>> rose: welcome to the program. tonight, michael lewis talking about his new book, flash boys, a wall street revolt. >> the rap on me is i only tell one side of the story. i told the trader's side of the story. like people seem to grasp is actually going to an interview doesn't with high frequent e traders. and he pull who work at exchanges and who work in the bank. i'm telling stories through the eyes of the chiropractors figuring out how the market works because they're teaching the reader how the market works in their own journey. i'm not ignorant of all the other points of view. there is a passage in the book, fairly long passage that sort of like lays how the what traders would say in their defense. but there's not much to say. >> rose: well what do they say in their defense. >> everything we do is within the bounds of the law. we add liquidity to the market.

when you hear a wall street person say liquidity run for the exits. what does that mean. he buys from someone and sells to someone else, doubles the volume in the market. we narrow spread, which is between the bid and the ask and the market. it used to be much bigger and now they're smaller which is an indication of liquidity. but it's deceptive claim. >> rose: michael lewis for the hour, next. >> there's a saying around here: you stand behind what you say. around here, we don't make excuses, we make commitments. and when you can't live up to them, you own up and make it

right. some people think the kind of accountability that thrives on so many streets in this country has gone missing in the places where it's needed most. but i know you'll still find it, when you know where to look. captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: michael lewis is here. he is a journalist and he is a big best selling author. in 1989 liar's poker lit up wall street. his experience as a salesman at bonds brother. he visited finance and the global economy with books such as the big short and boomerang. his latest is flash boys, a wall

street revolt. this is a microscopic look at how frequency trading. here is what "60 minutes" reported on sunday night. >> what's the headline here. >> stock market's rigged. the united states stock market, the most iconic market in global capitalism is rigged. >> by whom. >> by a combination of the stock exchanges, the big wall street banks and high frequency traders. >> who are the victims. >> everybody who has an investment in the stock market. >> michael lewis isn't talking about the stock market that you see on television every day. that seems to be the center of u.s. financial activity years ago and exists today mostly as a photo op. this is the stock market that lewis is talking about, are the one where most of the trades take place now. inside hundreds of thousands of these black boxes located at more than 60 public and private exchanges, where billions of dollars in stock change hands every day with little or no

public documentation. trades are being made by thousands of robot computers programmed to buy and sell every stock on the market at speeds a hundred times faster than you can blink an eye. a system so complex it's all but invisible. >> rose: i am pleased to have michael lewis back at this table. welcome. >> thanks for having me back. >> rose: does this book so far exceed your expectations as a story that people are galvanized by. >> yes. i was a little worried about it. i was a little worried about it because the subject matter's complicated. and with the big short i had a story that was kind of similar. someone saw, the people who saw what was happening and describe what was happening to an ordinary reader. with the big short, people had the financial crises they needed to explain for them. this is a crises kind of a looming crises, something that

may happen. and it's a raw on recall street and the stock market but it's so subtle people aren't completely aware of it. so i worried that it wouldn't resonate a little bit. >> rose: you expect this book will change behavior because you have said if this doesn't change behavior, then i don't know what i'm doing. >> i do feel like at some point what do you have to do to get people to address the problems in our financial system. i mean, i think that i mean it starts with institutions that are too big to fail. i don't really understand that. how you have a group of people operating by different rules than the rest of the economy. but the people could think it was right to organize the stock market in a kind of two-tiered thing with some people having special access and advance word of prices and so on and so forth and everybody else just taking it. it's just shocking.

so i feel like i been guess i feel like all i can do is be the messenger or find the messenger, find the characters to tell the story. if people actually care enough to do anything about it, then what's the point. there are a lot of things. there are a lot of thing to write about. there are a lot of great stories in the world. wall street happens to be a gift that keeps on giving. there are some wonderful stories to tell here but why write books about wall street as opposed to something else if this is going to be just furthering but entertainment. >> rose: there's also this. people say what you have shown is only one part with what's wrong with wall street and the financial system. there are a lot of other things there that are wrong. >> look if you looked at the big headlines since the financial crises, you see a pattern. and the pattern here is there's kind of a systematic mettling in

the market. the foreign exchange rates, commodities and manipulation. this is a piece of what seems to be happening more generally and the question is why. why is this happening now. i mean i think there's a reason for it. i think that this story kind of shows it in a very detailed way that technology has to a large extent eliminated the need for what a lot of wall street needs to do. we don't need people to bring buyers together to sellers of stocks. they can be at the end of a [singing]al black box without other people. >> rose: trading now is 50% of what happens on the new york stock exchange. >> the point is like the all sources of revenue and profits for wall street are being eaten away at by information technology, the street has to respond by finding ways to

capture revenue, to, it's sort of the market is in response to a decline in the natural use f ulness at the heart of capitalism. i think that's true. >> rose: how did you find the story. >> it was curious. i said three times i was going to write a book about wall street and they keep walking in the door these stories. this started when i got interested in the story of sergei, a russian computer, he was a high frequency trading program at goldman sachs. and was pretty instantly arrested by the fbi and ended up being sentenced to year in jail and spent a year in jail before his conviction was overturned. i followed that paper in the paper. >> rose: why did you think that story would lead you. did you look and say if somebody might do this there might be a lot of money involved and there's something going on here about those codes if goldman

sachs was so concerned about losing them. >> one was when they arrested him, the prosecutor said he should be denied bail. he should be kept in prison because this code that he took, if it gets into the wrong hands can be used to manipulate or undermine global financial markets. and i thought to myself, goldman sachs is in the right hands. how much worse could the hands get. then i thought you're telling me there's computer code that can be used to sink the global financial markets. how can that be. what is this stuff, high frequency trading. then when he was sentenced to six year or seven year prison sentence and you saw this financial crises coming down which goldman sachs had a lot to do and you see that the one person from goldman sachs who gets sent to jail after the financial crises is the guy that goldman sachs want to put in jail. all that seemed to me material. i didn't know where it was going to lead.

but the first question of course i had after i got in touch with sergei and he agreed to talk to me and tell me his story and let me tell his story is what is high frequency trading. the term gets thrown around. but like a lot of wall street creations it gets creations and everybody pretends they understand what it means. in fact nobody really understood what it meant. it was a term of art that really only entered in the public discloser when sergei was arrested. he was arrested as a high frequent e trading programmer. there must be something called a high frequency trading program. i needed someone to explain it to me. that led me to the subject. i called some investor friends and disiend what high frequency trading is. kind of sort of but the person who walks through our office and explains this world to us, it is more shocking than you know is brad. >> rose: that's what they

said. >> yes. he was still at the royal bank of canada had taken upon himself to find out how the stock market worked. >> rose: because he thought it was not working fairly. >> because he himself was a trader of stock. he ran the stock market trading department at the world bank of canada. in 2008 when all the craziness is happening in the financial sector, he notices a change in the market. it's a very profound change that up to that point, when he went to go buy 100,000 shares of microsoft. it was scattered across 13 public exchanges in new jersey. he would look at his trading screens and there would be 50,000 shares of microsoft offered at $20 a share. and he could hit a button and he would get the shares. it started around 2008. when he hit the button, the shares, he would get a few and then the price would go up. it's as if someone knew. there was a ghost in the machine. someone knew what he was trying

to do before he actually got to do it. >> rose: they did it. >> they did it and sold it back to him at a higher price, that's right. so he first thought, he first thought that it's like a computer glitch. he thought it was a bang on the side of his machine calling tech sport. he thought it was his machine. it takes him a while to figure out and visits to money managers and people who are in the stock market to realize, it's a system-wide problem. that something has gone screwy in the market, what is it. this is a story of the book. the story of the book is his investigation. one man trying to figure out how this newly automated, this newly computerized stock market actually functions. >> rose: see but that's a signal trait of yours. you go out and look at something that's problematical and may be evil or may be fraudulent or may be illegal. any of those. and all of a sudden you find some good guys trying to figure it out or trying to do better than the system.

>> well you know, part of this is my own slough and indo lens. >> rose: are you slotful and indo length. >> if you left it up to me, i would never figure it out. i need someone to figure it out for me. >> rose: you could tell their story better than they could. >> the fact that someone, this canadian person who had no business thinking i'm the one who is going to become the world's expert on how the united states stock market is actually functioning. >> rose: we're talking about 2011/12, aren't we. >> well his problems start in 20 on 078. by late 20 09 he figured out what happens. this is amazing. so he's sitting, his computer desk, his desk his trading desk is in southern manhattan. and when he hits his button to

buy 50,000 shares of microsoft. that signal is going out the highway out the lincoln tunnel and the first exchange is the basque exchange which is created by high frequency traders. they pick up the signal. >> rose: let me interrupt you one second. it's going to that exchange and going to a whole bunch of other exchanges. >> right. it's like traveling through fiber. it's like physical distance matters and it happens to be, that happens to be the closest exchange. the high frequency traders are sitting there waiting to find out what he wants to do. they have built faster routes from that exchange to all the other exchanges. they race ahead of him. they buy -- >> rose: what he wants. >> what he wants and then they sell it back to him at a higher price. >> rose: that simple. >> it's that simple but it took him assembling a team of unlikely experts to figure out like where the fiber was. >> rose: man, i love ronan ryan. >> he pulls off the mask.

he knows where all the fir is laid. he spent his life until then helping high frequency traders get faster. but he doesn't understand the trading sign of it. ronan ryan is brought in by brad. the first thing he says is the reason this is happening, he pulls out his map, the fiber runs like that. it just gets there first and they're waiting there. >> rose: how do they get there first somebody asks. because they built their own fiber connection. >> that's right. everything, the high frequency traders have set up the system so that they can get, the minute they pick up the signal what brad is trying to do or any investor's trying to do, they can beat the ordinary investor to everything else in the market. just one form of predatory activity they're engaging in but it's the first one he discovers. he takes this first and discovering a series of the form of predatory activity. but he takes it. one of his main decisions on this. i think brad has to be someone who was presented with a steers

of choices and he made the right choices and then he's now presenting the world with the choice. we'll get to that. but he could have just joined the band of brothers and become high frequency trader. >> rose: he had the keys to the kingdom. he could have gone into the kingdom instead of telling people what the kingdom is like. >> yes. he became one of the people. >> rose: he's already -- >> he could have made a lot more money. instead he's going on a public information campaign. i'm going tuukka are talk to money managers. people to manage money and explain to them how their stock market looks rigged. and this is where the story, you asked me kind of when i sort of clicked in and said this is a book. i realized after a couple years of his own private investigations, he set himself up so he could walk into the biggest money managers in the country, tell them how the stock market is working and their jaw was on the floor.

so how does that happen. >> rose: just tell me they're all surprised because one of the questions i had for you hadn't people been looking into this, hadn't this question occurred to other smart people before he did. >> yes. he just ends up with a more satisfying description and explanation than most other people. >> rose: was he the only guy -- >> he was the only guy who is working at wall street who had the sort of information you had inside a wall street bank that was willing to share that information. >> rose: and brought in ronan ryan and others. >> a crowd of characters who could explain where the fiber's at. >> rose: so he walks into the smartest money managers. >> he walks into bill atman's office the hedge fund manager. bill told me when he walked in there we knew something was wrong. most, everybody knew something was wrong. they knew the market was no longer the market it was an illusion. whenever they tried to do something, it was as if the market knew what they wanted to do. i said i thought i had only

insider trading problem, i thought i had a leak. when i wanted to go buy something. >> rose: someone was tapping my lines. >> they thought it was bigger. they knew what i was trying to do in the moment. >> rose: here's what's important to understand for me. it's a millisecond, it's not weeks later it's hours later, they said it the second. >> it's seconds. the difference between the market that the investors that ordinary investors, you, me, the guy with the 401(k), bill atman is seeing, the speed of that market and the speed of the high frequency traders is a couple, it's just a couple milliseconds. that's enough time from the computer's point of view. >> rose: exactly. everything else is frequency. >> one of the reason the world has organized itself this way so quickly is kind of an ecosystem sprung up on wall street around high frequency trades and making these sort of scalping profits

is that people have their hearts and minds around how computer perceives time. how slow a couple millisecond is for a computer. how much can be done in that amount of time. so it seems like everything looks instantaneous to the naked eye. when you're on your charles schwab account or in trade account and your button says buy and you think you got it right away. that's not what happened. what happened was your order got sold. the right to execute the order was sold by your broker to a high frequency trader so they could exploit it. the information value, what you're doing is being sold, i mean it's hundreds of millions of dollars a year business. >> rose: this is not your point in the book but some people raised this question. there are proprietary lines going in. so a lot of people had paid for extra fast extra special lines. yes? >> well, each exchange, the

public stock exchange, the new york stock he is change, nasdaq, direct edge, whatever the exchange is, there's 13 of them, a significant source of their revenues since the speed war started has been selling special access speed to the high frequency traders. so they supply the public, the public sees one price, the high frequency traders see them, they're going to see from the exchange a directive for which they pay a lot of money. $50,000 or $80,000. if you look at just the money flows, the high frequency traders pay the stock exchanges for special access to actually locating their computers inside the stock exchange building as close as possible to the stock exchange, the actual computer that is the stock exchange. the exchanges pay the banks and

brokers to direct orders under the exchanges in way that's disadvantageous to the customer. they incentivize the banks with curious fee structure to behave a way that enables the fht firms exploit them. they also pay the brokers for the right to execute orders. the incentive are all screwed up and the exchanges are basically owned by intermediaries. you've got, it's a stock market is supposed to, it's got a purpose, right. it's supposed to generate, it's supposed to take judgment dollars and get into the hands of introductive enterprise. >> rose: it's a mean to allocate capital. >> it's a means to allocate capital. this is a whole separate beast. it's a market-run intermediary for intermediaries. >> rose: you've got brad who figures this out. he went into some of the smartest people, some of the great investors of our time,

some of them and their jaws drop. did anybody say i've got this, i known this. >> people had their version of the stories. one hedge fund manager. president of the hedge fund said i thought i had a $300 million problem. we figured just the cost of this front running or whatever is going on, the execution cost. >> rose: they might have been front running. >> they knew something was going going on but they didn't know what it was or how it was being done generally people as time goes on more and more people kind of, i mean awareness grows. but he is i mean what happens is this goes beyond the spread of information they feel this guy is the only one giving them the truth so what he does is he starts to create trust which the

scariest commodities. there are not a lot of guys in banks going into investor's office and at the end say i got to talk to him because he's the only guy i can trust. >> rose: there's information that helps him put together the story too. >> that's right. they start to do tests on what brokers are doing with their order. they contribute to his understanding what's going on. they push him. they say you need to create a fair exchange. >> rose: he figures the game out. he's got what they're doing. does he go to the go to the feds, does he go to the attorney general of new york. does he go to anybody. >> he does. before i got to tell you, first this guy, he's 31, 32. he's young.

>> rose: he's just married. >> he's just married, he's a baby. peace a canadian and he's a conformist by canadian standards. he does not want to be the leader, he doesn't want to start a revolution. and he's a real smart guy who plays by the rules and who is likely to run the royal bank of canada one day. that's what he was going to do. and he has this kind of cause forced on him. now he shows his superior all this stuff. they do say before you start educating investors about how the stock market's rigged, we better go tell the fcc because they'll get angry with us. so they go to the sec and he said it's kind of incredible. he describes these findings how he's being front run. and he says the room was divided. there were older sec guys who were older, staffers, who were upset, outraged, disturbed by

what they were hearing. but the young sec guys all seemed to be very since thetic to the high frequency traders. it's so clever. they found a way. it was all legal. and he left bewildered by this. so bewildered that the royal bank of canada did a study to find out how compromised the sec was. this is a canadian institution looking at american government and they find to their shock that more than a couple hundred sec staffers in the previous few years had left the sec to work for high frequency trading firmsor lobbying firms doing work for high frequency trading. at that point he gives up. he thinks- >> rose: kneel not going to get anything done. >> i'm not going to get anything done. it's too complicated. even if everybody at the sec isn't interrupt, they are doing their best. the truth is whenever a new rule gets made clever people seem to find a way to get around it.

wall street would always find a way around the rule so you should never place too much faith on government's role on all them the question is, is there a market solution. can you create, can you create incentives in the market for a fair market to arise. >> rose: so he says i'll create an exchange. >> i'll create a stock exchange. it took him a while to figure out that's what he needs to do. he needs to quit his job at the royal bank of canada and create the only fair exchange. that's only part. that's a technical problem. it's how do you create an exchange on which no one whose trading on it is faster than the exchange. no one can find out what's happening there and race people to other exchanges and all that. so they wrestle with the technical problem. but bigger than the technical problem is the social problem, the financial social political problem. all this rigging in the stock market and the mishandling of customer orders and so on and so forth is only possible because investors don't pressure wall

street. the investors themselves are not, they have a hard time figuring out what wall street firm banks and brokers are doing with their stock market orders. very hard time getting the information. even when they have some information, they're not, they hadn't been willing to start a fight, you know. the big, you know, the big money manager firms have been reluctant to call up gourdman sacks or morgan stanley saying stop doing this or we'll stop doing business with you. the interests were too intertwined. brad katsuyama had to go to people who handle ordinary savings and say you have a responsibility, this is the problem, we're going to create a fair exchange and now you have a choice. up to now you haven't had a choice. you call goldman sachs and yell at them. all of the exchanges are a problem. it's not like there's one place you can go. we're creating a place where you're not going to get screwed and front run by high frequency traders. every dollar is going to stand the same chance. you have to organize yourself and have a responsibility to just sort of go to war with wall street.

this is when i heard this part of the story and watched this character in action, the story that kept coming to mind was lord of the rings. i felt like i was watching frodo baggin. >> rose: what's his means to create a level playing field. >> the technical thing they figure out is what they need to do slow down high frequency traders' ability to get information from their exchange and to respond to it. so high frequency traders are doing every other stock exchange is putting their machine right next to the machines for this stock exchange machine. so they get fastest information out of the exchange and respond to it. so they know prices before you and i know prices. so the way he does it they call it the magic shoe box. they coil 60 kilometers of fiber optics inside of what looks like

a shoe box. it looks like a big fishing reel inside of a shoe box. when a high frequency trader tries to trade instead of going right into the exchange it slows it down. the effect is to put them somewhere way out in long island. they effectively banished the high frequency traders some distance. and then what they had to do was create a really really fast route from their exchange to all the other exchanges. so they could, if a customer order came on, and to buy 10,000 shares of microsoft and on their exchange they only had 5,000 for sale but there was some elsewhere, they could get to them on behalf of the customer, the investor before the high frequency trader could. they went and dug high frequency system. >> rose: guess who is investing in this new exchange. goldman sachs. >> no. this is important.

they identified as an important conflict of interest the fact that all the other exchanges are onlied by brokers and high frequency traders. >> rose: they is he they will be owned by. >> investors, owned by big mutual funds. be owned by david -- people who are actually managing money. all they want is a fair honest play to buy and sell stocks. so there's no pressure to queer the game in favor of intermediaries. so with goldman sachs did, this is where the story thickens to me because goldman sachs clearly at the time they're putting the russian in jail for stealing their supposedly precious high frequency trading code they think they're goal to get in the high frequency trading game. that's why they care about it. they clearly had a change of heart. something interesting is going on inside goldman sachs right now. >> rose: what do you think it is. >> an argument about what our role in society is.

can we function as an institution if people don't trust us. >> rose: do you think they're losing the trust or they lost it. >> they lost it way back. the question is do they need to get it back. and it's a practical argument, it's partly a moral argument. you can argue that reputation doesn't matter anymore, what all matters is brute force in the financial system and who cares whether people think we're screwing them or not. >> rose: michael lewis tells me there's debate going on in goldman sachs i assume someone has told him these a roaring debate going on here trying to figure out who we are and what our role is. >> yes. and a microcosm of this debate is the argument of how they should behave in the stock market. and some new guys came in and took over goldman sachs' stock market, this trading sales business globally. they looked at the way goldman had conducted itself. they looked at the way the exchanges were made. they looked at the rigging in the markets. they said t had two observations. one is basically a corruption

here. i mean it's basically a skimming, scalping going on that's unpleasant, unsavory and will look bad if anybody figures it out. but too they thought the stock work that has grown up and it's structured, all these different exchanges, lots of complexity in these exchanges, all designed for the benefit of high frequency trader. >> rose: technology is roaring ahead. >> roaring ahead, very unstable. they said to me that the flash crash back in 2010, nasdaq shutting down for hours, various outages at various exchanges. this is not, this is a pattern here. this is symptomatic they said to me. they said if we don't do something to repair the stock market there's going to be a flash crash times ten a calamity. we know that if that hands goldman sachs one way or woolt is going to get blamed. so what's the solution here. the solution is this canadian guy whose built this fair exchange that's quite simple, very robust and we're going to throw our weight behind it. now, inside of goldman tacks

that was not universally popular decision. these new guys, ron morgan and bryan living are their names. >> rose: they're not going to come in to the exchange they're going to use the exchange. >> just the opposite. they don't want to have any confleck. they're going to take their customers and ordinary investors orders and send them to the exchange and have them executed there so it won't be exploited. that costs wall street generally every money. i don't know what the take is but 10, $20 billion a year is being scalped. it's essentially unnecessary financial intermediation this happening when the buyers and sellers could come together with a better price for both without anybody in between. >> rose: they're taking away $20 billion. >> whatever it is they're going to take away lots of billions of dollars. some of that money would have been goldman sachs' money one way or another. it's a decision to sacrifice short term profits. >> rose: you're saying this

is an even bigger decision and bigger debate than simply high speed, high frequency trading, it has to do generally with how we conduct our business and what is at risk for us. >> i think that's so. i think they figured out that their business, their business is hard to do without people trusting them. and i think they figured out that they can't really compete as high frequency traders. for a lot of reasons. the high frequency trading game, it's just done more effectively by null groups of people than big banks. they can't play in that game anyway well and i think they figured out that in a at least that stock market, if the whole stock market jumped on to brad cat yeah ma's exchange which is not inconceivable -- >> rose: he would be a very

rich man. >> would enjoy a relative advantage to a lot of other banks because their advice is more valuable. they think they can compete in other ways. but i think the debate, the interesting thing is that this conversation is clearly taking place inside goldman sachs in this market. >> rose: how would you characterize the people who run goldman sachs now? >> brad katsuyama taught me something because he had to go into all of these banks to persway them to send him his exchange. a lot of them really don't want to do it. they are doing whatever they can to torpedo the fair exchange. if i were him, i would be cynical. but he seemed to think, and i think he's right, that the banks aren't modelless, they're like different fashion. different people have different incentives within the banks. so these guys who are reformers inside of goldman tacks, why are their own sentives different. one, they have to face customers

every day and they know these customers. two, they're older guys, they're ancient, they're in the late 40's. their careers are at a different stage. they're concerned about next year's bonus. and their bonus is not driven by how much goldman sachs is dark pool what makes that kind of sense. they have a different incentive than maybe some other people at goldman sachs. all the firms are that way. i think their arguments inside all the firms how we behave in the financial market. and i think goldman is a harbinger. they tend to leave the street. >> rose: most powerful and most respected. >> yes. everybody looks at what goldman is doing and saying why are they doing that. now i think it's fascinating they've made this call to help reform the stock market at almost exactly the moment the new york attorney general announces an investigation of high frequency trading in the exchanges and all this and then

the fbi reveals it has an investigation. >> rose: he was on television with me this morning, the attorney general of new york saying just that, that he has been monitoring it and now he was going to accelerate what they were planning to do partly because the conversation that's he erupted because of your book. >> this i don't know, but i'll take your word for it. i mean, i'm sure these investigations having going on for a while it's a very how hot they get. >> rose: monitoring it, i'm not sure about investigation. may have been the word he used. here we are, we figured this thing out in terms of, and is there a dollar amount on how much the high frequency traders were making because they could front run this thing? >> no. i don't know the answer to that. i can tell you that they've been, that brad katsuyama's exchange, the research they've done is tried to generate some numbers. they've identified specific

strategies, predatory strategies and tried to determine how much money had been made from that one and it's clear here billions of dollars a year but whether it's 8 billion dollars a year or 30 billion dollars a year, hard to know. the only other way to kind of guess it, because it's private information. these firms do not have to reveal how much they're making or how they're making it. and some part of their activity is will survive reform in the stock market. there's no doubt some useful function, some high frequency traders are performing. it's different from shop to shop. but you can see things like how much they're spending for speed. it's billions. >> rose: are movie companies bidding on this already. >> i don't know. i mean it's only a day old or a day and-a-half old. >> rose: that's another issue about this. enormous secrecy about this book. it wasn't even in the catalog. >> the book is a myriad subject matter. the subjects all operate in such stealth, the whole thing. i mean -- >> rose: so the book was stealth because all the subjects

were stealth. >> well the book ended up being a secret just simply because i mean the truth is that "60 minutes" decided they wanted to do something with it and they had their own rule. so there was no, we just wanted to let "60 minutes" have first crack of explaining this to the world. >> rose: what does being on "60 minutes" mean for a book like this. a great television program in my judgment obviously but i'm biased. >> two things. one is, steve kroft who did the piece also did a piece on the big short. i watched him frame the conversation in way that was the television audience could completely grasp. it was very useful. easier for me to talk about the book because people kind of got it. he made a visual. so it's very big deal just in terms of communicating what's in the story. i'm sure it sells a lot of books too but i don't know how many. >> rose: you really admire

bradley, brad. i mean it's almost as much as you view him as heroic as you view him as brilliant. >> i think bravery is the bigger component. >> rose: bravery. >> he's very smart but i think, i do think, i think he's an american hero, i mean i do. he and the people who he worked with because people on wall street don't go after people on wall street. he's created a war on wall street and he's done it in the best possible spirit. he could have happily stayed in his job at the royal bank of canada and made millions of dollars a year very safely and ignored the world around him. and maybe one day ran the bank. he is not by nature a bomb thrower or whistleblower or anything. he's really not a radical. >> rose: but he did this while working at the bank. >> he conceived the idea while working at the bank. but he felt obliged and in a

very kind of touching way. and he's smart enough to know just how ostracized he might be in he went out on this crusade. he had to make the decision in his mind if this doesn't work i assume i'll never work on wall street. and the way it will work is if i assume i'll never work on wall street again. that's a big sacrifice for somebody who made it on wall street already. and he's young and has little kids. >> rose: the one part he's basically which i think morally. i'm not going to go do this myself because i understand it, i'm going to expose it and tell you why it's wrong. >> try to tell the truth. i would try to introduce simplicity, clarity, transparency to the financial market. >> rose: you answered this last night. there was nothing illegal about this. >> i don't know the answer to that. i think, i don't know what is being done, i mean the attorney general is going to try to figure out what's illegal. that may be different from what the sec thinks is illegal.

as far as i can tell you that the defense, the first defense of high frequency traders when you say i mean, how do you justify this activity is everything we do is within the bounds of the law. so i think they think that operating completely within the rules. for all i know they may be. so this cast of characters who brand katsuyama surrounds himself with at iex. >> rose: ronan ryan. there was one more name in there. >> john shawl, rob park and don bowlerman, a whole bunch of them. all of them have made, it's not that they're saints. they are going to make money if it works out. the odds are never great that it's going to work out. it's a risky thing to do. >> rose: even now. >> even now. it's a socially risky thing to do. they put themselves at odds with their industry because they found something that bothered them about the industry. i thought that was great that

there were people on wall street who had rallied that kind of cause. there was a pattern there. not all of them but a lot of them are immigrants. a lot are people, there's an irishman, a canadian, a russian, there's chinese. there are people who came to the country, this country with an idea of how the country operated. it's almost as if hear going to insist that the country operate the way they hoped it would. and i find it extraordinary. i filed the behavior extraordinary. >> rose: anything that you have learned sense the book and the "60 minutes" appearance changed anything from your perception or the facts. >> i'm a little stunned by the reaction of the book. >> rose: which was the first question i asked. >> a little stunned by the reaction of the book. i feel like maybe some of the, i mean here you have essentially a reform movement happening within wall street. i feel like in some way they're recapturing some of the energy of the occupy wall street movement but in the form of an

active entrepreneur, disruptive entrepreneurship. but there's been no fact that i've learned and thought wow i wished i had known that. some people are going crazy. i mean there's craziness about it. >> rose: any accusations to you about you. >> yes. >> rose: like what. there's one story -- >> let's a story, a bank sent an e-mail saying i owned a stake in iex. i've heard a number of things. >> rose: what's the rap on you. >> the rap on me is easy. the rap on me is only tell one side of the story. i told brad katsuyama's side of the story. i didf't tell the trader's side of the story. i allly go interview dozens of high frequency traders and people who work at exchanges and people in the bank. i'm telling this story through the eyes of these characters who are trying to figure out how the market works because they're teaching the reader how the market works in their own journey. but i'm not ignorant of all the

other points of view. and there is a passage in the book, fairly long passage that's sort of like lays out what high frequency traders would say in their defense but it's not, three not much to say. >> rose: what do they say in their defense. >> everything we do is within the bounds of the law. we add liquidity to the market. when you here a wall street person say liquidity you should run for the exits. what does it mean. they add volume to the market but a front runner as volume. he buys from one else sells to someone else, doubles the volume in the market. we narrow spread which is between the bid and the ask and the market. it used to be much bigger and now they're smaller which is an indication of liquid fee but it's a deceptive claim because the spread technology that enables spreads to narrow and the market's an illusion. the spreads aren't the spreads. you go to act on the market and

it moves. so it's not like i don't know all the other side of the story i'm just trying to present the true side of the story. this isn't on the one hand on the other hand story. it isn't. no sane person would walk into this and say there are two sides to this story and the other side's very compelling. the other side is not that compelling. there's predatory, a lot of predatory activity going on in the stock market. this guy figured it out and demonstrated it in all kinds of ways. it's breathtaking, you should know this. >> rose: there are two questions that come out of that. one the point i raised earlier is it much more wide spread than just simply what we're talking about here in terms of the rigging of the u.s. financial system and wall street in terms of how people can influence results. certainly in ways that give them a decided advantage that may be illegal. >> well, leaving legality off to one side. the existence of these firms is

a matter of market rigging. they were all going down in the financial crises. the market force had been allowed to run their course in 2008, most banks would be out of business. so the government, so what is that. that's rigging the market to save the firms. it's clearing -- >> rose: that's not what most people think what rigging the market is. >> no. what i'm saying is that many people in their daily lives is subjected to market forces. >> rose: nobody comes in and says it. >> nobody comes in and saves it. >> rose: but at the same time those who did it, there's a new book called stress test which is his side of what he did the argument would be we saved the financial system and we had to do that in order to benefit everybody because if the financial system had collapsed, we would have all gone down, you, me and everybody else. >> you know you're right there's a really good argument for doing that. the people on the deceiving end gets a strange message. like someone who is badly, don't

pave attention what i'm doing pay attention to what i'm saying. >> rose: we'll let you fail unless you're too big to fail. >> right. so get bigger. >> rose: exactly. >> that's what you do, you get bigger. >> rose: that's the old notion about if the bank, if you owe a million dollars to the bank they're your partner. if you owe a hundred dollars then you're a debtor. >> right. yes. and so from that, it's not that surprising that if the banks get, on the one hand the message to the people inside is that you aren't subject to ordinary market forces. you will fail and we will orchestrate things so your failure doesn't happen one way or another. it's not that surprising they individually turn around and you market to something that will be fiddled with. >> rose: how long did it take you to write this book. >> i started, i started the first part, the gathering of the materials in the bigger process

for me. so i started maybe september, october of 2012. and gathering stuff for it. i started actually, i didn't start writing it until september. >> rose: is the writing part easy for you. >> the hardest part is the structure. finding out how to tell the story. once i get is voice and i figure out how the story sounds and how it's going to flow, where it's going to end it goes pretty quickly. i go at a pace of about 20,000 words a must not which is pretty good. >> rose: that's very good. but in fact you have a charactr more than one character, your life is, you have struck gold. >> right. >> rose: you struck gold having brad because you could tell his story of his search. everybody dreams of a great narrative. >> true. >> rose: you take them on an adventure to solve a puzzle. that's what you did here. >> that's exactly why i wrote

the book. i mean if i just found out on my own, it wouldn't have been that interesting. >> rose: you would have been an investigative reporter. it's the same thing with billy bean. this guy had a system who got to go in search of whether it will work with the oakland a's world series win. >> yes. >> rose: same thing with the big short. >> same thing with the big short. people figured out how the financial crises happened. >> rose: the other thing you've written about obviously is your family. you being a father, a parent. what interests you now? you wrote the vanity fair piece on the president. what interests you now or how will you find your next subject and when will you start looking? >> well i know what i'm doing next. i'm writing a drama for show time about wall street set in the 1920's. >> rose: how was it then?

>> that period rhymes very nicely with this period, the period leading up to the crash of 29. there's a way i think of writing about wall street now through them. but the subject matter for books starts usually with magazine articles just, like this one. started the magazine article that spiraled into something else. >> rose: the guy, the russian that's in prison, will you go back to that story. >> he's in this. and he will, it's unlikely. he's now out of prison. his conviction was overturned. but so the answer's no. i felt him go back. >> rose: tell me how you end this story. >> well, the story opens with a guy, someone who is sensitive to the need for speed in the market bigging a straight line tunnel from the chicago mercantile exchange to the nasdaq stock

exchange. it's called spread network. a straight fiber optic cable will be the fastest way to transmit a signal between the two places. and at the end of the book i go back and get on a bike and i ride a stretch of the cable through pennsylvania and look up on the hills as i'm riding and notice that along the hills kind of looming over the cable are these micro wave towers that have been put up very recently. high frequency traders have figured out they can move a signal faster by micro wave than the fiber optic. >> rose: than a cab buried in the ground. >> than a cable buried in the ground. even those things, this hole, this tunnel is dug just three years ago. it's already slough. >> rose: there's also this intriguing question now because of cyber. one is how fast the velocity of change within the world that you

have been looking at and how vulnerable is it to attack from someone who wants to disrupt the system. >> you know, that's true. i mean you still like a shovel in the ground when the whole market is running in the cable. maybe that's true but i came away with this story with a different kind of feel and it was we're our own worse threat. it isn't some terrorist coming to disrupt our markets we have to worry about, it's ourselves. it's what we do. >> rose: out avarice. >> out of opportunity. i guess it's greed, not just greed but ipso it's a sense that, a per suit of success without thinking very much about the purpose of what one is doing. and so any we don't need

terrorists, we can do it ourselves. >> rose: you don't want to be defined as a financial writer you want to be defined as somebody who is just curious about the way the world works. >> how i think about myself is action as a financial writer. i was working for solomon brothers -- was born in the big short and out of the big short was born this. so i think some of the books, it's just an accident of the direction my life took. but i don't think of, i never thought of myself as a financial writer. i just think of myself as a writer. >> rose: in the world of finance which i know has provided this material, rich material. >> yes. >> rose: because it has everything in terms of big money, you know, which brings jealousy, rage and revenge and all those other experiment qualities. >> this is one of the rate arenas of american ambition. it's wall street, it's

hollywood. a hand full of american ambition and wall street is maybe the hots es. so it does generate this material. >> rose: thank you. >> thank you. >> rose: michael lewis, the book is called flash boys, a wall street revolt. captioning sponsored by rose communications captioned by media access group at wgbh access.wgbh.org

this is "nightly business report" with tyler mathisen and susie gharib. >> did you review the documents gm submitted to the committee? >> no, i did not. there were over 200,000. drama on the hill. a tough outing for general motors ceo as lawmakers pressed her about why it took a decade to recall cars with defective parts. but did her answers satisfy investors and drivers? i believe the market is rigged. i believe you're part of rigging. >> drama on the street. is wall street rigged? the debate stopped trading midday at the new york stock exchange today. all this as the s&p rallies to an all-time high. but will earnings