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A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation | 
| Author: Richard Bookstaber
Publisher: Wiley
Category: Book
List Price: $27.95
Buy New: $15.54
You Save: $12.41 (44%)
New (38) Used (18) from $14.81
Avg. Customer Rating:  40 reviews
Sales Rank: 2755
Media: Hardcover
Number Of Items: 1
Pages: 288
Shipping Weight (lbs): 1
Dimensions (in): 9.5 x 6.2 x 1.1
ISBN: 0471227277
Dewey Decimal Number: 332.64524
EAN: 9780471227274
ASIN: 0471227277
Publication Date: April 6, 2007
Availability: Usually ships in 1-2 business days
Shipping: International shipping available
Condition: Brand New, Perfect Condition, Please allow 4-14 business days for delivery. 100% Money Back Guarantee, Over 1,000,000 customers served.
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Product Description
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: Read 35 more reviews...
 An excellent Book April 22, 2008
1 out of 3 found this review helpful
This is an excellent book for understanding the nature of and pitfalls in financial innovation. It is the first coherent account of I have read of the nature, the purpose, and the inherent risks of hedge funds. Anyone risking their money in financial markets should read it.
 Good read? Yes. Practical? No April 19, 2008
1 out of 2 found this review helpful
This book will be a great read if you want to know someone's way into the Wall Street's biggest companies and his experiences working in those companies, but you will not find anywhere in the book practical recommendations on how to manage risk of a fund. The author says that he was behind the October 1987 crash, because it's him who started the program trading at Morgan Stanley and then other firms started doing the same thing. By accumulating the hedge from the short side in S&P 500 futures they caused a crash. It sounds to me like Dr. Richard Bookstaber is proud that he was the one who was somehow connected to the crash of 1987. The most interesting part of the book was about Bookstaber's career at Salomon Brothers. The chapters about Salomon's arbitrage team in Japan are exciting. Rob Stavis and Andy Fisher brought a lot of dough to the firm and then left it. The money making technique is explained in the book as well, but then again, how did they manage the risk when they got into troubles? The trade of 1993 by Larry Hilibrand at Salomon is an amazing example of the real TRADER, someone who doesn't fear the risk and in the end takes it all. The position was in a loss of 300 millions dollars and ended up with a nice 1 billion $ profit for the company. But again, no strict money management rules were mentioned here. It was the board of directors of Salomon that let Hilibrand stick to the position and even increase it, why Dr. Bookstaber, the company's risk manager, didn't manage the situation remains unclear to me. The chapters of Complexity, Tight Coupling, and Normal Accidents contain too much explanation of the workings of a nuclear plant. Why a trader needs to know that? Why couldn't you simply bring examples instead of going into details like: " The operators resorted to what is termed high pressure injection to force cool water into the core. This raised issues of its own, as the sudden injection of cold water into the superheated core could crack the structure." (Page 150). Why do you think it's important for a reader to know the details of a nuclear plant structure and its functionality? The most boring part would be "Liquidity in Three Easy Lessons". Here you'd read something like:" The implications of primogeniture were most evident in the social organization of the countryside" (Page 216). Why should someone who is reading a book on risk management and trading read about countryside of medieval England? Eventually Bookstaber - Langsam paper "On The Optimality of Coarse Behavior Rules" was interesting and you could learn some surviving principles from this chapter. In the end of the book the author talks about reducing the complexity of the financial instrument and minimizing leverage as a way to prevent the crashes and make the markets robust. I doubt that reducing the leverage will help the markets become more robust, reduced complexity could do that. Is it a good read? Yes. Is it a practical book? No.
Fine -- but how do you simply impose simpler finacial systems April 8, 2008
2 out of 6 found this review helpful
The main point of this book is that as long as we have growing complexity in financial markets we are always going to have "accidents". Complex new rules and laws are not the answer, because "... trying to regulate a market entangled in complexity can lead to unintended consequences new safeguards add more complexity." On the final page Mr. Bookstaber recommends a solution to this problem: "... simpler financial instruments and less leverage will create a market that is more robust and survivable." And the book ends there. The author does not go on to discuss the inevitable problems implementation of his idea would encounter. How do you enforce the use of simpler financial instrument in a free market? Would not laws and rules written to require the use of simpler financial instruments and on the other hand forbid the use of those that are "too complex" become too complex themselves? Look at the results of our efforts to simplify our tax code. The question of how do we actually create the desirable coarse response mechanism of the cockroach in society of non-cockroaches is not addressed.
But the author deserves four stars for great job of describing the problem.
Excellent February 21, 2008
1 out of 6 found this review helpful
The style the author employs of mixing history with academic theories makes for an enjoyable read and unique perspective. This book does well in explaining the many complex relationships between securities in a way that makes them seem intuitive. While the early chapters are a great history lesson for anyone who dares venture into the high stakes world of derivatives, the later chapters offer a deeper intellectual dissertation on theories in pure mathematics, physics and other disciplines that offer unique perspectives when applied to the functions of markets and the interrelations between asset classes. I highly recommend this book to anyone who wishes to gain a deeper understanding of the processes that lay underneath the hood of modern market dynamics.
 A scattered story-telling February 8, 2008
6 out of 13 found this review helpful
I will not recommend this book because the content is not rich. The author based mnay of his comments not on data but on anecdotal evidence. Besides, the story seems to be everywhere. In the beginning, he talks about Wall Street, then physics, etc. Confusion is the word I give to this book.
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