A Demon Of Our Own Design

[Dogpile 10]

For those who enjoyed 'When Genius Failed' -- the book about LTCM -- this book will be of great interest.

 

The author, Richard Bookstaber, is actually the author that I had to read when I was going through the CFA (Chartered Financial Analyst) program -- he wrote chapters on 'risk management' that were required reading in order to pass the Level 3 exam and earn the Charter. He is very well qualified to speak on this subject and this topic is extremely pertinent to what is going on in the fixed-income market currently.

 

The basic theme of the book is that financial market accidents need not be related to actual serious economic problems. The 'structure' of the market itself is set up to spiral out of control at times.

 

His concluding paragraph is entitled "Built To Crash?"

 

[due to innovation in the derivatives market] "when a market dislocation arises, it is difficult to know how the prices of these instruments will react. Innovation and mechanical efficiency have also increased complexity by pushing markets to become more interconnected... The combination of tight coupling and complexity is a formula for normal accidents.... In all of these cases disaster was triggered by simple and apparently innocent actions that initiated a chain of compounding problems because of the complex nature of the system..."

 

"as we have seen time and time again, in the instances where it really matters the liquidity that is supposed to justify the [increased] leverage will disappear with a resulting spiral into crisis."

 

end quote

 

Look how this fixed-income market is acting. Look how the broker stocks are acting. Does this look eerily similar to you?

 

http://bp3.blogger.com/_5h-SWVGx6Ms/RrXwMevXbEI/AAAAAAAAAXQ/g3Io4oRrnRM/s1600-h/LEH+1998+vs+BSC+2007.png

[james_gsx 16]

Looks very interesting, do you have a link to the book about LTCM? I would love to read a book about that.

[Soultrader 12]

Looks very interesting, do you have a link to the book about LTCM? I would love to read a book about that.

 

Got an interesting documentary about LTCM for you

 

 

CLICK HERE TO DOWNLOAD DOCUMENTARY

[darthtrader 10]

that LTCM doc was fantastic. I expected at the start for Merton and Scholes to not want any part of it like I guess Meriwether did not, heh.

 

james_gsx, there are two LTCM books, When Genious Failed and Inventing Money. I read then both awhile back as the local library here had them. I think When Genious Failed is more popular. I don't remember much difference between them but its such a great story that I bothered to read the second book just incase. I dont remember what I read first. Just search Amazon for LTCM.

 

There is also a Fischer Black bio that looks really interesting but I've never read it, just browsed it at Borders.

 

Here is also an hour long interview with Richard Bookstaber who wrote Demon of Our Own Design:

http://www.netcastdaily.com/broadcast/fsn2007-0721-2.mp3

[Soultrader 12]

that LTCM doc was fantastic. I expected at the start for Merton and Scholes to not want any part of it like I guess Meriwether did not, heh.

 

james_gsx, there are two LTCM books, When Genious Failed and Inventing Money. I read then both awhile back as the local library here had them. I think When Genious Failed is more popular. I don't remember much difference between them but its such a great story that I bothered to read the second book just incase. I dont remember what I read first. Just search Amazon for LTCM.

 

There is also a Fischer Black bio that looks really interesting but I've never read it, just browsed it at Borders.

 

Here is also an hour long interview with Richard Bookstaber who wrote Demon of Our Own Design:

http://www.netcastdaily.com/broadcast/fsn2007-0721-2.mp3

 

Thank you very much. That was a great interview.

[Soultrader 12]

I actually dropped by the local bookstore and found this book. Purchased it instantly and it has been quite fascinating so far. Sort of like Liars Poker in a more academic way. Ill post some more comments on it once Im done. Thanks for the book review... I am glad I got a hold of this book.

[Dogpile 10]

you can interact with Bookstaber here by the way:

 

http://rick.bookstaber.com/

 

he also wrote an article for time magazine recently:

 

http://www.time.com/time/business/article/0,8599,1653556,00.html

[PYenner 10]

Amazing video.

A fund of that size has no exit strategy because exit is self-destruction.

There is more in Heaven and Earth Horatio, than is dreamed of in your philosophy.

[PYenner 10]

The talk abruptly switched from the assets they were holding to the liabilities they were holding.

 

Could the big money find a counterparty to allow them to exit the forex market, or is it also dependent on nothing major ever going wrong?

[james_gsx 16]

James, the documentary link doesn't work anymore and I'd like to see it again. Do you by chance still have it?

[Soultrader 12]

Here ya go James: CLICK HERE TO DOWNLOAD

[Dogpile 10]

http://rick.bookstaber.com/