Michael Lewis writes good books. His most recent is creating a stir from a well crafted marketing campaign and a touchy subject. Unlike The Big Short, which no one in the real world wanted to admit they were on the wrong side of (spoiler alert: we all were); Flash Boys has an antagonist that everyone can openly hate. This post isn't about that.
The hype over a fact, well known to any professional, is unimportant. The real story lies with the Liquidity Birthers that defend their actions with this heavily promulgated myth. Here's the thing, there is no liquidity in the securities that matter when the eventual problem comes around. Equity, low man on the totem pole of capital structure doesn't require liquidity by definition. Debt, on the other hand, does.
A large chunk of what is perceived to be some of the deepest, widest and most resilient of that debt now resides in a Yucca Mountain of carry at the Fed. Futures and options products linked to those obligations now transact massive pre-arranged trades away from the mirage that is the prevailing presented price. (If the market was liquid, why would they need to "block" away?) HFT will always have the Eric Stratton defense on their side (we broke a few rules and took some liberties with the female party guests...but don't knock the whole system or the good ole USA). We need to come to terms with monetized capital markets. Stocks that are actually flows. Only then can we get into the minutia of speed. The business of Wall St, and to a degree America, is the creation and churning of financial products.
There's a host of scummy things going on in the electronic trading world and "for profit" exchanges complicate that. But, there was no shortage of scum-baggery going on in the ole' pit days either. (Eric Stratton again.."we did, wink wink.") Lets just drop the liquidity myth as the reason this is supposed to be ok.