Nancy Folbre – Economix Blog – The New York Times

Nancy Folbre is professor emerita of economics at the University of Massachusetts, Amherst.

In the world of financial trading, a front-runner is someone who gains an unfair advantage with inside information, including access to a high-speed transaction network revealing specific trades other people
are trying to make.

Today’s Economist

Perspectives from expert contributors.

Flash Boys ,” Michael Lewis’s new nonfiction thriller, reveals the high-tech details of this largely invisible process. More important, it reveals the enabling policies of major Wall Street institutions that did little to discourage it.

Like the public bailout of major banks during the last financial crisis, tolerance of front-running challenges the faith that competition always guarantees efficient outcomes and the creed that market value
accurately measures real contributions.

The book itself sticks to a heroic narrative driven by likable good guys who patiently decipher and partially remedy illegal practices. More bluntly, Mr. Lewis announced on “60 Minutes” last week that the stock market is rigged.

Some titans of the financial world, including Charles Schwab,
founder of a well-known discount brokerage house, agree. Mr. Schwab describes the form of front-running practiced by high-speed frequency traders as a cancer undermining confidence in the free-enterprise
system. Others, including Vanguard’s founder, John Bogle, insist
that few investors have actually been hurt by front-running and that high-frequency trading has redeeming features,
such as lowering transaction costs.
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