Transcripts For CNBC Power Lunch 20140401

I think its an accidental conspiracy. I think accidental this sort of unintended consequences of regulation that was introduced in 2007 created this really screwedup Market Structure in which a lot of people have totally screwed up incentives. It is totally screwed up that brokers sell out the information of their customer order flows to High Frequency traders. Its totally screwed up to me that High Frequency traders pay exchanges for special access to price information and speed advantage. But for me, in a way, the headline of the book is spoiling for me the fun of the book. I found what attracted me to the whole thing was this idea this handful of kind of this band of brothers who were wall street insiders themselves didnt understand how the stock market worked, that the stock market got so complicated, nobody seems to understand how it worked. Accidental conspiracy suggests somehow illegality. Are you alleging there is illegality here or as matt lauer put it this morning on the inf legality . Im not a lawyer. I say in the book i think its more infuriating legality than illegality. I dont have any sense that anything that is happening is illegal. There are people who would argue with me about that but that wasnt the point of the point of the story was this really screwed up structure seems to be legal, much like the a lot of what happened with the subprime mortgage scandal seemed to be totally legal. Michael, one of the things i found kind of omitted a bit from the book was any culpability of the exchanges. I mean, they make money off High Frequency trading and all these different platforms out there, but you didnt really take them to task as much as the flash boys themselves. Why was that . Well, no, in fact, i dont think thats true in the book. Your colleague Andrew Ross Sorkin seems to say that today but thats totally unfounded. The heroes of the book, the flash boys, what do they engage in . Theyre engaged in building what they see as the one fair exchange. The one exchange which but im talking about the more established, the nyse, the nasdaq, the quote unquote, traditional exchanges. Right. I take your point, i take your point about and we are going to talk about that in just a few minutes, i take your point about the building of the new world exchange, that evens the Playing Field. But the more traditional exchanges that benefit from a High Frequency trader. Thats absolutely true. The book very clearly makes the point that there are several actors involved. I think of the High Frequency traders as just basically exploiting a system thats got these glitches in it. And that they found loopholes to jump through. You know, its sort of like, i dont know, blaming the lion for eating the antelope, that they do what they do. The problem is the opportunities they have been given and they have been given it in part because the exchanges have created this unequal Playing Field. The book makes that very clear. And they have been given it in part because the brokers are not handling the client orders in the best possible way. They are exposing the clients to the predator. So i think, you know, when youre laying out blame, theres a lot of blame to go around. Its true that i dont blame just the exchanges, but theres plenty about the exchanges in the book. So michael, let me ask you about speed. Is speed the villain here, per se . No, no, no. I think in fact, the computer is not the villain. The computerized trading has been good for the markets. Technology has brought vast benefits to every aspect of our society, right . The problem on wall street is that wall street has clawed back some of those benefits for itself, that its created a lot of unnecessary financial intermediation. Theres a lot of collisions between High Frequency traders and actual investors that shouldnt be happening, that dont need to happen. The markets are fragmented, really the fragmentation again seems accidental. The effect of it is sort of like enable wall street to keep buyer and seller apart rather than bring them together as they are meant to do. So you mentioned the legal frontrunning per se. If Mary Joe White from the s. E. C. Called you or the s. E. C. Reached out to you, which they may do, because your book has created quite a stir, we are all talking about it, everybody else on main street is talking about it, and you have alleged that the markets are rigged so if she called you, what would you advise her to do . How would the s. E. C. Be able to right the ship and make it a level Playing Field for the individual investor . Well, two answers. The first is it seems very unlikely they would call me. If they did, i would point them directly to the subject of the book, who went into the s. E. C. And tried to explain all this years ago. The s. E. C. Didnt have any particular interest in it so i dont know why they would have a particular interest in it now. But the charm of the story to me that im telling is that these characters, my flash boys, the people at the center of the story, they see that the markets have gotten rigged the way they are rigged, and they also see that they think that regulation is unlikely to cure the problem. The regulators are never going to keep up with wall street. And they build a marketbased solution. Its sort of like lets build the one fair exchange, lets essentially, what theyve done is create a war between investors, people whose money is being mishandled and the wall street firms that are mishandling it, and lets see if we can let the market solve the problem. Do you worry, though, by saying the markets are rigged and by laying out the story that you have, that the individual investor does not trust wall street anymore . Are you im sorry, are you really under the illusion that the individual investor trusts wall street now . Thats what i just said. What i just said was they dont trust wall street as it is. Does a book like the one that you have laid out keep them away from wall street forever . Would you recommend they play on wall street . Did i turn their mistrust into even deeper mistrust . Yes. You know, who am i to say. But you know, i think that the financial crisis probably wiped out any residue of trust people felt for wall street, if they felt it. So i kind of doubt i can contribute to that cause any more than wall street has done itself. The point of again, the point i think you are underestimating can i finish . I think you are underestimating your reach. Let me finish this. The point of the story is that people on wall street, good people on wall street, saw that the market was rigged and set out to do something about it. So actually, there is a possible wall street solution. My god, Goldman Sachs in the last couple weeks has come out and thrown their support behind these people because they see the markets screwed up and they dont want to be blamed for the calamity that might ensue. Michael, implicit in sues question was the question, should the little guy just not try to invest at all if the market is quote, rigged . No. So the market, whats happening is a kind of skim. People are getting scalped in the market. Wall street is capturing unnecessary sort of revenues. Its a tax. Unnecessary intermediation is going on that is effectively attacks on investment dollars. Do you not invest because, you know, do you stay out of the market entirely because you dont want to be scalped a bit . No. You dont. But that doesnt mean the scalping is okay. I think that the deeper problem is, and this is a question for people smarter than me, but the question is, is the question Goldman Sachs asks. To what degree does the system thats been built to enable the scalping, to what degree does that system have in it this incredible instability just to enable the scalping, the complexity of the system is breathtaking. I mean, the heroes of the story go out and they talk to the worlds biggest investors and the worlds biggest investors cant explain how the stock market works. Thats not a good sign. You know, so thats, you know, thats a bigger question. At what point is the system so unstable you would advise people to stay out of it . I dont think thats true, but i dont know. You know, im one mans opinion on that subject. Is this a function of decimalization, michael, or is much of it as one of my colleagues said, have the markets sold their souls for pennies or fractions of pennies . Im not completely sure i understand the question. But decimalization was made possible by technology, and its very nice that spreads have collapsed the way they have. Technology has enabled that. So i dont think thats not the problem. The problem is that the spreads arent actually the spreads. The problem is that every time you enter the market, the information of value of what youre doing, is being sold to High Frequency traders so they can exploit you. Now, they are exploiting you in a very subtle and insidious way. Its pennies per transaction but it adds up to billions a year and its totally unnecessary. It just shouldnt happen. All right. Michael, stay with us. We want to move on to bob pisani, who has joined me on post nine, and also with him is Brad Katsuyama of iex, a new Trading Platform who emerges as one of the heroes in the book. And bill obrien joins me, a proponent of High Frequency trading. But lets go back to may 6th of 2010, the day of the infamous flash crash. Everyone else is watching and these these big numbers and their confidence gets affected. They are pingponging back off each other. People are seeing this and those memories of fear are coming back. Doesnt make any sense. What the heck is going on down here . I dont know. All of a sudden we started hearing screaming buy, buy, buy. Right now were sitting down 875 points. We have now broken 10,000. The Dow Jones Industrial average dropped more than 900 points. The market didnt work. It broke down. The machines broke down. Fear came back into the market in a very big way. The general public has not been willing to get into this market. Well, we all lived through that crash, kind of made the hair on the back of my neck stand up. But brad, you are with us now. Did high speed trading cause that, and is the market and the system vulnerable to another sort of crash like that . I think dont think you pin the blame on high speed trading. I think the system overall has contributed to instability. I think the chance of Something Like that happening again is definitely there. A lot of the key issues that we saw at the time of the flash crash havent really been addressed partly because access to information is difficult. Its very hard for the regulators from their seats to turn around with the access to information that they have and come up with any kind of silver bullet. I do think that all the symptoms that caused that day, i think they are all still in place in the market today. Bill, you were shaking your head no during much of what michael was saying. And i think you probably disagree with some of what brad is saying. I know bob wants to weigh in on this more, but talk to me about your feelings about the book, whether or not you view the markets as rigged, and your opinion as to whether High Frequency trading contributes to the volatility weere seeing in the market right now. I have been shaking my head a lot the last 36 hours. First thing i would say, michael and brad, shame on both of you for falsely accusing literally thousands of people and possibly scaring millions of investors in an effort to promote a Business Model. Sue, its a very, very old tactic to try to build a business on the planks of fear, mistrust and accusation. This has certainly taken that to a new level. It reflects either an unwillingness a continued lack of understanding about how the market operates or just unwillingness to acknowledge it, because youre trying to launch a new business and you want to get volunteer platform. Let me try to weigh in here. You are very respected on the street. I have known you a little while. You are thought very highly of. Do you think the markets are rigged . I think its really hard to put a word on it. You said it in the book. Thats when i knew the markets were rigged. Its disgusting that you are trying to parse your words now. Okay . You cant say that you are quoted that way in the book. Okay. Lets walk through do you believe it or not . Because you said it. Let me walk you through an example. Its a yes or no question. Do you believe it or not . I believe the markets are rigged. Okay. There you go. I also think that you are part of the rigging. If you want to do this, lets do this. I really do. Lets walk through, he is talking about the technical operation of an exchange, right . When you look at an exchange or dark pool, the responsibility of that venue is to fairly price trades between slower participants and faster participants. Right . So you have some participants have microwave towers, some are colocated, some are not. They are trading over an internet connection, they are slower. You will never bridge the speed. The battle is not between fast and slow traders. In order for a disadvantage to happen, in order for someone to get scalped, fast and slow traders have to trade against each other. That trade happens on a market, okay . Its the markets responsibility or at least it should be the markets responsibility to fairly price trades between fast and slow traders. How does it do that . It does that with its understanding of the broader market. The information that the exchange is taking in to fairly price trades. My question to bill if he is launching these accusations im launching accusations. What market data do you use to price trades . We use the direct feeds and the sip in combination. I asked a question. Not what you use to route. What do you use to price trades in your matching engine on direct end . We use direct feeds. No. Yes, we do. You had a 300 page commercial, okay . Let me talk. Let me talk for a few minutes. You respond, then you respond. Then michael, i want you to weigh in. We will bring michael back in in a minute. The direct feeds you are talking about that you are claiming is a source of this vast inequity, okay, 96 of the volume executed on our system is by Customers Using those data products. That runs the gamut from retail Brokerage Firms and their advocates. You dont understand that the market has always had intermediaries since the beginning of Financial Markets at scale, there is going to be someone who at the time needs to be in the middle. They are using technology to manage the risks of providing that service to the market, and we help them and other types of brokers and investors use technology in a way thats consistent with their Business Model to manage their risks and the desires of their customers. Thats a good thing. Can i tell you why this is incorrect . This 96 you are referring to is the proprietary feeds. Right. That everybody has been arguing about. Theres a difference between a subscriber using a proprietary feed versus what the a pegged order, price order, price sliding, any time the exchange is responsible for pricing data you use the same data we do. Absolutely not. You use the sip. For those who dont know, what is that . What im saying is the exchanges view of the market is slower than that of some of their fastest participants. Their view of the market is slower. They are looking at a different price than the fastest traders. Therefore, some investors are at a disadvantage. In concert, when you allow colocation to occur, your ability to fairly price trades is diminished. You cant do it because you dont even know what the market is. Nasdaq uses direct feeds. Let me jump in, if i might, gentlemen. Can i finish . Just one second. Okay. We use direct feeds to price trades. We are not as fast as the fastest hfts. What we have done is slowed down hfts ability to react on our exchange which means if anyone in this room, if anyone at home, if a mutual fund or hedge fund gives an order to iex and its our responsibility to price it, hft they had the same hft customs we do only we say theyre providing a valuable service. They start ripping off the market. You want to be an exchange. You aspire to be an exchange. You have a model of how you want your exchange run. Do you think all the other exchanges models should be legislated out of business . No. Not at all. What do you feel should happen . To say that someone is not allowed to sell a microwave tower, i dont think that, again, its capitalism, right . I think to render a microwave tower irrelevant is what we are trying to do. Its not about Technology Legal versus illegal. Its about the market providing a solution. Just to respond to what bill just said, do we have computerized trading on our market, absolutely. I think the word High Frequency trading should be eliminated from the vocabulary. You used it 20 times in the book. Its not his book. It wasnt my book. You are quoting. Computerized trading and computerized scalping. People can trade with computers until the end of time. People use computers to scalp. They always look to game the markets. You cannot scalp trades. You cannot scalp orders that are on iex. Its not gaming the market. Im going to interrupt for a minute. I want to bring Michael Lewis back in. You who, me . Who, you. You have been very patient. I was kind of enjoying that. I could tell you were enjoying it and sometimes got a pained expression. I want you to react to what you just heard. Its great to see bill instantly throw at brad the idea that hes doing all this to promote a Business Model. He said that and also said shame on you. How do you react to that . Ill say it again. So i think hes outrageous. I think hes part of the problem. I think its not just brad. Theres an investor in philadelphia named rich gates who managed to get himself picked off on the Bats Exchange numerous time because the Bats Exchange didnt update prices fast enough. So this isnt just brad talking. But whats great is that like the story, i mean, so brad is now kind of cast as this troublemaker and im partly to blame for that, but this trouble found him. This is a guy who could be very happily being part of the problem. He was being paid lots of money to work at a big bank and be part of the problem if he wanted to be. He actually, hes actually here to solve a problem that is at the heart of capitalism right now, the unfairness in the public exchanges. And hes taken great risk to do it. Yeah, he will make some money if it works out, but the questioning of his motives is kind of incredible. I want to go back to this final point here before we go. Should we have hearings around this law, this regulation that came in in 2007 . I have been saying the s. E. C. Should conduct public hearings into what is working and what is not working. They havent done that yet. Would you support Something Like that . So look, this is what i think. The regulatory process always seems to generate something that ends up being gamed by smart people. What i love about this moment right now in market history is that you have this exchange that found a Market Solution to the problem and if people just get out of the way, the important thing as an investor is get more information about how their stock market orders are being handled. Thats a big problem. Are you an investor in brads exchange . No. No. Im just asking for full disclosure. Im being a journalist. Are you insane . No, im not. Im trying to do my job. I didnt even go looking to write a book about him. I was trying to figure out what the hell was going on in the stock market. Big investor after big investor said theres one guy who is an honest broker in all this, hes coming to explain how all this works and go talk to him, hes the only guy on wall street who can actually tell you the truth about how the stock market works. Youre not insane, sue. Thank you. Bats, direct edge didnt exist ten years ago. We became the biggest stock market at any given day by going to our customers, proving we had a Value Proposition and winning their business. We didnt do it by trying to scare people. I dont think its true and i dont think its right. What about bobs question about the s. E. C. Revisiting mns and the rule that really created the current Market Structure that we are now all kind of grappling with, for better or for worse . I applaud both of you for trying to do, you know, to run your businesses, but doing it to reexamine the Market Structure. I agree i do agree with michael, i think its time to do that. We actually called for a review of Market Structure for a couple of years, and Mary Joe White, chairman of the s. E. C. , and van gallagher made statements recently they are prioritizing that. Thats a good thing but it has don in a constructive way that listens to all market participants, dont view what theyre doing as inherently corrupt and focus on data, not misinformation and accusation. If michaels right and your model you think is a superior one, whats the phone calls looking like . Is your business picked up notably . You are a tiny slice of the market. We know that. Yeah, there has been thousands of calls. People have responded positively. Just back to the investor confidence, you have gone from 65 households owning equities to 52 over the last six years. Every year declining. The s p tripled since the lows in 2009. I dispute that. Michael lewis, did you talk to mr. Obrien as you reported your book, if so, what did he tell you, if not, why not, and what would you like to ask him right now . So first, this market confidence point, we will answer that question, the market confidence point is interesting because Goldman Sachs is now has now thrown its weight behind brad precisely because hold on, let me finish this. No, no. Let me finish. You used his investment in my exchange as a sign of corruption and his backing of his exchange is a sign of virtue. You didnt call me. Why is there a difference . The backing of me is bad and the backing of you is good. How is it different . Because they have invested the investors in our exchange dont trade on our exchange. Thats part of the problem, right . Bill, again, i say the skys blue, bill says the sky is red. Is it always like this on the show . This is insane. Let him finish. Then you respond. Bill is owned by int intermediaries. We are owned by hedge funds. It is one of these things where at the end of the day, what is the purpose of the market. Why are all the people in this room, right . They are here to help Companies Raise capital and help investors allocate that capital. Should you build a market specifically just for intermediaries, you shouldnt. We have the buy side behind this, not just goldman, morgan stanley, jpmorgan, you have computerized traders that arent coming here to scalp people and you have the general public behind the solution. What are we talking about here . The industry getting behind a solution. Thats exactly whats happening. Bill . Im all for people competing. We started from nothing ten years ago just like you are doing now, and thats fine. Youre right, the purpose of exchanges is to bring together buyers and sellers in a way that works for them. Michael, jump back in here. What were seeing, its not a zero sum game. Everybody can win. You dont need to build a market on the premise that one group is ripping another group off. Michael, go ahead. I missed most of that. I didnt hear it. I didnt actually hear the exchange. So i dont know what im jumping into. Sorry. I asked you earlier, did you speak to mr. Obrien no, no, no. So i visited bats, no, you did not. That is absolutely false. Thats not false. I toured it. I toured the place. That is untrue. What do you mean, untrue . I was there. Give me a date. What date . February 5th. What year . 2013. We will follow up with cnbc about where Michael Lewis was on february 5th, 2013. Were you in kansas city or new york . I was with brad when i visited. You were in kansas city on february 5th, 2013 . Thats where were located, by the way. No, no, no. I wanted to see where the High Frequency traders hooked up. You go to a data center, going to a data center and standing outside and saying you talked to us is not the same thing. Be honest with yourself. So the other thing, so the question was, there is actually no point in talking to somebody who is just throwing dust in the air. He wasnt actually the head of bats when the stuff i was describing occurred. I tried to get to dave cummings, one of the founders of bats, because i was curious why they positioned it outside the lincoln tunnel. Brad discovers that hes being frontrun from bats to other exchanges. Thats what gets him involved in this in the first place, in this kind of journey of discovery to figure out how this market works. So i was curious about they had intentionally put the exchange on the other side of the lincoln tunnel just so they can pick off orders. Stop manipulating the audience. Talking to an exemployee is not the same as saying you talked to us. So the person you werent even there at the time. So the person who just being dishonest. I wanted to talk to, wouldnt talk to me. You didnt try to contact anybody at bats, okay . The answer is no. You didnt try to contact any employee of bats. Your book is riddled with inaccuracies for that and many other reasons. Not true. Not true. You can get on air and shout all you want, but its just not true. You have a much bigger soap box than i do. To that point, bill im sorry. No, to that point, bill, he does have a very big platform which i mentioned earlier, and this book is getting an awful lot of media and an awful lot of press. And for better or for worse, it doesnt make some of the High Frequency exchanges look good. So how do you combat that . How do you clear the air . How do you forward the conversation, because once flash boys goes to the general public, which it is going to do shortly, and once you have as bob pisani said, the megaphone of 60 minutes it becomes a mainstream topic. How do you combat what is going to be a negative image for your company and for your industry . Lets start with the facts. I think David Kaminski put it really well a couple hours ago. 15 years ago, the spread between the best offer to buy and sell was 12 cents or 25 cents. Now its a penny. 15 years ago, what an Institutional Investor paid brad at rbc to execute his trade was six cents. Now its 90 to 95 less than that. A lot of people who really focus on the data which really doesnt exist in the book will understand the benefits of electronic trading generally, how its taken a lot of risk out of the system but that doesnt mean the markets perfect. Saying its not rigged and saying its perfect are not the same thing. We did need a wakeup call from the flash crash. We had not invested in the technology to make our Critical Infrastructure more resilient to manage the complexity and it is complex. But you know what, the internet is complex. A factory is complex. There are ways to manage that risk. We need to work very hard to do that. I think thats a very interesting point, when you say the market is not perfect. There are imperfections in the market. Brad, thats sometimes called an edge, right . Thats how hedge funds and Pension Funds and other Companies Make their money on the trade, right, on that edge, on that difference . Its about if youre providing a service, there is never going to be a market thats only natural buyers and natural sellers. Especially of very, very large shares. You are going to need an intermediary to help cushion the blow. That is a service. And you know what, its a service that people deserve to get paid for. They used to get paid for it by earning a quarter a share or charging six cents a share. Now they get it by earning a tenth or hundredth of cent a share. People dont need to rely on the Balance Sheets of Lehman Brothers anymore. They can use this technology to manage the risk. Brad, youre not against people who charge a penny for their services. People have been doing that for a long time. I dont want anyone to misrepresent your position. You are not saying that there is something wrong with he says he wants to build a market without intermediaries except for him. Were not even a broker. You are a broker. If you are you a broker dealer . Are you a broker dealer . Are you a broker dealer . Again, yes or no question. You are a broker dealer. Look it up. Let me just ask the question. We dont trade on our own market. You have a model that you think is better than other peoples models. Yes. You dont necessarily believe that everybody else should be banned, for example. No. You dont think if somebody wants to charge a penny to be provide some kind of liquidity computerized trading has delivered benefits to the market. No question about it. You believe your model is superior, you will win out. Yes. Just dont say everybody else is corrupt but you. We are not saying that, either. You said its rigged. Do you know what that means . Let me try to summarize why you trying to summarize the entire market in one word . Because you started 60 minutes with it . I started 60 minutes with it . Did i produce 60 minutes . What are we talking about here . A lot of concern is about the emotion thats been generated by the term rigged and the average person watching the show, i know my wife turned to me and said honey, is it safe to invest in the stock market. Its rigged. Im sure you didnt mean that, but are you willing to clarify the idea that it is safe to invest in the stock market because thats what a lot of people came away thinking you were saying. That was the question i asked in the beginning of the show. The book lays out the story very clearly. Go read the book. You decide whether its rigged. All right. Brad, do you worry, though, about the use of the word i asked that question of michael at the beginning of the show. You were quoted as saying in the book that the markets are rigged. He said it again here. You did say it again here. But the implications of that is worrisome to me. I take your point, i read the book, its a brilliant read, but are you worried that you are going to convince main street that they have no role in a rigged game . I think its exactly the opposite. People want to know the truth. So when the flash crash happens or facebook happens and people like bill show up on tv saying the market has never been better, blah, blah, blah, thats that is where people lose confidence in the market. People just sitting around talking that everythings fine. Everything is not fine. People want the truth. What Michael Lewis did is lit a torch, okay . Its the industrys job to light more torches and carry them forward. Whistleblowers have been calling us. Things are happening, right . All you want to do is provide the public with the truth. Everyone makes their own decisions. More information, better information, better decisions. Thats what its about. Its not about obfuscating or about tweeting b. S. This is just providing information to the public, let them make their choices. Thank you all very much. Im going to turn back to Michael Lewis for some final thoughts here. I guess one that pops into mind is do you invest in the stock market, if so, how and how after you did the reporting on this book has your attitude about those markets changed . So its funny, the subjects in the book when they learned how the market functioned actually withdrew their investments from the market. I have always been a boring and very conservative investor. I own index funds and not and i dont like time the market and i put it away and dont think about it very much. I think that the story of the book doesnt tell it doesnt follow from the story in the book that you flee the market. What follows from it is you try to fix the market. So you know, the point is not to incite panic, its to incite action, reform. Michael, let me ask you one further followup question. In thinking about High Frequency trading, is there anything that you think they do well that you applaud them for . Are prices lower than they might otherwise be because of the liquidity they supply . If you hear liquidity, please, im sorry, the word liquidity is so misused. Liquidity is not the same as volume. Youre not really providing liquidity if youre not taking market risk. So i think thats a canard. The great question, its not a question i can answer, i dont think its a question anybody can answer, is what portion of the hall of High Frequency trading is generated by essentially scalping activities and what is generated by just clever strategies that actually do a service to the market by bringing prices in line where they should be. I dont have an answer to that. I can tell you this, that when people go to sell speed to High Frequency traders, when exchanges sell speed to High Frequency traders, when spread networks, the story that opens the book, tries to sell speed to High Frequency traders, not all firms respond the same way to it. Some of them turn up their noses and say we actually are not speed is not that important to us because we are actually adding something, we are actually clever. Were not just like beating everybody else to the prey. So i think that obviously, some of this stuff is really very useful. Its just very hard to parse it and figure out which is useful and which is not. We are going to hear from senator wyden in just a minute, mr. Lewis, and i wonder, is there anyone in d. C. Who is on your side and why does congress seem so silent on this . First, this book has been out for 24 hours. I dont know who is on my side and who is not on my side. What i know is the fbi has launched an investigation since the book came out and the new York Attorney general seems very interested in the subject. I believe the fbi investigation was going on for awhile. They announced it. I dont know. Yeah. It was announced yesterday, right . So i cant tell you who is on my side and who is not. I dont really think of myself as having a side. I really would just like a clean and fair marketplace. On that note, michael, thank you so much for a lively conversation. Yes. Always a pleasure. Likewise. Thank you very much. All right. Gentlemen, thank you as well. To be continued. Obviously. Lets go to washington. Joining us now from capitol hill is senator ron wyden, democrat from oregon. Senator, you are chairman of the Senate Finance committee. Lets start with Michael Lewis comments in his new book flash boys saying the markets are rigged. Whats your reaction to it . First of all, i just parachuted in to the program about 45 seconds ago so i just you missed a good one, senator. I want to look at what hes writing about. Well, what hes writing about is the fact that in his book, he says that the stock market is rigged, that it is rigged because of High Frequency trading. Do you, one, agree with that. Two, what do you think washington should do about it, if anything and would you like to see the s. E. C. Change the regulations over wall street . Right now, im just going to dig into his book. I think it would just be sort of malpractice to shoot from the hip and make a variety of proclamations and i wont be part of that. Let me turn you to the other topic of the hour and that is your proposal which is i guess a bipartisan proposal along with senator hatch, to extend certain tax provisions that had expired at the end of last year. These provisions in some cases benefit specific industries, others are more broadly constructed, research and development credits, others more narrowly constructed. What are you doing here and why extend provisions that to many peoples view are really just Corporate Tax welfare . Heres where we are on taxes. First of all, right now all over america, americans are gnashing their teeth as they try to wade through all the various and sundry tax forms and they are particularly frustrated with the Business Community about the lack of predictability. What i have been interested in is really draining the swamp in comprehensive tax reform. I wrote, along with senator begich and senator coates and former senator gray the first bipartisan federal income tax reform in more than 30 years. The people up at money magazine looked at it and said you could do your taxes in Something Like 45 minutes as an individual. Now, what happened was back in november, the house said they were going to focus on obama care and then of course, these provisions you described have expired. If the congress was just to sit there and do nothing, we could make it even harder to create jobs. We wouldnt be able to promote innovation with research and development credit. We wouldnt be able to promote housing with the incentives for the low Income Housing developments. We wouldnt be able to get jobs in renewable energy. I thought it didnt make sense to let that happen. I just want to let the audience know that brad, who was in our panel just a short while ago, talking about High Frequency trading, he has set up an alternative exchange to go kind of around intermediaries in the market is getting quite a positive reception on the floor of the New York Stock Exchange. To our viewers, you may have heard the applause a short while ago. Senator, i urge you to go take a look at this interview because its going to land in your committee i think at some point or another. I will look at the interview and look at his book. Terrific. Thank you very much, senator. We appreciate it very much. Thanks for having me. Thank you. To the markets now. Once again, we have a gain in the dow of 47 points but Interest Rates have been on the move. Ricky, over to you. Thank you, sue. What a wonderful discussion that was. If you look at a two day and two days are the best, look at a two day of fives, kind of doing work in a soft yield fashion. If you look at 30s, kind of a different picture. So we see that going into adp, the first chapter of the two chapter jobs book, the markets are somewhat hanging in there. The Euro Currency getting ready for its big Debutante Ball on thursday with the ecb meeting, also fairly sideways but to note, we are still very close to a 1. 38 handle. Many believe you will see the curve steepen no matter what the number does tomorrow. Why . Because its mostly going to be determined by the long maturities. Back to you. Thank you very much, ricky. The health of obamacare. A lot of numbers being thrown around. The official state by state numbers stand at almost five million. The signup deadline has passed. Now what . We will tell you what you need to know and once again, brad on the floor of the New York Stock Exchange is getting kind of a heros reception at post nine. We will keep you posted. We will be all over this debate between High Frequency trading and the exchanges. Return on investment wall isnt a street. Isnt the only return im looking forward to. For some, every dollar is earned with sweat, sacrifice, courage. Which is why usaa is honored to help our members with everything from investing for retirement to saving for college. Our commitment to current and former military members and their families is without equal. 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As of now, the official state by state numbers stands at around five million, state numbers, that is. Keep in mind that some states have yet to update their data. Here with us isndy friedman, an acute observer of the washington scene. What can we say today about obamacare and whether it has met its goal or not . I think we dont know completely. The administration keeps focusing on how many people signed up but the real metric is how many Young Healthy people have signed up. Thats what you need to keep premiums low. To date, it appears the administration is lagging behind on the number of Young Healthy people, and that means we could have sticker shock in a year. But you know, the market has said basically through the prices of the Health Insurance stocks that its going well. Their prices have never been this high. Right. These Insurance Companies right now, theres a bailout provision in place for them. So if their profits are down, the government is going to bail them out for a few more years. Indeed, they could raise premiums as necessary in order to get over a hurdle. The question is whether people who bought the insurance are going to have sticker shock. When their premiums go up. If they go up. Exactly. When they have high deductibles and cant get covered, things like that. Lets spin it forward to the fall elections. The gop has said they still want to repeal obamacare. My feeling would be that once you establish, a, the subsidies in the act to taxpayers to buy insurance and b, people are comfortable maybe with the plans theyve got, that thats going to be very hard to carry the day. I think obamacare is here to stay. I dont think its going anyplace even if the republicans run the table in 2016. You think thats likely that they run the table . They may hold the house. I think they will win the house and i think they might win the senate on the basis of the moderates coming in to win the primaries. 2016 is too far. Depends on the republican candidate. I think obamacare is here to stay regardless. It will be like taking away Social Security at that point. I dont think it happens. Lets talk about the fall elections. The senate is really the question here. A lot of people felt that in 2012, certain republican candidates just didnt appeal. There were several disasters. Missouri was one, i believe indiana was another. Have they learned a lesson . I hope so. If you are a republican, you have to hope so. Right now, if you see who is coming in to run for the primaries, they are the more moderate republicans. New hampshire, colorado, thats a good thing if you are a republican. They may well have learned the lesson. Otherwise they wont attract independent votes. You just watched our debate on High Frequency trading. Is that the kind of issue that could get traction in congress . Could get a momentum behind it for meaningful reform, or not . Maybe. Is it just too complicated . Its too complicated for the election. Maybe congress looks at it but its not going to influence the average voter here. Not at all. Always great to see you. Thanks for coming by. Sue . We are going to move on to gm. The ceo getting ready to be grilled by Congress Minutes from now about that automakers safety problems. What should be her strategy . Marcus lemonis weighs in. He used to be a car dealer himself. We will get a sneak peek of tonights episode of the profit straight ahead. Ncial noe financial noise financial noise financial noise whoyour boss . Rk for . Yourself . Your parents . Your family . At baird, what matters most to you. Matters most to us. As an Employee Owned firm, our Financial Advisors have the freedom and resources to realize a plan to fit your familys unique needs. Well listen. Well talk. Well plan. Baird. At your ford dealer think . They think about tires. And what theyve been through lately. Polar vortexes, road construction, and gaping potholes. So with all that behind you, you might want to make sure youre safe and in control. Ford technicians are ready to find the right tires for your vehicle. Get up to 120 in mailin rebates on four select tires when you use the Ford Service Credit card at the big tire event. See what the ford experts think about your tires. At your ford dealer. Michael lewis saying the stock market is rigged by high speed traders on wall street. Do you agree . 56 say yes, its stacked against the instasmall investor. 11 say no, there are opportunities everywhere. 25 say it doesnt matter if you are a long term smaller investor. 8 say this is the reason i dont invest in the stock market. All right. Dont miss a new episode of the profit tonight at 10 00 p. M. Eastern and pacific right here on cnbc. Marcus lemonis joins us for a sneak peek next. There he is. 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Tell your doctor about all medical conditions and medications. Serious side effects could include increased risk of prostate cancer, worsening prostate symptoms, decreased sperm count, ankle, feet or body swelling, enlarged or painful breasts, problems breathing while sleeping and blood clots in the legs. Common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. Ask your doctor about axiron. Your chance to watch full seasons of tvs hottest shows for free with xfinity on demand. Theres romance, face slaps, whatever that is, pirates, helicopters, piratecopters. Argh hmm. Its so huge, its being broadcast on mars. Heroes. Bad guys. Asteroids. Available only on mars. Theres watching. Then theres watchathoning. Welcome back to power lunch. Im john harwood in washington. The White House Press secretary jay carney just walked into the Briefing Room and confirmed what was clear last night, that the enrollment in federal health care under the Affordable Care act reached seven million last night, which was the original goal that the Congressional Budget Office had set. That does not include big states like california and new york, which had their own exchanges. We expect to have those numbers by the time the president comes into the rose garden at 4 15 this afternoon. We will get more information then. Back to you. John harwood reporting. All new episode of the profit tonight, 10 00 on the east and west coast on cnbc. Lets take a sneak peek inside the not so sweet business of sweet petes candy shop in jacksonville. You are essentially telling me to give you a check because you failed. Because they are getting something you want yours, too. Are you asking for a handout . No, im asking for thats how it feels to me. You called me here today, you are asking me for 150,000. I hand you the opportunity to get up to 15 of equity, you dont want that. You want to basically just hang on for the ride and youre telling me that im supposed to pay you for all this work . I dont need you. Im not in support of what i agreed to verbally. Im just not. Youre not honoring your handshake. I am not. Ive got to say, the body language sometimes in these segments hes about to get blown up. That is really something. Its like the body language earlier on the hft. What are your reactions to that . Why do you think it got so heated . Any time theres a little sliver of larceny, people get animated. I like technology. I like the advantage of technology. But theres a set of rules that i want people to follow. People get that crazed about things, maybe theyre bending the rules a little bit. All right. That was your takeaway from that. Lets talk about General Motors. You have some interesting perspectives here as mary barra gets about ready in just a few minutes time to go up on the hill and talk about her companys reaction or response to the ignition issue and other recalls. What is your you have a couple layers deeper. Im happy that mary is doing what shes doing but i have two questions for everybody. The 6. 1 million vehicles that are owned by consumers, the value of those vehicles are dramatically impaired now. Subject to recall. Thats right. You try to trade one of those in today, they will be 20 , 30 less than today. I wouldnt have bought that car had i known about it. Thats issue number one. Number two is the banks that finance those vehicles didnt know that was out there. So they have a little more exposure. Are they going to have to take a charge. The last and probably most important to me is auto dealers who buy franchises based on the franchise value, they pay a multiple of earnings, five times, six times earnings of cash flow, are now dealt with a franchise that potentially is worthless. If i bought that franchise after bankruptcy and i thought General Motors was exempt from all these issues, im now dealing with the franchise that doesnt look so sweet anymore. Sue . So marcus, what does gm need to do separate of the testimony which incidentally, we will see live on street signs at about 2 15, 2 30 eastern time, what does gm need to do to reach out to main street to repair its image . So theres a couple things. One, i think they will have to take, at this point, a noncash charge. I know we are talking a little about theyre exempt from the bankruptcy issue. They need to take this charge and do whats right to put the consumers mind at ease and also to make sure the dealers are taken care of as well. If they dont, they are going to see a double digit decline in the next two quarters without a doubt. Its going to hurt them bad. Marcus, thanks very much. Well be watching tonight. The profit on cnbc at 10 00. 10 00. What did i say last time . 9 00. Im on central time. East and west coast tonight. Sue, we promised a very interesting hour and i think it has been a most interesting hour. We have barely given anybody an update on the markets. There you see the dow up 60. The s p higher by eight. High frequency or not, those are the trades as they stand right now. We will continue to follow what is a very controversial subject right here. We will make it our home on power lunch. Meantime, that will do it for us on a very special edition of power lunch. Street signs is up after a quick break. Mandy, what have you got . Sue just said it. We are totally not done with this big discussion that you just had. Its really fired up everyone on wall street on whether or not the market is rigged and whether or not hft should be outlawed. We will be going also live to capitol hill, where the gm Ceo Mary Barra will be testifying during our hour, before a Congressional Panel about the companys massive ignition switch recall. We also have a really big gm shareholder lined up for what he wants to hear out of him. So really big show coming up. Make sure you join us after this very quick break. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. My mom works at ge. My mom works at ge. Beautiful day in baltimore where most people probably know that geico could save them money on car insurance, right . You see the thing is geico, well, could help them save on boat insurance too. Hey okay. Im ready to come in now. Hello . Im trying my best. Seriously, im. Im serious. Request to come ashore. Geico. Saving people money on more than just car insurance. You stand behind what you say. Theres a saying around here, around here you dont make excuses. You make commitments. And when you cant live up to them, you own up, and make it right. Some people think the kind of accountability that thrives on so many streets in this country has gone missing in the places where its needed most. But i know youll still find it when you know where to look. You are looking at a live picture of capitol hill, where just in a few minutes from now, gms Ceo Mary Barra will testify before a Congressional Panel about the companys massive ignition switch recall. We are going to bring it to you here on street signs as soon as it begins. Before that, though, huge