will come with that. >> we have time for one more question about. >> i just felt the book. congratulations. look toward reading it. >> congratulations to you, sir. >> i'm a winner here. >> thank you very much. >> i wonder if we are talking about stigma and what we could call clemency or mercy. in terms of managing failure, is there some sort of inverse craft that is related to our culture

that is have stigma but also values, giving people a second try, mercy, have you looked at that in any prolonged way? >> i have talked a lot about it. sort of emphasize forgiveness. it tends to be cheaper than we think it is. we can often shoot ourselves in the foot pursuing the last measure of justice. some play. if we actually needed that justice who among us could stand up against true justice. but that does not mean that you should just blindly forgive. bernie mann often something wrong. he should not be allowed to manage money anymore. he should be in jail. the first thing that you want to see is learning from a mistake in the wrong. you want to see repentance. obviously that can be faked. but it is harder defecting you would think. most people, many people don't even bother to try to fake it.

so what i would like to think of is tighter -- a lot of fix social restitutions. a lot of this is happening and social circles which is true bankruptcy defeated you are genuinely at the end of your rope and have some terrible medical illness have to declare bankruptcy, you will feel a little bad about it but basically your family and friends are going to say, you know, you've got cancer. the $200,000 mortgage and you lost your job. what else did you do? whereas a few run up profligate credit-card debt your family and friends kind of know that you were driving a bmw. they're likely to be a little more mean to you that if the problem was a you have a plumbing business you could run were your real. >> in the state can't tell the difference. >> the state can't tell the difference between those things,

a big social networks can. that's where this happened. it does not happen very much a lot the government level. >> thank you. we've got a free. first, let's think tyler and making. [applause] [inaudible conversations] >> with the senate and recess book tv is in prime time all week here on c-span2. tuesday night books and authors to discuss human intelligence. at 8:00 p.m. eastern we will start with elizabeth cole birch, author of the sixth extinction. follow the nine by james barrett wrote our final invention, artificial intelligence and the end of the human error.

955 his book the future of the mines, the scientific quest to understand, enhance, and empower the mine watch all this week here on c-span2 tomorrow we will look at international issues. here on c-span2, a look at china as the world's second-largest economy in their policies. former treasury secretary hank paulson and president obama's former agent and adviser. you can watch live coverage from the center for strategic and international studies starting in 9:00 a.m. eastern. and over on c-span2 former state department advisers discussed the muslim brotherhood and floods in the middle east or the past three years. the american task force on palestine house the event started in 9:30 a.m. eastern. >> there's an old saying that

victory has a hundred fathers and defeat is an orphan. would not be surprised if the information is pont in regard to recent activities. >> we are just talking about the fact that the interrogation last week of the standing committee senator goldwater ask questions about the use of an aircraft from the carrier essex were their markings painted out. we figure that somebody over there has told them. therefore the water will spring it. a going to try to spring and in such a way that it looks like there was u.s. air cover and you are wrong and i was or insane there wasn't. >> historic audio from the attempt to overthrow cuban premier fidel castro on c-span radio and washington d.c. to be on line. nationwide on ex-im satellite

radio channel 120. >> you're watching book tv on c-span2. now joining us live is the author of flashboard. michael lewis, what is a flash board? >> they heroes of the book are the flashboards, people discover that the stock market as something funny going on and sick to find out what it is and then bill the mechanism to prevent creditors and the stock market. it's all the fuss was 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 trailers. it got to be -- but also a super hero. there were these characters. i mean, they aren't doing anything unnatural, but they do have these weird powers in the financial markets right now.

the powers are powers to explain complicated things to people, the power to a kind of engender trust and others. but the less reason is i knew of one a flash in the title. the market is taken a stern. i had a title. it's kind of an inner tidal. i was driving to the car one day what's the book called? / trout. you come up with a better one. a said what's it about. it's kind of about these guys on wall street you figure out rich people on wall street stealing from less rich people call middle-class people. they get upset about it and try to do something about it. rich people are stealing. that's awful. yes, but that's what's happening

. that's like robin under something. there's my title. that's working from. >> how win your of your people stealing from others? >> well, stealing, i think every -- as far as i know it's legal. the stock exchange, under places for investors. it's happened pretty rapidly over the last six, seven years where the -- the 13 public stock exchanges all scheduled -- scattered tanagers in my speed turner's by the exchanges. paid exchanges for special fees which enable them to see

movement and stock prices before ordinary investors. they know it's only a couple of millisecond advantage, the amount of time involved is very slight, but they know today's prices and we know yesterday's. the analogy is it's a bit like the results of the horse race. walking into the track. so there's this on fairness in the middle of the system. so that's the problem. that problem, nobody quite knows how big the problem is in terms of sums of money and of being essentially tax out of investors by wall street intermediaries, but its billions of dollars a year. >> because of these milliseconds >> because of these milliseconds. >> this is something you're writing your book. you write that over the past

decade the financial markets have changed too rapidly for our mental picture to remain true to life. the picture that most people have of the market is still a picture of a human being or that a human being mike of taken. in a ticker-tape runs across the bottom of some cable tv screen without the males and color-coded jackets standing in trading pits on in each other. that picture is dated a were the top picks instead. >> yes. thus the picture i had in my head. thirty-four years ago you start hearing the phrase high frequency trading. it's really only the last decade at the markets have become fully automated meeting and all trades going to -- are essentially match inside a computer by human beings on the stock exchange. it's funny because it's a problem and it's also an area

pitch in the. what this nubile this. you can see how hard it is for people to get there minds around what, not just the stock market by all financial markets have become. they cling to the old picture. pictures of people on monday our stock exchanges. those people are actually the center of the market. the old picture is being used because the new picture has been drawn. one of the things i hope to do, almost by the by, but about so leave our reader with the sense of a different sort of picture. the problem is in order to generate the mental picture you almost have to imagine a time the way a computer does. that's what's happened. a computer can make a thousand trades in the time it takes a human being to do one. computer time is a bit like geological time, the time it

takes for mountains and valleys and rivers. ciardi in mind around what can be done in a millisecond. >> if you were to draw the picture today would you draw it at the new york stock exchange on wall street or would you draw it in new jersey? >> i would draw it in new jersey . the exchanges are all housed in data centers, very heavily guarded data centers. you go in and pier read what you see is the boxes once said of the black boxes is the exchange itself. buyers and sellers. the price of the doctor should be. then you have that matching

engine, the boxes of the high frequency traders to pay $50,000 a month maunder thousand dollars a month, whenever it is to connect aligned directly to the box to information that was happening on the exchange before everybody else. >> what is front runner in the you talk about? >> welcome law from running is the idea, like a ticket scalper, someone who figures out that the show will be sold out car runs a couple buys a ticket at the box office bars than doubles the price to people who walk up to see the show. in the stock market what has happened is the traders with faster machines are able to anticipate orders to buy and sell stock to buy and sell stock from investors. little investor debate investor.

and buy the stock and sell it back to them at a slightly higher price correction you're talking about a millisecond, 1 million the second. >> microsecond, high-frequency traders are making decisions to improve states by nanosecond. thousands of a millisecond. nanoseconds is a thousand of a microsecond. the air command of speed is my numbingly small. very hard. but the point is that the ability to divide your intention an act faster races opportunity. it doesn't mean it happens to every trade, but it can happen quite a lot. what was interesting to me about the story about this young man, this young canadian who figures

out for himself, he finds himself being from money and can't figure out how people doing it. once you figure it out in wanders around the most sophisticated investors in america. he finds that there's from running going on but no one knows the nature of it, no one knows why, no one understands the market. bill asman, big hedge fund manager often buys and sells big chunks of companies sold me a lease said the four the main character in the story came into his office he thought he had insider trading issue. he was thinking of buying some stock. the stock would move. you try to buy it would go. a summary one of the by. that captures the flavor.

people think learning what you want to do before redoing and doing it to your disadvantage. >> michael lewis is our guest. his most recent broker's call flashboard a result of the author of money balls on blindside, the books. you might have seen him on 60 minutes last week we have him live here to take your calls. to put numbers upon the screen. for those of you in a mountain and pacific time zones. he can't get your on the phone lines and can get through on twitter. you can send a three. you can also make a comment on our facebook page. finally, you can send. what is your history in the financial markets? >> personal history. >> it was brief. it was brief, but lucrative. i stumbled into jobs at the

now-defunct. i was 24 years old in 1985. i was trained and then i spent two years. that was essentially an expert is what i was supposed to be and bond salesman. so this is when the financial market was starting to get very complicated and financial options and financial futures restaurant to become the rage. my job was to explain them to investors. i was teaching a crass "-- crash course. he would go out and proselytize i quit when i was -- in 1988. or the book about these parents are working on wall street. and then since then i have been an interloper. i have written about a lot of other things on my family, high

school baseball coach, whenever it is. assess the financial crisis found myself drawn back into wall street to write big narratives. a book called the big short which was about the crisis. a book called boomerang which is about the way it the crisis expressed itself in different cultures around the world. it shows you something about them. and flash point which is about the way the stock market has evolved. in my interest to fund some my interest is different when i was working with that obviously. they are -- what has happened is that because my history of writing about wall street of have some access the really just fabulous narrative stories that happen to ever emerged in this time. and i think they're really rich

range of material. >> well, one of the teams around here is federal regulation called the regulation national market system. what is that? where did it come from? >> so it was implemented in late 2007. it was a response to the fear of on fairness in the market, the possibility of an furnace caused by the fragmentation of the market. it wasn't that long ago. the stock market was basically the new york stock exchange. nasdaq was subject -- tech companies. the stock would trade one place of the of. that has changed. the stock market is now 13 public exchanges and 47 private exchanges run by goldman and morgan stanley which you can't

release the. you can participate in the sense that if you're a big investor you can give the order. they may executed for you, but you can see -- you can see in real time how it fits into the larger trend of the marketplace. complexity, market fragment in the camera see what's going on. so to protect investors against this the sec can up with reagan. uses the it's against rules for a broker who handles the stock market or to trade outside whenever the national best bitter offer is. let me explain. let's say you the investor want to buy shares of microsoft. and a current -- if you took a conglomeration of all the market prices that were out there, microsoft 60 something for to

something markets. you had an all-out, offers to buy and sell, the market a microsoft is 299930. some people willing to buy 2999 computer. if you come in to buy the broker is not allowed to execute your order at a price higher than 30. there's an offer there for summer and the market. it was to protect investors from being cheated by the complexity of the system. the problem is one is so story really begins is how the offers are calculated. they're calculated. takes a long time for all this information to begin a.

>> were talking milliseconds. the technology is slow. no one has an interest in making it faster. so that market, that official market is a stem market. the people who have faster access to information on orders during on inside all these changes now that microsoft is actually gone and buried it gets executed. it has collapsed. live chiefly in selig back to that's what happened. so the meeting, the intent of

the regulation is very good. stop investors from being a shrewd by the complexity of the market. a problem is the market figure out a way again the regulation. the fast market. a further problem was once that happened that gap opened between this old, stale, official price and the insider knowledge. the cells of money that were made from this or fast. no one knows. so the closest i've seen to when i believe is what they tried to calculate when the individual predatory strategies. once the billions of dollars in may by the traders who were paying exchanges into repaying the brokers were right to trade against my everyone is in on a,

the banks and brokers depend a lot of money. the exchange's get paid to the high frequency traders in very rich. the investors, the system is basically opaque. and our time figuring out what's going on. they don't really feel the pain that collectively the man is passed. no one on wall street has any interest whatsoever in exposing and are talking about a. this is why the market has really become incredibly. why it takes detectives to go in and figure out what on earth is the stock market, on a cousin of marie. people on the inside and everybody in and said with a dozen one talk but very much. >> local one more question.

this is about the culture of wall street. one of your main characters and saying it so whole industry of b.s. in reading the book and notice have was white male and a half orders around a lot. >> every time i come on cs banon called out about that. i admire your willingness to attack those who use bad language. defend the language. the tyranny of the flintridge, but it's true. it's a lot of males. it is in some weird way more of a man's world and even when i was there. this world of tac and trading is ridiculous failing. i said many times and thought if you want to reform ostriches could bring the guy. the decision making job, the

actual decision making job and everything would be kind of. there's something about testosterone and competition. and it connects to the financial markets toxic. anyone, a lot of the characters in this book, the people -- radicals were trying to fix wall streeters immigrants. he's an irish guy. his whole life from the age of 19 and his family moves in to greenwich connecticut from maryland, it is covers investment bankers and financial people. he wants nothing more than to be a wall street person. he spends 12, 13 years to is really trying to get jobs on wall street in kent. on taking it is jobs helping guys to call themselves trusted traders. knowing a technology. he works in telecom pinots

fiber-optic. as will boxes by to make trades go faster. they, and stephen the box. he's a high frequency trader. $9 a year to become a big figure on wall street trading for. he says, why do i want to be here? we can't believe the mystique is so different from reality that he becomes almost instantly disillusioned. >> michael lewis's our guest. bernie from howard beach in your, your the first,. >> yes. think you for writing the book. i want to point out something for you. it's been bothering me. real-time level to close and my feeling is the default values to be able to look at that make a decision as to the death of the market. but it changes so quickly that

it has become meaningless. it's my contention that these high-speed computers are corrupting the information. >> so when you say you want to look and make a decision, where you trading? were you looking at? >> i'm looking at level two boats. i'm seeing the bid and the ask on the side. >> two is providing you with the information? >> what you do for a living? >> are retired. >> okay. but you are an investor or trader? >> i used to be. not anymore. >> what is a level to "? >> a you asking me? >> yes, sir anymore. >> host: what is able to quote? >> caller: it >> on and investments in you will see a list of -- take a stock, and the stock.

there will show you a list any l show you a list of the orders often in pennies. one hundred dollars plus 10 cents. and they will tell you how many shares are offered on its side and that is to be able to see that on a steady basis and i could digest the information. and now these numbers change the way. besides changes so quickly that the information is useless to me. >> guest: there's a big discussion here. what you really want is the subject of my book here. but the exchanges and able to high-frequency traders to use

quotes tactically to buy or sell stock so they will be looking at high-frequency traders will spook the market and they will make it look like they want to buy a lot of shares, looking like there's a lot of demand out there. if they are able to look at out that anytime they tried to act on it it's gone. and that in itself isand that im with traders and they are trying to defeat each other about what the market really is. and it's a different problem spawned by this. and many people have to make the exchange itself or it the

software is incredibly complicated to satisfy the needs of the traders and all of the tactics that they want to deploy. they create instability in the system and this is why it was one of the things that was interesting. one big thing, goldman sachs, when presented with the story of the main character that they have to tell, they have a choice and in exchange that is simple and fair with the sole purpose and not getting one trader or the other, but goldman sachs basically said that this is a moment of trust because we actually think that what has

been done in the u.s. stock market to accommodate high-frequency trading is creating conditions and if we don't make right choices with their exchanges, that this will happen at some point we will get blamed for it. and it's all a result of changes of funding of the market. early just to accommodate and maximize profit. >> host: we have an e-mail that says the frontrunning is illegal, why is writing software for it not illegal. >> guest: one of the questions i asked myself in the story his wife is available and wiser and not more outrage about the subject. it wasn't that nobody had noticed it.

a lot of people have really noticed that someone had not cried out about it. but it was that war numbed by two things. and the stock market has been booming. whatever skinner is really isn't noticeable in the context triples. everyone is making money and the second thing is this point, which is in this question. when it's done it's not just a liability, people have a sense that there is not willful human action behind it.

and they also have a level of complexity and they actually need to parse the algorithms so create a smokescreen and i think an internal moral defense and i think they will direct something that they will never do them of if they actually had to physically do it. >> host: linda e-mails and saying what you think of collecting a small fee and then applying this to the federal and state needs, pennies would be turned into the lands of dollars turned into the lands of dollars >> guest: the issue of levying

and maybe this is a good way to distort the market. but as a solution to this particular problem, any sort of tax and it may actually get the bad guys and we may get some satisfaction there. but it will have all types of situations. and there is a solution. this is what is so great in the story. it's like a choice that society is being presented with. a very small part of our society. but it's actually in all of our financial markets. but that market is so important with who we are and the choices between fairness and unfairness in this exchange has been built. and it is part of the solution to the problem which is

transparency. people understand how the stock market is being handled and people are being given a choice which way to direct the stock ..rket orders and if they choose whatever market is fair, it will gut the system and go forward. >> host: we have a tweet, do we really need hedge funds and derivatives and leveraging? >> guest: know, do we need them? well, we need love and food and water. but do we need hedge funds and derivatives? >> host: and leveraging. >> guest: well, he is going to the complexity of it. so i think t is a >> guest: this is i think a very good point and a useful discussion. in the broader discussion if you

look back at the innovation that has occurred in the financial system since the early 80s he can see that things were created through credit swap faults specialize access for high-frequency traders that look like innovation that were masquerading as efficiencies and that were accepted as such because one they were very confiscated and the people who are doing them are making more money than anybody else and three we have this metaphor. every other aspect of our economy innovation seems like a good thing. it is really true that innovation in the financial sector in the malign can seem like it's a progress and is not progress. i would not say, i would not list as a malign influence the structure of the hedge fund. it's a structure for a money manager to use. leveraging depending on where it

is can be useful actually but the problem is we have developed too much of a case for it and we don't recognize the social costs cost of it so that is the problem. in derivatives well some of the derivatives should have never been allowed to be created. if you could, if there could be a watchdog who had to, the problem is once you introduce the government into the process you introduce a whole other set of problems but if you can wave a wand over wall street and never have created credit default swaps we would all be better off. >> host: michael lewis 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 is one from star fire. i like "60 minutes" but this case is a crock. maybe that was true it affects large large buyers one percentage and mutual funds however i can can limit anybody i put in my price and if i don't

get it that's fine with me. from what i got from the show we are talking a few pennies a share. >> guest: we are talking a few pennies a share so let's talk about this. let's talk about his question or his point is the damages don't matter if there are any damages at all in the person who says that rightfully no doubt is thinking there has been incredible improvements in the stock market because of technology, totally true. we are much better off because of computers in the stock arc it in trading in the stock market them before was automated. it's much less expensive today. the problem is that instead of the benefits of technology flowing to investors as it should have two customers the way technology float the in telephone calls and they are incredibly cheap compared with these to be. wall street has captured some of the benefits for itself totally

unnecessary by introducing basically this front-runner in the market. then the question is what is the cost of that? what is the cost of letting wall street insert itself unnecessarily in the loss of transactions between buyers and sellers of stocks and take out a few pennies each term. you could say yeah for him it's not that big of a deal and he's happy the computer works better than the people used to work and whatever it is it's trivial to him. over the market a few pennies a share is not even that probably adds up to many billions of dollars a year so what is that? let's say it's 10 to $20 billion were it ever does that set tax on investment capital, a pure tax levied by the richest people in the economy. that is offensive but who cares? even if it's $20 billion, who cares? i will be willing to go that far with you if we have a couple of glasses of wine but i'm starting

to get worked up. then i think what have they done in order to secure this? what are they done to structure the markets in order to make the 20 million-dollar rift possible? they have compromised the structure ,-com,-com ma and this is a collaboration of exchanges and high-frequency traders. they made it much less stable than it could and should be. they made highly unstable. we have things like ipos going poof. we have outages at the exchanges. what does that cause? it causes a decline in the markets. that gets right at the core and the whole thing runs on trust. so what is the cost of this? it's hard to measure but i can tell you this, it's not cheaper for reparations to raise capital what happens then? corporations don't invest as much and it cost them more to raise the cap and jobs don't get

creative. you could start talking about her brought economic effect or a let's say you are willing to go that far and say of go who cares it little bit of growth in the economy a little bit of trust. let's say 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. people are able to feel like and celebrate as great successes when their job is to figure out how to pay money basically for middle-class people and transfer it to themselves and to rich people. so what does that mean? it compromises our educational system. the best schools in the countries and people the wall street to do this. it ambition. it creates, i mean at bottom it's a moral problem. it's a technical problem, it's a moral problem and this problem

in which again in the end is what we have in the end is a financial system that nobody trusts that can persuade anybody to trust them because they watch what they did in the financial crisis and whose interest are completely out of line with those of the larger society. there are 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. society can't function if the interest aren't aligned because then what you get is people with money influencing the culture influencing the political process, the direction of regulation and to get to beast that can't collaborate and that's the problem we are facing. this is a microcosm of robbins but yes you're only losing a penny but the story as much or complicated than that. >> host: up next to sean in

battleground washington. sean thanks for holding on. you're on with michael lewis. >> caller: mr. lewis you were just touching on it but the conservative like charles murray and the conservative think-tanks what they are doing is they project onto 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 guest with brian lamb and i called him up and roger ailes of course was unsure mental and starting "fox news" and cnbc and rush limbaugh's career and all that and i asked mr. ailes about the specialist firms that was fronting the tape. of course he lieu off my question but then five years later the ftc levied something close to 200 $80 million worth of fines on the specialist firms for front running the tape. i was wondering if you could address the questions of

conservatconservat ives projecting -- i think the country would be surprised another nation is run by cocaine snorting frat boys. it's really a crime if myers coker isn't turned into a major movie. >> host: shone we have a lot of callers on the line. let's leave it there. thank you. >> guest: so, can i run in one particular direction with this? it would be great if it could be made into movie a movie but i don't have control of that. the thing that, the one worried that i have for the story i just told is that it has clearly caused an uproar. more of an uproar than anything i've written in my life. it reminds me of closely in a

sphere with money ball which disrupted the world of baseball. you have an entrepreneur rethinking that environment in this case you have disrupted entrepreneurs introducing reform through the market and wall street which is a much bigger stage. but my fear is that because, because the party is politicized. it announces a justice apartment investigation all of a sudden it becomes democrats against rich wall wall street guys and then republicans lined up because they can generate campaign funds behind wall street and find arguments to make that may be spurious arguments but nonetheless it becomes, we get activists poison sort of back in the poisonous debate for everything is zero-sum.

what i love about the story is the way conservative should see that this is a market solution. i mean the spirit of the heroes in this book, it's a very conservative spirit in a way. they are not looking at the government to fix the problem. they are looking at the markets to fix the problem. so in the broader question, who is to blame for whether wall street is properly regulated i think it's more complicated than a political problem. i think the problem is that for a bunch of reasons wall street all of a sudden started making much more money than it used to make. i'm talking about a break in the world 30 years ago and it's very hard for her regulators to regulated industry where people are so much that or pay the regulators. there should be some law out there where if a person is being

regulated makes 10 times more than the regulator than the regulation will never happen or something like that. you are dealing with in every case with regulation has called for, it ends up being an arcane and foreign argument between specialists and so much smoke and dust will be floated by both sides. the public can't participate. it's too complicated unless you can spend your whole life paying attention to that one little regulation. so it ends up being by nature a backward deal. you have a backroom deal and there is a lot of money in the front room. it's part of the backroom deals to achieve what they would like them to achieve. >> host: colleen from portland oregon. you are on with michael lewis. >> caller: hi. i'm not worried about goldman sachs but i'm wondering how you can fix this problem and not the market, the only market we can invest in it not jeopardize the

portfolio of the little guy. >> guest: the market is pretty clearly already uneasy and made uneasy by things that are happening in the market. things like the flash crash. the problem with the market structure is it's not a problem of appearances. it's a problem of reality. if the market structure is inherently unstable eventually even the 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. that is what the story is about. it's about people who actually figure out a way to make the market stable and reliable and trustworthy. i'm not worried about goldman sachs because they throw their

weight behind it as have a number of other actors in the market. i feel like it's funny, i feel like the first half of this look is kind of depressing learning about what actually happened with these guys figuring out the solution is extremely helpful. the choice is now so between fairness and unfairness and there's so much noise about what they have done. i think it's all very hopeful. >> host: somebody we haven't talked about. who is sergey subeight? >> guest: sergey subeight is how i personally became interested in telling the story. this is the first time-frequency trading caught my eye rather than anybody else's. he was a high frequency trading computer programmer at goldman sachs in 2007, 2008 and he leaves goldman sachs in 2009 in

before he leaves he mails himself some of the computer code some of which he had been working on some of which he had not been working on. goldman sachs sees this former employee, he had gone to work with a high frequency trading firm in goldman sachs patent. instantly in a matter of hours calls the fbi and the fbi instantly arrests sergey aleynikov and a trial is held eventually. he is sentenced to seven years in jail for stealing goldman sachs computer code. in the event it was reversed and he only spent a year in jail. what caught my eye was the three questions. one was we had just come through this financial crisis which goldman sachs had a lot to do with and the only person who ends up in jail as the person the goldman sachs once put in jail. i thought that's very strange. why?

what was such a big deal that he deserves to go to jail but people who tanked the entire economy don't have any criminal exposure. the second thing was the prosecutors said after he was arrested he was put back on the street after pill because it was so dangerous to have someone who had access to this computer code. the code could be used, can't remember the language but the effect was crash the financial system and disrupt markets. this code was in the wrong hands that would happen at goldman sachs is in the right hands. so we are supposed to believe that these wall street firms have code that could be used to do that things in the markets but that's okay and this guy who is left in his hands and we can trust him and he crashes the markets.

the other thing was he was engaged in high frequency trading. i don't think it was a term that hit the newspaper so without wall street generally sees terms and everybody says i know what it is but i didn't know what it was. most on wall street didn't know what it was either. it was clearly so valuable that it caused goldman sachs to call the fbi. nobody does that. there are other ways to handle the problems. so i started to ask around about what this was. high frequency trading and this is where i stumble on brad katsuyama because at that point he had been wandering through the offices of some of the biggest most sophisticated money managers on the planet and telling them how he found what he found about what high-frequency traders were

doing. the people said to me there is a lot of noise about the subject right now. there is no one who can describe this in 2000 night like this guy. i have no idea why he know so much or how he figured it out. it's insane. it led me to him and to figure out whether sergey aleynikov weather was really valuable or should he be guilty and he understood that and understood the tragedy that happened in the judicial process. there's no way anybody who sat in the trial had a true understanding of what had happened. but in him explaining sergey aleynikov he was explaining this thing that happened in the stock market. so sergey aleynikov became a magazine piece.

the guts of the story was this young man who was trying to figure out and reform the entire financial system. >> host: we are talking to michael lewis about "flash boys" his most recent book. >> caller: thank you so much for this book. it is brought public attention to this phenomenon that has been such a problem for such a long time. i wonder if these characters you are -- are planning any part of the obvious manipulation of the gold and silver markets for example where there is an astronomical undeliverable amount of to manipulate the market lower. this is threatening the global monetary system. >> guest: the short answer is i have no idea but in the interest of saying something

that doesn't bore the people who are listening there is an observation that one who has been watching the commodities markets the foreign exchange markets the interest rate markets over the last five or six years. that is it is amazing how much we have manipulated activity in the prices of things that has been going on or accusations. the libor scandal in london, foreign exchange trading scandal and it also raises the question is this always going on and we didn't know about it or are we in this great age of manipulation of the markets by the giant actors who are at the center of the markets in the stock market being one of those markets. 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 the technology in the computer has information

technology has greatly reduced the necessary role of wall street. it isn't -- it is somewhat wall street used to make any doing. standard between buyers and sellers is not needed anymore so they actors of wall street have been forced to find other outlets for revenues and one of those outlets is creating complicated things that people they sell them to don't understand and can can take in the outside trade. another one may be mucking around with the markets in a way that really shouldn't be mucked around in. >> host: after all this research michael lewis which are understood of the market? do you think you understand it that are? >> guest: the stock arctic? i understand it well enough to write the story. i'm convinced that the deepest understanding of the market is held in the main characters of the book but it's breathtakingly complicated. for example there are 150 basic

different water types that high-frequency traders can use to submit their -- to create miss perceptions not to trade but to move the price around. i don't know all of them. i know eight of them. i know enough of them to know that if one of them is allowed it's incredible. i can give you a broad description of what they do and a few examples. i can tell you this, that i know now enough about the stock market that i know i don't want to go into the bull markets and what really needs to happen as it needs to be simple if i can clarify. this market is at the center of our economy. it doesn't need to be this complicated. >> host: are you in the market? >> guest: absolutely. my first reaction to learning what i learned when i started

investing was i will take some of my money out of the market completely just so that if this calamity that seems like it's possible happens i don't feel like a fool for having had these people to watch out and not do anything. what i don't do is bother to pick stocks. i think it's a fool's game. and certainly for me i just don't have any interest. i just try not to lose my money so i'm in the market in two ways basically i buy index funds and another version of this is i give my money to warren buffett and let him worry about me so i buy shares of berkshire hathaway. i figure whatever happens he will be positioned to exploit it and whatever happens he will be able to defend me. but i really want to do is not think about this. i want to think about writing stories so that's how i'm in the market.

>> host: bill from tucson arizona, please go ahead with your question or comment. >> caller: i haven't read your book but i have been involved in the market for over 50 years and 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 that their stock prices are being manipulated by these high-frequency traders. >> guest: that is a great question. it's a question that if i had been a better writer i would have found a way to weave it into the book. if you look at the interested parties here and the book is framed as a story essentially a dance between predator and prey. the prey being as framed in the book being investors in the market, people who are buying and selling stock and holding stock for war than a millisecond. and the predator being the high-frequency traders but it's true there's another party in

the transaction that you never hear from them probably should hear from and that is the real economy out there. the purpose of the stock market is to channel investment capital to people who can put it to productive uses. all this nonsense has nothing to do with that. it's a lot of unnecessary financial alleviation so how do some corporations feel about stock? people on facebook are not happy about their ipo. i've talked to people about that kind of thing where the glitches were so obvious that they throw up their hands and they say how can it be like this? but i think that's a constituency that needs to start to speak up to go to capitol hill and say look this mucking around in the market how many dollars these guys are taking out may not be the big deal. we need this market to be sound and stable. we need a stock prices to feel

like they are afflicting something and so this is a long way of saying it's a part of the story i just never got to. i never interviewed corporative executives about how the felt about these people and my guess is most don't know about it. or they are not there -- that aware of it. it's not high in their list of concerns in their busy running their businesses. maybe now they will get interested in it. >> host: john from alabama. >> caller: i certainly appreciated what you have had to say today and your book. the question i have is with the federal reserve and the u.s. treasury and i'm trying not to be political like you said earlier. i agree with you about that but with all of the things in the money that is being put in by our government how is this impacting that and is this making it more unstable, anyway

if you could get to the gist of my count -- question. >> guest: i think the question is, is the stimulus that has followed the financial crisis creating instability in the financial seer registry policy by the federal reserve and its quantitative easing. it's buying bonds in the market to try to lower long-term interest rates to stimulate economic activity. this is a big big discussion and everybody will be stupider who is listening if i dilate on it for too long. but what you need is a economist to disagrees so that everybody can see that nobody knows. what is clearly true is that the stock market is a huge beneficiary of easy money and what also seems sort of true is that for some time now the

federal reserve in my view has spent too much time worrying about love was in the stock market. i feel like government policy seems to respond and keeping the stock market up is as a goal rather than something that happens and it will go where it goes kind of thing. does it contribute to instability? it certainly doesn't in any direct way play claim to the story of market structure that i'm telling so i would say no. i would also add that the problems that say ben bernanke faced when the financial system basically collapsed in 2008, the decisions they made to deal with the problem, with the money, was i think whether it was, whether was ultimately right or ultimately wrong i think is a very great decision. i think it was probably right

given that the government was paralyzed. it was the one way to prevent a depression from happening and everything that happens 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 all kinds of grief and i have said nasty things about them i'm sure. he didn't see the sub-prime crisis coming and i think given the hand that 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 that's all i have to say. >> host: do you foresee a class-action suit? >> guest: we just need for the problem to be fixed. i hate this zero-sum bickering between political parties. all we want to do is fix the problem.

they have given you a solution. here's the solution to the problem. let's just do this and let's not worry about lynching people and finding out the names of the high-frequency traders that did this in embarrassing people on national tv. the more of that there is the less likely there's a solution for the people who have been perpetrating the problem feel like they are really exposed. let's just fix fix it fix it. >> host: do you think congress and the fcc have the technical ability and knowledge to look at this problem? >> guest: yes i actually do and of course the question is is the money that was funneled into to the process by people making lots of money and is the advantage on exchange is going to overwhelm the debate? what you see is a fog machine and side of congress and inside the fcc with lots of numbers and data that don't mean much or false. my hunch is that now the problem is