By Richard Bookstaber
Inside markets, innovation, and risk
Why do markets maintain crashing and why are monetary crises more than ever prior to? because the hazard supervisor to a few of the major companies on Wall Street–from Morgan Stanley to Salomon and Citigroup–and a member of a few of the world’s biggest hedge money, from Moore Capital to Ziff Brothers and FrontPoint companions, Rick Bookstaber has obvious the ghost contained in the computer and vividly indicates us an international that's even riskier than we expect. The very issues performed to make markets more secure, have, actually, created a global that's way more risky. From the 1987 crash to Citigroup final the Salomon Arb unit, from wonderful losses at UBS to the dying of long term Capital administration, Bookstaber supplies readers a entrance row seat to the administration judgements made by means of one of the most robust monetary figures on the planet that resulted in disaster, and describes the influence of his personal actions on markets and industry crashes. a lot of the innovation of the final 30 years has wreaked havoc at the markets and value trillions of bucks. A Demon of Our personal Design tells the tale of man’s try to deal with industry probability and what it has wrought. within the means of displaying what we've got performed, Bookstaber shines a mild on what the long run holds for a global the place capital and tool have moved from Wall road associations to elite and hugely leveraged hedge cash.
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Extra info for A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
In two or three years every firm had the name of every investor on one of its salespeople’s Rolodexes. Corporate bond salesmen became the trading floor’s version of used car salesmen. The M&A rush lifted their status. qxd 7/13/07 2:42 PM Page 35 A NEW SHERIFF IN TOWN prime movers of finance. At Morgan Stanley the fixed income traders were a self-satisfied group with the air of kids who had been picked by the winning team at recess. In their late twenties and early thirties, as self-important as they were clueless, most of them wondered how they had ended up in so lofty a position and took any cue for how they should behave.
The problem was that the traders in the S&P pit are mostly market makers, jammed together gesticulating and shouting out orders in hopes of scalping a few ticks. They thrive because of their quick reactions to the market and their speed of execution. By contrast, equity investors of the day who frequented the NYSE were not particularly focused on speed of execution, nor were they concerned with the minute-by-minute movement of the market. As the futures traders reacted to the market and the cash-futures arbitrage traders transmitted that activity to the NYSE floor, the flow hit a wall.
On a normal day, this overhang would be evident ahead of time. LOR advocated what is called “sunshine trading,” where it would preannounce its intended trades. Hayne Leland argued that announcing the trades ahead of time provided better liquidity in two ways. First, market makers would know what to expect and could position accordingly. And second, when the trades came into the market, everyone would know that they were purely liquidity based and that there was no other information behind the trades that could catch the market maker by surprise.
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber