On a sliding scale of difficulty, writing a general-interest book about high-frequency trading is slightly harder than making baseball statistics interesting, but easier than animating the role played by quantitive analysis in the 2007 financial collapse.
"Collatoralised debt obligations," says Michael Lewis, who has written about all three, "are impossible to describe. There's nothing harder. However, trying to show a reader how a market moves? How stock prices move? You can already see them tuning out."
That was the concern when he wrote Flash Boys, an investigation into what he calls the "rigged" underbelly of Wall Street trading. In the event, the book has sold a staggering 130,000 copies in the US in its first week of publication. (By comparison, The Big Short, his biggest seller to date, sold 60,000 in its first week.)
Lewis has been on every talk show and financial news panel in the land, arguing with, among others, Bill O'Brien, the president of the Bats Global Markets stock exchange, about whether or not he and his cohorts are ripping off their customers. If the 53-year-old started off angry, opposition to the book has sharpened his stance into a moral crusade. "I find this story really upsetting," he says over lunch in LA, where his publicity tour just ended. "The idea that the smartest, richest elites of society find this an acceptable activity. This predatory activity."
If it's emotional for Lewis, then the responses have been emotional, too, given how unequivocal his accusations are. The cornerstone of Flash Boys is a discovery made by an obscure Canadian banker, Brad Katsuyama, who noticed that whenever he tried to execute a trade, the stock price moved before the order went through. A long and tortured investigation revealed that the variable speeds at which trading information travels down fibre-optic cables to the exchanges was being exploited by brokers and high-frequency traders – so-called for the volume of trades they make – to jump the queue, buy the stocks in question and sell them back at a higher price to the person who expressed the original interest.
"Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run [orders]," writes Lewis. It was a side-effect of automated trading and a tough thing for bankers to wrap their heads around, let alone laypeople. In plain English, as a colleague of Katsuyama's put it: "My role was to walk around and say to clients, 'Don't you understand you're being fucked?'"
Lewis looks and sounds a lot like the people he is writing about. He is slick, well manicured and fluent in the language of finance – about as far from the Occupy movement as you can get, and much more dangerous to Wall Street, given that he actually knows what he is talking about. Since the book came out, the FBI, the US department of justice and the New York attorney general's office have all launched investigations into high-frequency trading practices, and Goldman Sachs has discussed the possibility of shutting down its "dark pool" – the anonymous trading venue that, argues Lewis, gives high-frequency traders their unfair advantage.
"I thought it would create a shitstorm," he says. "Then I thought, it's too complicated and I've got a nice Canadian guy as my main character – I'm not sure how much of a shitstorm this is going to create, because I don't know if even my mother is going to pick it up. But the noise level has been so great."
Not all of it has been positive. Prominent in reviews of the book has been the critique that Lewis has created a false set of heroes and – particularly from financial journalists, this – that none of this stuff is new in the first place.
"And that's a ton of horseshit, because I've watched Katsuyama educate the world. It's his story. His knowledge starts in 08. And if you knew this already, why didn't you do something about it?"
Lewis has also been accused of ringing fake drama from a story wherein the victims, when it comes down to it, are billionaire hedge fund managers, not the so-called little guys. "Little people – their money is largely managed by big institutions: mutual funds, pension funds, endowments, insurance companies – that's where their money is. It's true that this is a weird place where the interests of mom and pop happen to be the same as the interests of a billionaire hedge fund manager. But that doesn't reduce the level of interest of mom and pop."
To outsiders, Lewis's banking expertise looks pretty solid, which is as much a function of how little most of us know about that world as it is of Lewis's verisimilitude. As he himself points out, he really didn't work in the banking sector for long, starting a career in his mid-20s as a bond salesman at Salomon Brothers and getting out at the age of 27 to become a writer.
Still, for those short years, which he mostly spent at the Salomon offices in London, he was very successful, riding the 1980s boom and gathering material for his hugely enjoyable memoir about the period, Liar's Poker. The common strand in Lewis's work is his combination of systems analysis with great human interest. Moneyball, which was made into the 2011 movie starring Brad Pitt, told the history of baseball through one man's effort to redefine notions of value in the sport's talent pool.
The Blind Side, his book about American football, was made into a blockbuster that earned Sandra Bullock an Oscar. Hollywood pitched it as a heart-warming tale of an unusual family, whereas the actual book contains pages and pages of football analysis, centred around the geeky proposition that quarterbacks are "only as good as the system they played in". The Big Short put human faces on the bankers who profited from the housing collapse.
It was while he was still at Salomon that Lewis realised he had a set of skills that, if he wanted to become a writer, would give him an advantage in that particular marketplace: understanding of a world that most writers had no contact with. After an art history degree at Princeton, he studied for a master's in economics at the London School of Economics under the former governor of the Bank of England Mervyn King. ("He was fabulous. A lot of the professors I had were crusty old English guys with hair coming out of their ears. They weren't worldly. He was; he was very smart.")
There was a crossover between the two disciplines, trading and journalism, which Lewis identifies now as "a certain sneakiness. Getting stories often requires an amount of sneakiness. Beyond that, a certain social ability. You have to get along with people. It helps to have the minimum necessary analytical ability."
While still at Salomon he started writing anonymous dispatches from the trading floor and publishing them in the Spectator and the Sunday Telegraph, and could see from the response that he was on to something. "They would go the equivalent of viral before the internet. People would photocopy them and hand them out on the trading floor. No one knew it was me. So I could see that it was working."
Liar's Poker did so well, says Lewis, that "I thought: I'm a free man. A lot of the stuff I did afterwards was all over the place. It was magazine stuff. I'd write essays, I wrote about everything. There was no pattern to the stuff I was doing. I covered politics for the New Republic." The books he wrote ranged across genres, too, so that he thinks of himself these days as more of a sports writer than anything else. "Or a travel writer. If I had to pick one genre of non-fiction, it'd be travel writing." Liar's Poker, he says, was in some ways a travel book – the story of "me moving through space".
Of all of Lewis's books, it was The Blind Side that did least well when it was first published, tanking until the film came out and drove a million sales. "The problem is that people who like football do not read. And if they read, they don't want an emotional chick flick buried in their book. It was not a good business idea."
More recently, he wrote a huge, moony profile of Barack Obama for Vanity Fair, the most incisive part of which was Lewis's analysis of the president's basketball skills: "Not flashy, but he slides in to take charges, passes well, and does a lot of little things well," he wrote. "The only risk he takes is his shot, but he shoots so seldom, and so carefully, that it actually isn't much of a risk at all." The rest of it reads along the lines of a 15-year-old's daydream after a Justin Bieber concert ("I gazed up to find Obama staring down at me …" "'I feel a little creepy being here,' I said. 'Why don't I get out of your hair?' He laughed. 'C'mon,' he said …" etc). We all have our weaknesses.
Thanks to the success of Lewis's books, people frequently ring him with ideas about what to do next, which most of the time he ignores. In 2009, he received a call from an old contact, a lawyer, who said he had a client Lewis might be interested in writing about. This was Sergey Aleynikov, the former Goldman Sachs programmer arrested by the FBI and ultimately jailed for "stealing code" from the bank. "It's an incredible story," says Lewis, "and I said yeah, yeah, yeah and ignored him for a year and a half." During that time, he mulled over what could be so valuable as to justify what looked, from the outside, like an extraordinary overreaction on the part of Goldman Sachs.
"I didn't understand the code – what had he taken? It was very fishy, the way Goldman Sachs reacted to it. No matter how valuable it was, calling the FBI was a really extreme thing to do. And to do it so quickly. And it was pretty clear from the newspaper descriptions that no one understood what he'd taken." Lewis spoke to a few investors, started looking into high-frequency trading, and was ultimately told about someone who would go on to motor his whole story, Brad Katsuyama, or as he was described to Lewis at the time: "There's this one guy who works for the Royal Bank of Canada."
One of the criticisms of the book has been that it doesn't identify any one villain, something Lewis says was deliberate. "I made a very conscious decision at the beginning not to do that. The reason is: everyone's involved." Does he understand the 10 lines of code that execute a trader's orders? No. "But there's a predator, and a guy figures out he's the prey. Then he figures out how the predator's trying to kill him and tries to stop the predator. The basic story was pretty simple."
Given how large the financial stakes are, it's surprising, I suggest, that there isn't more corporate assassination. Lewis laughs. "Brad asked me if he should get security. And I thought maybe before the book came out. But now, it'd be a little obvious."
Lewis takes roughly 18 months to write a book: a year on the research and structure, and five months to hammer it out. At the same time, he continues with his journalism, writes screenplays and with his wife Tabitha Soren, a photographer and former reporter for MTV News, raises their three children. Lewis's book Home Game was about fatherhood and his memoir Coach was the story of his high-school baseball experiences, which is in the process of being turned into a film.
As is Flash Boys. The day before we meet, Lewis sold the rights to Columbia Pictures and Scott Rudin, who successfully made Moneyball. The irony is that when Lewis quit banking, it was for a $40,000 (£24,000) book contract that indicated he would never make the kind of money he had as a 25-year-old bond salesman. Although actually, he says, looking at the kinds of figures earned by the characters in Flash Boys, who knows?
"I might still have done better in banking. The thing is, I have a sense of what my trajectory inside the financial world would've been and I would've ended up in long-term capital management at Salomon Brothers, and that collapsed. They lost all their money. I'd have been wiped out."
Anyway, you thought it would be a meaningless life. "For me. I didn't belong there. It's hard to remember what it feels like to be 27; you're immortal. You can do anything you want."
The accident of his career is, he says, that he has been so well-placed to document an industry "that has gone insane. The financial markets have generated this fantastic material. I don't think anything else like this will walk in my door."
And he hopes the fact that the world's best and brightest – French particle physicists, Russian aerospace engineers, wunderkind Chinese programmers – all go into banking these days, because the financial rewards are so huge, is a historical anomaly.
"It's very odd. We think of it as normal, but those sorts of people throughout history have not gone into banking. They've done useful things. The sorts of people who used to go into banking were pleasant, jolly chaps, the class monitor who gets on with everyone. That's who should be in banking. That's what we need!"
Why? "Because the smart people are too dangerous. They find ways to game the system."
• Michael Lewis is speaking at the Royal Geographical Society, London, on 30 April. Buy tickets at 5x15.com.
guardian.co.uk © Guardian News and Media Limited 2010