I am fascinated by Black Monday and keeping in line with last week’s book I wanted to read another book with content on the mechanics of crashes. Diana Henriques was good at getting the interactions of key players and like how regulatory capture of the CFTC (Commodities Futures Trading Commission) could be considered a CME (Chicago Mercantile Exchange) plot by Melamed and how it wrangled key decisions on index futures from the SEC because of a weak or Laissez-faire personality traits. Rubinstein and Lelands portfolio insurance was explained well enough with it’s flaws and dates of breaking points well catalogued. Henriques did a good compare and contrast of the Penn Square and Continental Illinois and the subsequent downstream effects to depositors, other banks, the FED, and the FDIC. This book was good at bringing up rabbit holes to go down like the silver brothers from Texas, onion futures trading, and anti-apartheid divestment being an accessory to a major crash. Reading this book you will realize how fragile the CME, NYSE, and even Charles Schwab has been at times. Reagan of course makes multiple appearances in the book, but I don’t find his presence to be important other than for emphasizing how much people drank the efficient markets theory koolaid. Antonin Kreil has said in the past “regulators are not proactive they are reactive.” You will get a sense of this theme often here.
Key advice from the author in the epilogue: Humanbeings do not cope well in a crisis when speed, complexity, secrecy, and fear all batter our emotions at the same time. … We are not the cool, rational investors postulated in academic theories, and we never will be.
I thank you Diana Henriques for this biopsy on this period of history and your well documented annotations.