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Demon of Our Own Design : Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber (2007, Hardcover)

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A Demon of Our Own Design. In the process of showing what we have done. - From the Dust-jacket. FIRST EDITION. New York: John Wiley & Sons, 2007. ISBN 978-0-471-22727-4.

About this product

Product Identifiers

PublisherWiley & Sons, Incorporated, John

ISBN-100471227277

ISBN-139780471227274

eBay Product ID (ePID)57182785

Product Key Features

Book TitleDemon of Our Own Design : Markets, Hedge Funds, and the Perils of Financial Innovation

Number of Pages288 Pages

LanguageEnglish

TopicFinance / General, Decision-Making & Problem Solving, Investments & Securities / Mutual Funds

Publication Year2007

GenreBusiness & Economics

AuthorRichard Bookstaber

FormatHardcover

Dimensions

Item Height1.1 in

Item Weight17.1 Oz

Item Length9.3 in

Item Width6.3 in

Additional Product Features

Intended AudienceTrade

LCCN2006-034368

Reviews"[Bookstaber is] a risk-management maven who's been on Wall Street for decades and is now a portfolio manager for a small hedge fund. Bookstaber's book shows us some complex strategies that very smart people followed to seemingly reduce risk--but that led to huge losses." ("Newsweek") "Mr. Bookstaber is one of Wall Street's 'rocket scientists'--mathematicians lured from academia to help create both complex financial instruments and new computer models for making investing decisions. In the book, he makes a simple point: The turmoil in the financial markets today comes less from changes in the economy--economic growth, for example, is half as volatile as it was 50 years ago--and more from some of the financial instruments (derivatives) that were designed to control risk." ("New York Times"), "He understands the inner workings of financial markets...A liberal sparkling of juicy stories from the trading floor... ( The Economist, April 21st 2007) "...smart book...Part memoir, part market forensics, the book gives an insider's view..." ( Bloomberg News, 30th April 2007) "...shines a light on what the future holds for a world where capital and power have moved from Wall Street". ( Actuary , June 2007) "The book covers a lot about risk management that is relevant to capital markets conditions today and the liquidity crisis." ( Financial Times , Saturday 25th August) "...an insider's guide to markets, hedge funds and the perils of financial innovation. We saw plenty of those in 2007." ( The Sunday Telegraph , Sunday 25th November 2007) "Richard Bookstaber's fine book on modern financial innovation". Financial Times Wednesday 17 June 2008 "...a unique perspective" (PEF, Volume 7/3, November 2008), "A risk-management maven who's been on Wall Street fordecades?Bookstaber's book shows us some complex strategiesthat very smart people followed to seemingly reduce risk?butthat led to huge losses." ( Newsweek ) "Mr. Bookstaber is one of Wall Street's 'rocketscientists'--mathematicians lured from academia to help create bothcomplex financial instruments and new computer models for makinginvesting decisions. In the book, he makes a simple point: Theturmoil in the financial markets today comes less from changes inthe economy--economic growth, for example, is half as volatile asit was 50 years ago--and more from some of the financialinstruments (derivatives) that were designed to control risk."( The New York Times ) "Bright sparks like Mr Bookstaber ushered in a revolution thatfuelled the boom in financial derivatives and Byzantine 'structuredproducts.' The problem, he argues, is that this wizardry has mademarkets more crisis-prone, not less so. It has done this in twoways: by increasing complexity, and by forging tighter linksbetween various markets and securities, making them dangerouslyinterdependent." ( The Economist ) "He understands the inner workings of financial markets...Aliberal sparkling of juicy stories from the trading floor..."( The Economist ) "?smart book?Part memoir, part market forensics, thebook gives an insider's view?" ( Bloomberg News ) "Like many pessimistic observers, Richard Bookstaber thinksfinancial derivatives, Wall Street innovation and hedge funds willlead to a financial meltdown. What sets Mr. Bookstaber apart isthat he has spent his career designing derivatives, working on WallStreet and running a hedge fund." ( The Wall StreetJournal ) "Every so often [a book] pops out of the pile with somethingoriginal to say, or an original way of saying it. RichardBookstaber, in A Demon of Our Own Design: Markets, Hedge Funds,and the Perils of Financial Innovation , accomplishes both ofthese rare feats." ( Fortune ) "a must-read amidst the current market chaos"( BusinessWeek.com ) "Bookstaber is a former academic who went on to head riskmanagement for Morgan Stanley and now runs a large hedge fund. Heknows the subject and has written a lucid and readable book. To hisaid he calls mathematics (from Bertrand Russell to Godel'stheorem); physics (particularly Heisenberg's uncertaintyprinciple); and even -- meteorology." ( Financial Times ) "The book covers a lot about risk management that is relevant tocapital markets conditions today and the liquidity crisis."( Financial Times , Saturday 25th August) "...an insider's guide to markets, hedge funds and the perils offinancial innovation. We saw plenty of those in 2007." ( The Sunday Telegraph , Sunday 25th November 2007) "I cannot recommend this book too highly. It is a clearexposition of what the combination of derivatives, leverage andhedge funds can do to the markets. In short, A Demon of our Own Design is a guide to thedangerous financial markets we have created for ourselves by theclever innovations of structured finance, derivatives, creditdefault swaps and other newfangled products that are a mystery tothe ordinary investor and even plenty of the sophisticates in theinvestment business. To understand the demonic risks we're taking,read this book."-- Forbes.com

TitleLeadingA

Dewey Edition22

Dewey Decimal332.64524

Table Of ContentPreface ix Acknowledgments xvii About the Author xix CHAPTER 1 ~ Introduction: The Paradox of Market Risk 1 CHAPTER 2 ~ The Demons of '87 7 CHAPTER 3 ~ A New Sheriff in Town 33 CHAPTER 4 ~ How Salomon Rolled the Dice and Lost 51 CHAPTER 5 ~ They Bought Salomon, Then They Killed It 77 CHAPTER 6 ~ Long-Term Capital Management Rides the Leverage Cycle to Hell 97 CHAPTER 7 ~ Colossus 125 CHAPTER 8 ~ Complexity, Tight Coupling, and Normal Accidents 143 CHAPTER 9 ~ The Brave New World of Hedge Funds 165 CHAPTER 10 ~ Cockroaches and Hedge Funds 207 CHAPTER 11 ~ Hedge Fund Existential 243 Conclusion: Built to Crash? 255 Notes 261 Index 273

SynopsisPraise for A Demon of Our Own Design "This book is powerful stuff. When the hero of the story is a cockroach, you are assured of a controversial, illuminating, and fascinating discovery of where the financial risks really lurk and how to avoid them. Bookstaber knows whereof he speaks: I have read every word of his sophisticated essays on why market crises are inevitable, why investors are their own worst enemies, and how regulators should keep out of their way." --Peter L. Bernstein, author of Against the Gods: The Remarkable Story of Risk "Are you ready for the real deal? An insider, everysider view of the Wall Street calamities that have kept investing tantalizingly hot and frighteningly volatile since the crash of 87. For an in-depth, curtains-open, and coolly written exposition of Wall Street, Bookstaber is my man." --Mark Rubinstein, Professor of Finance, UC Berkeley "Exactly WHY do markets misbehave? Rick Bookstaber draws on his extensive knowledge of todays complex financial markets to set forth many of the reasons endogenous risk is so large AND so ominous. He understands one of the most sobering aspects of this risk: its sources are far too complex to be meaningfully assessed. This gives lie to current regulatory bromides that everything will be OK provided that we better assess and manage risk, for the risks that matter most are non-assessable!" --H. "Woody" Brock, President, Strategic Economic Decisions, Inc. "Rick Bookstaber was at the nexus of many of the financial crises of the past twenty-five years. His recollections and smart analyses of markets, meltdowns, and the people who caused them make for a genuine thriller." --Emanuel Derman, author of My Life as a Quant, Inside markets, innovation, and risk Why do markets keep crashing and why are financial crisesgreater than ever before? As the risk manager to some of theleading firms on Wall Street?from Morgan Stanley to Salomonand Citigroup?and a member of some of the world?slargest hedge funds, from Moore Capital to Ziff Brothers andFrontPoint Partners, Rick Bookstaber has seen the ghost inside themachine and vividly shows us a world that is even riskier than wethink. The very things done to make markets safer, have, in fact,created a world that is far more dangerous. From the 1987 crash toCitigroup closing the Salomon Arb unit, from staggering losses atUBS to the demise of Long-Term Capital Management, Bookstaber givesreaders a front row seat to the management decisions made by someof the most powerful financial figures in the world that led tocatastrophe, and describes the impact of his own activities onmarkets and market crashes. Much of the innovation of the last 30years has wreaked havoc on the markets and cost trillions ofdollars. A Demon of Our Own Design tells the story ofman?s attempt to manage market risk and what it has wrought.In the process of showing what we have done, Bookstaber shines alight on what the future holds for a world where capital and powerhave moved from Wall Street institutions to elite and highlyleveraged hedge funds., 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., Why do markets keep crashing and why are financial crises worse than ever? As a leading Wall Street risk manager, Rick Bookstaber has seen the ghost inside the machine and vividly shows us a world that is even riskier than we think.

LC Classification NumberHG4530.B66 2007