Sunday, 20 July 2014

This should have you spitting chips

And if it doesn't, you're not really paying attention.

Let's say you go to your doctor complaining of a migraine. The doctor gives you a prescription for some drug that you've never heard of. The Dr says it is the latest migraine cure on the market, Foolmeonce, invented by the biggest pharmaceutical company in the world (Profit$ Inc). Unbeknownst to you, your Dr is being paid by Profit$ to prescribe Foolmeonce to their patients. You trust that your Dr knows what is best and you take the drug, and your migraine does go away but all of sudden you have pins and needles in your feet and you lose sight in one eye. You go back to the Doc, tell them what has happened and they say it was probably just a coincidence, but just in case, to take a different drug Foolmetwice. Your blindness and pins and needles are now complicated by the fact that your hair has fallen out and you are paralysed from the waist down. You complain to the Medical board who tell you that they'll look into it, just as soon as the new case manager is hired because the last one has just taken a high paying job with Profit$ Inc. The new case manager, young and fresh from University, finds no relationship between your medical condition and the drugs you were prescribed and you're told to go on your merry way.

Now - you've stopped taking the drugs and despite your hair growing back, your sight returning and you learning to walk again - you wake up one day, six months later, with a migraine. What do you do?

No normal person would trust any advice given to them by their doctor or take any drugs they didn't know were safe. But translate that scenario to the world of finance and you find most people returning to the same doctor, or at least one of the many who take kickbacks from Profit$ Inc, they agree to take more drugs that they don't understand and they get slightly different, but still catastrophic, results. This time, their legs turn blue and fall off completely and they lose their ability to speak, see or hear.

With great difficulty, they make a complaint to the Medical Board and the new case manager (the last one they dealt with has taken a job with guess who) who finds that...well, you know the rest.

It doesn't make sense in regard to your personal health so I have no idea why it makes sense to your finances. You are losing, very rich and corrupt people are winning, the authorities are clueless or implicit in the corruption and you still trust that someone will look out for you.

Your knowledge or interest in stock markets is irrelevant - if you have any desire for fairness and transparency in the way your retirement savings, share holdings, pension fund, superannuation or 401K is managed (and assuming you are not insane), then this should make you angry. The 15 minutes you spend watching the video linked to at Vanity Fair below will not be wasted, even if you don't understand the finer details of it.

Remember the name Brad Katsuyama. If he is what he seems to be, a beacon of righteousness among an ocean of scumbaggery, then maybe there is a glimmer of hope for the finance world. Maybe. Hope spring's eternal.

Brad Katsuyama
I posted briefly about this a while ago, so it's not exactly breaking news, but I've had the chance to read the book and I devoured it in a couple of days - Michael Lewis' Flash Boys. I had trouble turning off my e-reader at night, and for someone who loves their sleep as much as I do, that's a pretty big endorsement.

The deeper I got into the story, the wider my eyes got and the more I kept saying to myself "this is so fucked up". It was a similar feeling when I read Lewis' The Big Short, that detailed the background story to the sub-prime mortgage meltdown. 

For those of you who have no interest in finance, Flash Boys can (sort of) be summarised as - Stock markets all over the world are operating in a way that provides billions of dollars of profits to people with very smart computer programmers, while simultaneously skimming profits from the people who are trying to trade on the same stock markets, but with slower technology. Whether that is you or the people who are managing your money - you are being screwed. It's perfectly legal and there is stuff all the authorities will do about it any meaningful way because they don't really have a clue how the system is being rigged to start with.

The Global Financial Crisis of 2007 to (arguably) 2014, and the Tech Wreck of 2000 should have been two massive wake up calls but is seems, sadly, they weren't. The average individual maintains their steadfast belief that politicians, central banks, investment banks and stockbrokers are working to fix the problems inherent in the financial system. Unfortunately it is not apparent to the average Jo/e that these same players are the ones who fucked it up in the first place and have very little interest in making those responsible pay for it.

Just like my fantastical Profit$ story, employees of the American Security Exchange Commission (SEC), who's job it is to regulate and police the finance industry, have a tendency to quit their jobs after a while and take up positions in one of the large investment banks. Call me a conspiracy theorist, but that sounds as dodgy as hell. Some people have no shame.

I thought Lewis' Flash Boys book would just make me angry and I wouldn't enjoy it at all. However I found myself relaxing toward the end, because it includes the stories of people who know the system is broken and are prepared to forgo jobs paying millions each year, just so they can make a difference and help fix it.

I'm still spittin' chips, but at least I'm not the only one.