Publisher's Weekly Review
Henriques (The Wizard of Lies: Bernie Madoff and the Death of Trust) turns the clock back to Oct. 19, 1987, a date better known as "Black Monday," when the Dow Jones plummeted 508 points-22.6% of the market at the time. Her report begins with the 1980 crisis in silver trading and then moves quickly onto the financial-futures markets, (the introduction of which "fundamentally changed the way the traditional stock market worked") and continues with the rise of institutional investors and introduction of innovations such as computerized program trading. The SEC and other regulatory agencies, meanwhile, are shown to be "poorly equipped, ridiculously fragmented, technologically naive, and fatally focused on protecting turf rather than safeguarding the overall market's internal machinery." Henriques's confident, fast-paced, and thoroughly researched narrative also features plain-English explanations of relevant jargon and insightful profiles of the investors, regulators, and economists on the crash's front lines. Thanks to Henriques's attention to detail, her book stands as an irrefutable argument against efficient-market theory-which understands stock-market performance as fundamentally the result of "rational and well-informed decisions"-and for wiser regulation of U.S. financial markets. It's a must-read for anyone who wants to understand why financial markets lurch from crisis to crisis and are still so frighteningly susceptible to crashes today. (Sept.) © Copyright PWxyz, LLC. All rights reserved.
Kirkus Review
Financial journalist Henriques (The Wizard of Lies: Bernie Madoff and the Death of Trust, 2011, etc.) turns her gaze on the catastrophic Wall Street collapse of 1987, "the contagious crisis that the system nearly didn't survive."The crash of 1929 was miserable, the dot-com bubble burst of 2000 inconvenient, and the financial collapse of 2008 frightening. All these pale, however, to the events of Oct. 19, 1987, Black Monday, a one-day decline of 22.6 percent. To reach the same level today, writes the author, the Dow Jones would have to fall by 5,000 points. As Henriques writes, it was a perfect storm of allied causes, all of them ones that would ring true to cautious investors today: the financial firms had become too big, certainly too big to fail, while computer-mediated trades and other flashy innovations placed the exchange beyond immediate human reach. As bad or worse, the same ideology, the same set of academic theories, was driving Wall Street, leading to a monoculture of investment that was ripe to fail from the start. The author, a longtime New York Times writer and winner of the George Polk Award, delivers an account that is not for the financially nave or the innumerate; a typical passage reads, "unfortunately, there were CBOE limits on how many options any one investor could hold at one time, and LOR was already insuring' accounts too large to fit easily within those limits." Those who can read past the financial wonkiness, though, will be well-served by Henriques' insights into the ascent of the quants and the concentration of big capital into fewer and fewer handstrends that, she notes, continue to accelerate as investment strategies become "even more obscure." Solid economic reportage. Investors who remember the events of 30 years ago will blanch all over again, especially at the author's suggestion that worse may be yet to come. Copyright Kirkus Reviews, used with permission.
New York Review of Books Review
Diana ?. HENRIQUES is an award-winning financial journalist and a best-selling chronicler of the Bernie Madoff Ponzi scheme. Her new book focuses on a 30years-ago crisis - the Black Monday debacle of 1987 when the stock market turned in a one-day loss that, on a percentage basis, was almost twice as large as the steepest drop in 1929. In making her case for the importance of the 1987 crash, Henriques has produced a valuable and unfailingly interesting account of a crucial two-decade period in Wall Street history - when markets made a full-bore transition from serving individual investors to a system dominated by giant corporations, mostly trading for themselves, and competing by means of arcane computer algorithms and spectacular processing speeds. A critical factor in her tale is the "financial future." Futures are an old instrument used in trading commodities, like wheat. At spring planting, farmers and wholesale buyers could execute future contracts to lock in prices at harvest. Futures regulation, however, wasn't fully formalized until the creation of the Commodity Futures Trading Commission (C.F.T.C.) in 1974. A portentous milestone was passed when the Chicago Board of Trade and the Chicago Mercantile Exchange, or "the Merc," started trading financial futures on a host of instruments - Treasury note interest rates, government-issued mortgage bonds, foreign currencies and various stock index futures, like Value Line and the S & P 500 stock indexes. After a jurisdictional catfight between the C.F.T.C. and the Securities Exchange Commission (S.E.C.), the regulators settled into an uneasy truce, although the Chicago institutions consistently outgunned the S.E.C. and the New York Stock Exchange in creativity and aggressiveness. It took only about a decade for futures and related instruments like options to dominate Wall Street trading. The intellectual motivation came from new axioms of "efficient markets" and "rational agents" that held that untrammeled markets were always self-correcting. Portfolio mathematics superseded fundamental business analysis. Computers and new cadres of "quants" reigned. In the 1970s, two young professors at Berkeley's business school, Hayne E. Leland and Mark Rubinstein, conceived the idea of "portfolio insurance," a technical method for protecting the value of a large institutional portfolio. They joined with John O'Brien, a highly sophisticated trader and a master salesman, to form a company, Leland O'Brien Rubinstein Associates (LOR), that soon was racking up stunning sales. LOR's product was a set of algorithms that clicked in during a market downturn to limit losses. When the insurance algorithms were triggered, computers would sell futures to lock in a pricing floor, and then reverse the process as markets recovered. The concept was simple, but its execution requirements were formidable. Skeptical customers asked what would happen if the markets didn't step up and buy futures at "rational" prices. That was easily waved off. Yes, in panicky markets, the futures clearing prices might be lower than the rational price, but canny traders would soon recognize the bargains on offer. That glibly danced by a scarier issue, however - the sheer scale of portfolios that were protected by insurance. A truly serious downturn could trigger huge robotic futures sales that could overwhelm the capacities of the traders. And that duly happened on Black Monday, Oct. 19, 1987. After several weeks of slipping markets, floods of computer-driven futures orders hit the Chicago markets, overwhelming their systems and driving a steep plunge in futures prices, many all the way to zero, which signaled no bids at all. As futures prices collapsed, the implacable insurance algorithms accelerated the selling. Henriques gives us a gripping, almost minute-by-minute account of the weeks that followed, including the posturings, the denials and the panics, as well as the "web of trust, pluck and improvisation" that pulled the markets through. Summing up the crisis, Henriques places blame on "disparate, blindly competitive and increasingly automated markets ... gigantic and increasingly likeminded institutional investors" and "a regulatory community that was poorly equipped, ridiculously fragmented, technologically naive and fatally focused on protecting turf." Henriques overstates her case, however, when she writes that "more than a trillion dollars in wealth had been lost." And she cites a comment from President Reagan at an impromptu news conference during the worst days of the crisis that "all the business indices are up. There is nothing wrong with the economy," which she compares to Herbert Hoover's complacency in 1930. Actually, Reagan was right. The economy was fine. From 1986 through 1989, real (inflation-adjusted) growth was 3.5 percent, 3.5 percent, 4.2 percent and 3.7 percent. The 1980 s stock market was a roller coaster. It opened with historically low price-earnings ratios, which allowed canny leveraged buyout investors to snap up solid companies at bargain prices. As copycat investors flooded into the buyout markets, the quality of deals deteriorated - laughably, one major acquisition was insolvent on the day the deal closed. The trillion-dollar drop in market values was just a recognition of reality. The saps who took the losses were counterbalanced by the lucky investors who got their money out in time. That said, Henriques has produced a highly intelligent and perceptive analysis of an important transitional era in modern finance. She is quite right that the quantdriven market complexities of the 1980 s finally caused a real crash in 2007-8. Sadly, the deregulatory crusaders of the current administration seem to have paid no attention. ? CHARLES R. MORRIS'S most recent book is "A Rabble of Dead Money," a history of the Great Depression.
Library Journal Review
The 22.6 percent stock market drop on October 19, 1987, aka Black Monday, was the worst single day in Wall Street history. Author and New York Times journalist -Henriques (The Wizard of Lies) cites as underlying causes the laissez-faire approach to business by the Ronald Reagan administration, market computerization, highly leveraged financial derivatives, and increased dominance by institutional investors. A lack of resources and coordination by regulators, says the author, allowed for a build up of complexity and risk, with new strategies such as portfolio insurance, index arbitrage, passive index investing, and program trading increasing volatility. Henriques combines industry moves with the personalities of market participants to take readers to the precipice of the collapse and beyond, lamenting that after the crash few reforms were made, which set the stage for future market turbulence, including the 2008 crisis. VERDICT The author's journalistic storytelling will bring a deeper understanding of Black Monday to all readers in the same way Andrew Ross Sorkin's Too Big To Fail did for the 2008 crisis. [See Prepub Alert, 3/27/ 17.]-Lawrence Maxted, Gannon Univ. Lib., Erie, PA © Copyright 2017. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.