- What is the cause of financial crisis?
- How did risk management fail?
- What do we need to know about the markets to avoid future crises?
- What are the best regulatory approaches?
- What is the future of hedge funds & innovative financial products?
Richard Bookstaber, Ph.D., in Economics: Wall Street insider and outspoken critic of many of today’s financial practices who predicted the current economic meltdown. Called “one of Wall Street’s ‘rocket scientists” by The New York Times…
Bookstaber was named to this year’s Conde Nast Portfolio list of top 25 technical innovators, joining the ranks of Steve Jobs, Jeff Bezos, Jeffrey Katzenberg and Eric Schmidt. He has testified in the House and Senate, calling for greater transparency and improved regulation for Wall Street long before it was fashionable.
Called “one of Wall Street’s ‘rocket scientists”, as he pinpointed the market weaknesses that spun out of control to create today’s financial crisis. A Demon of Our Own Design.
Bright sparks like Mr. Bookstaber ushered in a revolution that fuelled the boom in financial derivatives and Byzantine ‘structured products.’ The problem, he argues, is that this wizardry has made markets more crisis-prone, not less so. It has done this in two ways: by increasing complexity, and by forging tighter links between various markets and securities, making them dangerously interdependent.
Like many pessimistic observers, Richard Bookstaber thinks financial derivatives, Wall Street innovation and hedge funds will lead to a financial meltdown. What sets Mr. Bookstaber apart is that he has spent his career designing derivatives, working on Wall Street and running a hedge fund. – The Wall Street Journal
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. 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. – The New York Times
It is a clear exposition of what the combination of derivatives, leverage and hedge funds can do to the markets. In short, A Demon of our Own Design is a guide to the dangerous financial markets we have created for ourselves by the clever innovations of structured finance, derivatives, credit default swaps and other newfangled products that are a mystery to the ordinary investor and even plenty of the sophisticates in the investment business. To understand the demonic risks we’re taking. – Forbes.com
Did the mad scientists of Wall Street “blow up the lab” with their esoteric derivatives, or is the problem one of organization and incentives?
BOOKSTABER recently worked at Bridgewater Associates, the world’s largest hedge fund. He was in charge of risk management at Moore Capital Management, another hedge fund with over $10 billion in assets.
He served as the managing director in charge of firm-wide risk management at Salomon Brothers and was a member of Salomon’s powerful Risk Management Committee.
Bookstaber also spent ten years at Morgan Stanley, first designing and marketing derivative instruments, then as a proprietary trader, and concluding his tenure there as Morgan Stanley’s first market risk manager.
He is an author and scores of articles on finance topics ranging from option theory to risk management. He has won the Graham and Dodd Scroll and the Roger F. Murray Award.