Inside markets, innovation, and risk
Why do markets keep crashing and why are financial crises greater than ever before? As the risk manager to some of the leading firms on Wall Street–from Morgan Stanley to Salomon and Citigroup–and a member of some of the world’s largest Continue
Inside markets, innovation, and risk
Why do markets keep crashing and why are financial crises greater than ever before? As the risk manager to some of the leading firms on Wall Street–from Morgan Stanley to Salomon and Citigroup–and a member of some of the world’s largest hedge funds, from Moore Capital to Ziff Brothers and FrontPoint Partners, Rick Bookstaber has seen the ghost inside the machine and vividly shows us a world that is even riskier than we think. The very things done to make markets safer, have, in fact, created a world that is far more dangerous. From the 1987 crash to Citigroup closing the Salomon Arb unit, from staggering losses at UBS to the demise of Long-Term Capital Management, Bookstaber gives readers a front row seat to the management decisions made by some of the most powerful financial figures in the world that led to catastrophe, and describes the impact of his own activities on markets and market crashes. Much of the innovation of the last 30 years has wreaked havoc on the markets and cost trillions of dollars. A Demon of Our Own Design tells the story of man’s attempt to manage market risk and what it has wrought. In the process of showing what we have done, Bookstaber shines a light on what the future holds for a world where capital and power have moved from Wall Street institutions to elite and highly leveraged hedge funds.
Richard Bookstaber, PhD (New York, NY) runs a hedge fund at FrontPoint Partners. Prior to this, he was Director of Risk Management at Moore Capital Management, one of the largest hedge funds in the world, and also served in that role at Ziff Brothers Investments. He served as Managing Director in charge of firm-wide risk management at Salomon Brothers and also served on that firm’s powerful Risk Management Committee. Mr. Bookstaber spent 10 years at Morgan Stanley in quantitative research and as a proprietary trader, concluding his tenure there as Morgan Stanley’s first market risk manager. He is the author of three books and scores of articles on finance topics ranging from options theory to risk management. Bookstaber received a PhD in economics from MIT.
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elitie 
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Richard Bookstaber has a little different background from most other arthors whose books i've read. He came from an academic background but joined wallstreet as a risk manager. The book is full of his anecdotal accounts from work, as well as theories from the academia.
The first half he details ... (continue)
Richard Bookstaber has a little different background from most other arthors whose books i've read. He came from an academic background but joined wallstreet as a risk manager. The book is full of his anecdotal accounts from work, as well as theories from the academia.
The first half he details the events leading to various market crashes and scandals (eg. Salomon and LTCM), intermittently with his personal experience during the events. He moves on the stories as salomon was incorporated into travelers and later citigroup.
The latter half of the book focuses more on why the market has become so complex, and it is essentially this complexity and tight coupling of the market that leads to the overall increase in risk of the mareket, which causes each next crash to be bigger than the ones before. There are several interesting thing I have found to be very interesting. first, he believes that contrary to popular belief, regulating or raising the transparency of hedge funds will not help the future of the market since hedge funds are esstentially made of every single possible investment strategies known to men. as transparency of their position increases, so do their attempts to hide/take advantage of it. he believes to decrease the complexity of the market is the key. Another thing he has noted is that despite his background in quantitative trading, he believes accounting can contribute much more than it is now, as the current accounting method is based on tangible assets for corporations of the last century instead of intangible assets which are what make modern companies valuable. instead of valuations, he hopes companies can release data such as training expense per employee, customer retentation rate for investors to use. an easier more correct valuation method can certainly keep the market more steady.
Overall, this was quite an amazing read.
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