"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
It's Wall Street's most painful paradox. Investors are moresophisticated than ever, are enabled by unprecedented technology,and protected by more government oversight and regulation than atany other time in history. Yet Wall Street is becoming a riskierand riskier place. Crashes and catastrophic losses seemcommonplace. Hedge funds wreck on the financial shoals with adisturbingly familiar pattern. Worse, today's financial crises donot arise from economic instability or acts of nature, but from thevery design of the financial markets themselves.
In A Demon of Our Own Design, Richard Bookstaber paints a vividpicture of a financial world that is ever edging toward disaster.As a hedge fund 'rocket scientist,' Bookstaber provides aninsider's perspective to the tumultuous management decisions madeby some of the world's most powerful financial figures from WarrenBuffett to Sandy Weill to John Meriwether,as well as recounting hisown contribution to market calamities. He designed some of thecomplex options and derivatives that, combined with theglobalization of the world's markets and the ever-increasing speedof transactions, allow markets to slide out of control. And heexplains why the best efforts of institutions on the front lines tocreate safeguards, manage risk, and regulate the markets may end upcontributing to instability. Bookstaber argues that many of thefinancial innovations and regulations that are supposed to levelthe playing field instead make the markets more dangerous for allthe players, big and small.
Drawing on his intimate knowledge of such infamous disasters asthe 1987 Crash and the demise of Long-Term Capital Management,Bookstaber identifies the key areas that make markets vulnerable:liquidity that begets greater leverage; innovation that createsgreater complexity; and a structure that demands a nonhuman levelof rationality. The twofold solution he suggestsreducingcomplexity and breaking the tight coupling oftransactionsgoes against the prevailing winds of Wall Street,but will lead to a more robust and survivable market.