Business postsSunday May 11, 2014
Shorter Sorkin: Michael Lewis Focuses on Problem I Never Bothered to Write About
Last month I read Michael Lewis' “Flash Boys: a Wall Street Revolt,” in which the author of “Liar's Poker,” “Moneyball” and “The Blind Side” argues that high-frequency trading has created a rigged game on Wall Street, in which high-frequency traders can utilize faster speeds to figure out what we're doing before we do it, then act as middlemen in the transaction: buying what we were about to buy and selling it back to us at a higher price. Basically they're front-running trades. Legally.
But there's been pushback against the book by, among others, Andrew Ross Sorkin of The New York Times. I meant to check out his critique after reading the book. I finally did this week.
Sorkin basically agrees with Lewis that there is a problem and the game is rigged, or “rigged”: “(There remain a host of other problems that still make it 'rigged'),” he writes. He just feels Lewis is blaming the wrong people:
He points mostly to the hedge funds and investment banks engaged in high-frequency trading. But Mr. Lewis seemingly glosses over the real black hats: the big stock exchanges, which are enabling — and profiting handsomely — from the extra-fast access they are providing to certain investors.
Of course Lewis does write about the exchanges, particularly Bats. In fact, the whole narrative of the book is built around the creation of a new exchange, IEX, one designed to be more fair—to offer, in a sense, exchange neutrality.
Even so, it's interesting that Sorkin agreed there was a problem. So I assumed he'd written about high-frequency trading before.
He has. A search on the Times website (for “high frequency trading” and “By Andrew Ross Sorkin”) yielded, when you parsed out the Dealbook/Times duplicates, three results.
The first, “A Lack of Transparency In S.E.C. Disclosure Rule” from November 2010, is about the troubling way the SEC allows corporations to release their earnings reports: on their website rather than as a press release issued simultaenously to hundreds of news services. The HFT reference? About halfway through:
In an age of high-frequency trading when every millisecond counts — even in after-hours trading — the move toward companies’ distributing earnings and other market-moving information via their Web sites rather than through wider distribution channels raises some serious questions about transparency.
It's the super-fast age we live in. But there's no critique of it.
The second column, “Volatility, Thy Name is E.T.F.” from October 2011, deals with the new volatility of the stock market, including the flash crash of May 2010. The HFT reference? That it wasn't the problem.
The third column is his critique of Lewis and “Flash Boys.” He calls the book important. He writes this:
Mr. Lewis’s well-crafted narrative highlights a perverse system on Wall Street that has allowed certain professional investors to pay hundreds of millions of dollars a year to locate their computer servers close to stock exchanges so they can make trades milliseconds ahead of everyone else.
In some cases, the superfast investors are able to glean crucial information from the stream of trading data flowing into their systems that allows them to see what stocks other investors are about to buy before they are able to complete their orders.
Then we get the line about the wrong villains: the exchanges, not the bankers.
Sorkin, in other words, isn't saying there isn't a problem. He just implies that Lewis is clever, hyperbolic, and demonizing the wrong group of people about this problem ... which he, Sorkin, has never bothered to write about.
Sign of the times.
Why the Want Ads Suck
“The reason [the minimum wage] has become a big political issue is not that the jobs have changed; it’s that the people doing the jobs have. Historically, low-wage work tended to be done either by the young or by women looking for part-time jobs to supplement family income. ... Now, though, plenty of family breadwinners are stuck in these jobs. That’s because, over the past three decades, the U.S. economy has done a poor job of creating good middle-class jobs; five of the six fastest-growing job categories today pay less than the median wage. ...
”The situation is the result of a tectonic shift in the American economy. In 1960, the country’s biggest employer, General Motors, was also its most profitable company and one of its best-paying. It had high profit margins and real pricing power, even as it was paying its workers union wages. And it was not alone: firms like Ford, Standard Oil, and Bethlehem Steel employed huge numbers of well-paid workers while earning big profits. Today, the country’s biggest employers are retailers and fast-food chains, almost all of which have built their businesses on low pay—they’ve striven to keep wages down and unions out—and low prices.
“This complicates things, in part because of the nature of these businesses. They make plenty of money, but most have slim profit margins ... The combined profits of all the major retailers, restaurant chains, and supermarkets in the Fortune 500 are smaller than the profits of Apple alone. Yet Apple employs just seventy-six thousand people, while the retailers, supermarkets, and restaurant chains employ 5.6 million.”
-- James Surowiecki, “The Financial Page: The Pay is Too Damn Low,” on the New Yorker site. Read the whole thing.
Merit Pay in a Meritocracy
From Ken Auletta's profile of Henry Blodget in the April 8, 2013 issue of The New Yorker:
Not long after the 2000 merger of AOL and Time Warner, Blodget predicted that within two years the resulting enterprise would become the world's most valuable company. It turned out to be the most disastrous merger in corporate history. Meanwhile, Blodget's compensation at Merrill Lynch rose from three million dollars, in 1999, to twelve million, in 2001.
Why Job Creators Is Such a Lie
We've been hearing that phrase a lot from the usual folks in the Republican party. They use it as a euphemism for the wealthiest people in the country, whom Republicans don't want to tax further, even though their current tax rate is half of what it was when I was growing up: 35% rather than 70%.
The right can't say “Don't tax the rich.” That won't play. So in a time of double-digit unemployment, someone dreamed up the term “Job creators.” The top 1% are wealthy, sure, but they're also the people who create jobs (Bill Gates, etc.), and taxing them at a higher level (at, say, 39%) will create such uncertainty that they won't expand their operations, and this will keep the economy from expanding as well. Taxing “job creators” is thus counterproductive to creating jobs.
It's a lie, of course.
The wealthiest people in this country (Bill Gates, etc.) are not job creators but profit creators. That's their job. If they have to add jobs in order to create profit, they'll do it. If they have to cut jobs in order to create profit, they'll do that, too. And if they can get you, their employee, to do more for less, they'll do that every day and twice on Sunday.
That's why the term “job creators” is such a lie. It ignores what a CEO does, what a corporation is. It ignores what capitalism is.
I've been feeling this all year. I've been waiting for someone in the mainstream media to say this all year. Nothing.
It's not the mainstream media, but recently, on his site, journalist Peter Lewis wrote about former Gannet CEO Craig Dubow, who resigned recently after six years at the helm. During his tenure, Gannett went from employing 52,000 to 32,000. Its stock went from $72 a share to $10 a share. Admittedly the last six years were particularly rough for newspapers, but—and here's the point—they weren't rough for Craig Dubow, whose salary was raised several million in 2010 to $7.9 million. Meanwhile, the pay of Bob Dickey, the head of Gannett’s U.S. newspapers division, was nearly doubled, from $1.9 million to $3.4 million, in 2010. This past summer he laid off 700 people. “While we have sought many ways to reduce costs,“ he told the workers, ”I regret to tell you that we will not be able to avoid layoffs.”
Dubow insists that his top priority as CEO was to serve the consumer: “We have always maintained an unwavering focus on the consumer,“ he wrote in his resignation letter. ”As a result, we have evolved into a digitally led media and marketing solutions company committed to delivering trusted news and information anywhere, anytime.”
Marjorie Magner, non-executive chairman of Gannett’s board of directors, echoed this thought. So did new CEO Gracia Martore.
Here's Peter Lewis:
These people are lying. The corporate goal is not to serve the consumer; it’s to maximize profits and pay packages for top executives. Can anyone argue that Gannett newspapers and journalism are better today, and that news consumers are better served?
How did Mr. Dubow and Gannett serve the consumer? They laid off journalists. They cut the pay of those who remained, while demanding that they work longer hours. They closed news bureaus. They slashed newsroom budgets. As revenue fell, and stock prices tanked, and product quality deteriorated, they rewarded themselves huge pay raises and bonuses.
Next time you hear someone use that term, feel free to punch them in the face.
One of the worst offenders.
Why is The Seattle Times Linking to Exxon PR Blogs?
Doing some research on The Seattle Times website the other day I came across the following link (right-hand column, third down):
I noticed the headline certainly. The NY Times reporting poorly. Didn't have their facts. According to who? Exxon Mobile Perspectives? You're effin' kidding me. Why is this even on a legitimate news website? Or is The Seattle Times no longer a legitimate news website? Or have we created a culture where legitimate news organizations are so desperate for money they'll do what they need to do to survive. Like linking to Exxon Mobile Perspectives.
I clicked through but didn't even bother to read the article by Ken Cohen, vice president of public and government affairs for Exxon Mobil Corporation. But I did see his latest post: HIGHER TAXES ON OIL COMPANIES WON'T CREATE JOBS. Really? Hard hitting.
How does that guy sleep? How do I?
Twitter: @ErikLundegaardTweets by @ErikLundegaard