Book Review: A Demon of Our Own Design (Bookstaber)
| Aug 22nd, 2007 | Filed under: Hedge Fund Regulation, Institutional Investing | By: Alpha Male |
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Great news everyone! After decades of waiting, we finally know who caused the Crash of ‘87. It was Richard Bookstaber, then a trader at Morgan Stanley and now a hedge fund manager and author of a new book Demons of Our Own Design. Even better, he takes the blame for the LTCM debacle (sort of). Bookstaber reveals all on page one of his book:
While it is not strictly true that I caused the two great financial crises of the last twentieth century – the 1987 stock market crash and the Long Term Capital Management (LTCM) debacle 11 years later – let’s just say I was in the vicinity. If Wall Street is the economy’s powerhouse, I was definitely one of the guys fiddling with the controls.
The book’s publisher describes the page-turner as:
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 activities on markets and market crashes
But A Demon of Our Own Design is really three books in one. The first 140 pages read like a Wall Street tell-all book containing detailed and colourful account of meetings in oak-paneled offices concerning gargantuan sums of money.
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[...] In his book “A Demon of Our Own Design†Richard Bookstaber describes how the breakdown of basic market physics during Black Monday meant that “all stocks moved together” (see related posting): “The huge volatility of the market broke down all but the most fundamental relationships between markets and securities. The usual day-to-day world where investors cared about subtleties like corporate earnings or analysts’ forecasts dissolved as the energy of the market was turned up. All stocks moved together; if it was a stock, it was soldit was like plasma physics: as matter becomes hotter, it becomes less differentiated. The forces that bond atoms together in the form of molecules are overwhelmed, so that rather than having a myriad of different substances, we have the elemental building blocks of the atoms. Turn up the heat even more and the atoms themselves are melded into plasma, positively charged ions and negatively charged free electrons; matter in its most uniform and non-differentiated state, no longer hydrogen atoms and oxygen atoms, just a seething white-hot blur of matter.” [...]