A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by: Richard Bookstaber
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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.
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.
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Customer Reviews
Average Rating:
Rating: 
- Are Demons Inevitable?
The author is a Wall Street insider with much experience in investment banking risk assessment and hedge fund investment strategy.His anecdotes from his Wall Street associations are very entertaining and provide a view to the outsider of the internal workings of some of these investment firms.
His principal argument is that we've created these extremely complex financial instruments (demons) and as a result can expect to receive awitch's brew of unexpected results.Many of which ... Read More
Rating: - For risk managers, heads of financial institutions and govt watchdogs, though it still wont help at all
I am obliged to commend that the author had given anexhaustive account of the major financial turmoils of the last two decades before the great awakening starting 2007. What differentiates this from Liar's Poker, Fiasco, Devil Take the Hindmost, Eyewitness to Wall Street, "Traders, Guns and Money" etc is its quant and risk manager perspective below the strong pessimissm advocating that the complexity and tight coupling of contemporary financial innovations make financial catatrophes inevitable. ... Read More
Rating: 
- An Amazing Book
This is a remarkable and riveting book.The writing is fluid and engaging.The ideas ... well, if you are addicted to ideas and connections you will not be able to put it down.
The general theme is complexity (of the financial markets, but also operating a nuclear power plant etc.), tight coupling (pool shots are tightly coupled) and the inevitable consequences of system that have both characteristics.The people and the internal politics are all there (struggles for power at Citicorp). ... Read More
Rating: - Excellent overview of a financial system on steroids.
If you want to know how the most evolved financial system can unravel so quickly,this is a must read. The author has extensive experience with the financial markets and unravels the mysteries of what can and did go wrong.The book is all the more compelling in that it was written before the latest meltdown.
Rating: - Inconcevience with doubling transport costs with next orders
With my first purchase, I was really impressed by your prompt and efficient service to a far-distant country. However, my next transactions with the Amazon (Atwood: "Payback..."; @ "Globality...") ordered afterwards brought some mixed impressions.
These two items, ordered by the same client on identical address, have two packaging @ transportation services to be paid separately (i.e., twice).
It would be logical and convenient to suggest to the client that such transactionscould easily be ... Read More
- Are Demons Inevitable?The author is a Wall Street insider with much experience in investment banking risk assessment and hedge fund investment strategy.His anecdotes from his Wall Street associations are very entertaining and provide a view to the outsider of the internal workings of some of these investment firms.
His principal argument is that we've created these extremely complex financial instruments (demons) and as a result can expect to receive awitch's brew of unexpected results.Many of which ... Read More
- For risk managers, heads of financial institutions and govt watchdogs, though it still wont help at allI am obliged to commend that the author had given anexhaustive account of the major financial turmoils of the last two decades before the great awakening starting 2007. What differentiates this from Liar's Poker, Fiasco, Devil Take the Hindmost, Eyewitness to Wall Street, "Traders, Guns and Money" etc is its quant and risk manager perspective below the strong pessimissm advocating that the complexity and tight coupling of contemporary financial innovations make financial catatrophes inevitable. ... Read More
- An Amazing BookThis is a remarkable and riveting book.The writing is fluid and engaging.The ideas ... well, if you are addicted to ideas and connections you will not be able to put it down.
The general theme is complexity (of the financial markets, but also operating a nuclear power plant etc.), tight coupling (pool shots are tightly coupled) and the inevitable consequences of system that have both characteristics.The people and the internal politics are all there (struggles for power at Citicorp). ... Read More
- Excellent overview of a financial system on steroids.If you want to know how the most evolved financial system can unravel so quickly,this is a must read. The author has extensive experience with the financial markets and unravels the mysteries of what can and did go wrong.The book is all the more compelling in that it was written before the latest meltdown.
- Inconcevience with doubling transport costs with next ordersWith my first purchase, I was really impressed by your prompt and efficient service to a far-distant country. However, my next transactions with the Amazon (Atwood: "Payback..."; @ "Globality...") ordered afterwards brought some mixed impressions.
These two items, ordered by the same client on identical address, have two packaging @ transportation services to be paid separately (i.e., twice).
It would be logical and convenient to suggest to the client that such transactionscould easily be ... Read More
