Michael Lewis is the preeminent financial journalist of our age. In many ways, Michael Lewis is the only financial journalist of our age. No other author on finance is so widely read. His articles are widely taken as something like the conventional wisdom. This is a great tragedy, as, despite the fact that Michael Lewis is unarguably a great writer, he’s a terrible journalist. Reading a Michael Lewis article on finance is much like watching the evening news. It gives you the impression that you’re well informed, but in reality, you’ve been deceived by noise.
Consider his latest Vanity Fair missive. Michael Lewis attempts to get to the bottom of the German side of the financial crisis. This is an interesting and tremendously important subject. Why? Because Germans didn’t have a financial crisis. This, despite the fact that the German Landesbanks were the counterparties in a good fraction of the printing of shitty bonds (aka, Germans own a lot of the worthless bonds printed up by American banks). This despite the fact that the Germans own a bunch of shitty Greek government paper. This despite the fact that Germany was incinerated and invaded in WW-2, and half her territory and a third of her population incarcerated under communism until 1989. Yet, Germany is a prosperous and pleasant nation to live in; one of the best in the world. Germany manages to have lower unemployment than the US, despite all their unions and socialistic regulations for hiring and firing: laws which Harvard economist ding a lings will insist would be the ruination of the American economy. How did the Germans manage this?
Michael Lewis doesn’t know; he’s too busy making turd jokes. I’m not exaggerating. Some jackass gave him Alan Dundes’ imbecilic, “Life is a Chicken Coop Ladder.” This is a book documenting alleged German folklore surrounding scatology, and drawing the conclusion that Germans are prone to killing Jews because of inadequate toilet training. If you think that’s some kind of joke: it isn’t; the guy who wrote it is completely serious. The local Kraut-hating bigot who insisted I read it was serious as well. Lewis takes it at face value also, and uses it as an excuse to regale us with Teutonic turd humor for a significant fraction of the essay.
Lewis’ article is some funny and well written bigotry, including the obligatory Nazi jokes all English speaking writers are required to make when discussing German culture. Of course, if he did an article on some cannibalistic African hell hole in the same “light hearted” spirit, he’d be hounded by the Southern Poverty Law Center for the rest of his life as an evil cousin-fucking racist. Not that there is anything wrong with that: some of my best friends and all that. I’m just pointing it out.
Lewis has, according to his report, spent a grand total of about a week of his adult life in Germany. His report, like the rest of the VF roadtrip series, is an adolescent travel story: some ethnic stereotypes, with some bad financial analysis thrown in. It’s true, the Landesbanks were royally ass-raped by shady American bankers. It’s also true that Germans tend to be gullible and trust in authorities, such as the American credit rating agencies. This is a racial characteristic of virtually all Germans I have known; German-American or straight from the tap. It is also true that Germans tend to be orderly people with a deep seated thirst for justice, equity and social harmony. I don’t think this has anything to do with poop, and I don’t think Germans have any more interest in turds or mud wrestling than anybody else. The real story of Germany is their banking systems is awesome, despite the fact that the actual banks were run by retards (rather than thieves), and their economy is doing really well. Somehow the great journalist finds it more interesting making poop jokes, rather than getting to the bottom of this. Why do the Germans do so well, despite their getting the wrong end of the financial disaster?
The last Lewis article I read was about Iceland. Again, he gives a fair, if bigoted characterization of Icelanders: fearless risk takers who belong on fishing boats or strongman contests rather than trading floors. No real argument from me on that one: Icelanders are brave men. His silly prescription to heal the Icelandic economy? Let Icelandic feminists run their banks. I’ve got a better idea: why not let Germans run their banks? Germans have a longer track record, and have unarguably contributed more to banking, human civilization and the ordering thereof than all the feminists in all nations in all of human history.
The important story from Iceland, he missed completely: they told the EU and the world financial system to eat shit, and are actually better off for it. It was obvious they were going to, but Lewis didn’t raise the possibility in his 2009 article, or any subsequent ones. The other real story of the Iceland tragedy: there are actual villains, and they’re not brave honest-faced Icelandic fishermen. Lewis is too chicken shit to name them (he could have; I’m pretty sure wikileaks did). I’ll name them: the Tchenguiz Brothers -a couple of Iraqi guys from the Anti-Semitic central casting department who ripped Kaupthing off to the tune of 2 Billion dollars, and the fat bag of fecal debris who let them get away with it: Sigurdur Einarsson.
Lewis’ assertions about the alleged German love of turds doesn’t even pass the sniff test. He claims the Germans have the only toilet museum in the world? Well, I know of one in South Korea off the top of my head. Feeding the phrase into google nets one in New Delhi, one in Massachusetts, one in Texas, one in Ukraine, one in Great Britain and at least one on the goddamned internet. Who checks Lewis’ facts? My editor would shit on me from a tremendous height for making such an unsubstantiated remark, and he’s not even a little bit German. Similarly, Lewis got an assertion about Irish parliamentary proceedings wrong too: mostly because it got in the way of a good racial stereotype about my lazy, potato-eating, Bog Negro cousins. If he can’t get crappy little facts like this right … why should anyone believe him about anything else?
It’s difficult to resist mentioning Lewis the prophet. The way he runs around unexplaining things, you’d think he predicted our present financial predicament. He seems to claim to: Liars Poker was his prediction, dontcha know. While it was a great book, his memory is faulty. The internet is forever, or so I am told. Right before the poop hit the prop in 2007, Lewis was making farty noises at the heavy hitters at Davos who were warning of immanent dangers, calling them, “wimps, ninnies and pointless skeptics.” I owe Janet Tavakoli an apology: she was right about the guy. I’ll go out on a limb as a forecaster: his assertion that the Germans will continue to pay for lazy Greeks and other lazy Southern Europeans is dead wrong. I haven’t been to Germany in over a decade, excepting for airport fly throughs, and I know that for a fact.
Michael Lewis is part of the establishment. His position in the financial community is based on celebrity and patronage rather than actually knowing anything. The man lives in Berkeley for crying out loud. If you want to really understand what is going on in the world, you’re not going to get anything out of listening to a perfumed prince of the media-banking-government complex. No, I don’t think Lewis is in on any conspiracies; I just think it’s easier and more comfortable for him to be funny and misleading than right.
At least they’re not pimping talking points for the oligarchy this time: it’s just general journalistic imbecility. No, Anne Hathaway news does not drive Berkshire Hathaway price changes. No, I haven’t tried to do this regression, nor will I ever try to do this regression, because I’m not as statistically retarded as people who think the Huffington Post is anything but an exotic white noise signal generated by the amygdalas of neurotic liberal arts majors.
If anyone reading my blog has fallen victim to the latest installment of the Atlantic’s regularly scheduled moronathon, please see David Leinweber’s excellent and hysterically funny paper, Stupid Data Miner Tricks: Overfitting the S&P500. In it, he uses almost twice as many data points as the HuffPo mouth breather to show a nearly perfect correlation between Bangladeshi butter production and the S&P500. Adding in sheep population also made the regression better. Professor Leinweber’s paper is a classic in the field: anyone who cares about doing statistics properly should read and internalize its lessons.
As for the hedge fund consultant guy they interviewed, John Bates: I hope you are suitably embarrassed or they egregiously misquoted you. Otherwise, I hope I never have to fix one of your messes. You should hang your head in epic shame for your apparent donkey-like lack of understanding of even the most rudimentary ideas about spurious correlation. Until you make amends and grovel in shame before your professional peers for misleading the public about a six data point spurious correlation in exchange for a little publicity, I hereby award you with the very first “Locklin on science statistical jackass of the month” prize:
Enjoy your prize. If I were in charge of the guild, it would be the stockade and rotten cabbages for you. Progress software? Not the guys that make Apama? Some pimp tried to recruit me to that outfit. I couldn’t understand why a CEP would be written in Java, just as I now can’t even imagine working for a company whose CTO doesn’t understand regression.
People are still whining about HFT. I’m still annoyed at whiners and doom sayers. This has been going on long enough, and enough hot hair has been expelled on this subject, a taxonomy of the contra-arguments is called for.
- It’s not faaaaaiiiiir because I can’t do it. This is the Chuck Schumer/Themis argument. The fact of the matter is: nothing about finance is fair, because not everyone can do everything in finance. Why can’t I borrow at the repo rate, and where’s my goddamned bailout money, Chuckie? No fair, yo! If people knew the enormous list of things which the individual investor couldn’t do, well, they’d be peeved about a lot of things. Why can’t I underwrite insurance? Why can’t I have access to Goldman’s data on dark liquidity pools? Why don’t I have 20 awesome Ph.D.’s of the capabilities of Lenny Baum working for me, like Jim Simons used to at Rentech? Why can’t I have all the data sources that a fund has, so I can do stuff like trade on SEC data? The answer is: that’s life. Some people has, some people has not. Amusingly, the individual investor can do things like trade on inside information and can generally get away with it better than SEC monitored funds do; nobody ever complains about that.
- Technology: it’s scaaaaaaary. HFT may turn into skynet and take over the world! This argument probably dates back to some australopithecus who was worried fire might cause cancer in rats. Sure, we could regulate trading such that some arbitrary time scale makes up a tick. Who makes that choice? Large market participants seem to like the idea of regulation. You know why? Because they’re the ones who are going to write the regulations. Don’t believe me? Go read something written by a government bureaucrat. What, did you actually think they work for the little guy? They don’t: not any more than Chuckie Schumer is a modern day Cincinnatus.
- I am a communist revolutionary, and I don’t want to pay for liquidity. Liquidity should be provided by government functionaries, appointed by proletarian revolutionaries. Also, trade should be banned, as well as money. Our modern economy will be denoted in locally-grown carbon-neutral seashells. Quite a lot of the arguments fit into this category. If you don’t believe in trade, well, I guess I don’t have a good come back. Have fun eating gruel.
- I am someone who will benefit from wider spreads caused by knocking out the legions of small HFT players. This is never the stated reason, but it’s almost always the actual reason. This is the actual reason most regulatory laws are passed in the modern age: because someone who bribed a congressman wanted ‘em passed. See the link in #2 for more insights.
- They’re stealing from the small investor! No, they’re actually providing a cheap service to the small investor. Hundreds of HFT’s are competing for your liquidity dollar, making spreads lower than at any point in human history. You know who really steals from the small investor? Brokers, incompetent money managers, the government who taxes everyone to penury and prints worthless dollars, incompetent and self-serving boards of directors and management, and media crooks who dispense lousy hype, either through incompetence or corruption. Of course, unlike HFT firms, these sorts of rip-off artists have well paid media flunkies and Washington lobbyists, so nobody ever notices. Blaming HFT firms for whatever financial problems we presently experience is like blaming Apple computer for the problems with Alar because they use the word “apple.”
I tire of this artificial “controversy.” No, I don’t have skin in this game, other than being someone who benefits from the cheap spreads provided by hundreds of little HFT’s. I don’t work in this space, and have no immediate plans to do so. This “controversy” is a distraction; a sort of sleight of hand applied to mass media misinformation about a poorly understood subject. Of all the myriad of subjects people could get bent out of shape about our financial system, of all the potential dangers presently faced by America and the world financial system, this is the least worrisome. Why not agitate for the breakup of firms which are “too big to fail?” Why don’t people worry about the preposterous pyramid scheme we call the US government and Federal Reserve system? Why don’t people complain when their jobs are outsourced? Why aren’t shareholders agitating for more board accountability? Why is nobody noticing the fact that nothing has appreciably changed since 2007? No, no, we must punish one of the few honest and competent areas of the financial system: after all, they’re making money.
This “controversy” is offensively dumb. Yet, so few people understand anything about it beyond “they make money,” I figure I’m going to have to hear about it for years to come. Get back to me when someone comes up with a better argument against HFT which isn’t one of the above 5; until then, you’re a moron and I’m not listening to you.