Bookstaber to Advise SEC

Rick Bookstaber announced on his blog yesterday that he will joining the SEC’s “Division of Risk, Strategy and Financial Innovation.”

This is a welcome development. Bookstaber is the author of A Demon of Our Own Design: Markets, Hedge Funds and the Perils of Financial Innovation.

He was part of an Oxford-style debate on that very subject at the Economist’s Buttonwood Gathering last month. I was lucky to be in the audience. Below is the video.

Watch it through just to see Jeremy Grantham, who was on fire. His rhetoric successfully flipped the audience from being 80:20 in favor of the proposition that “financial innovation boosts global growth” to a similar margin against.

It’s highly ironic that Myron Scholes was chosen to argue for the proposition. An inventor of the Black-Scholes options pricing model, he was also a partner at LTCM, the famous hedge fund firm that blew itself up mixing mathematical hubris with leverage.

Scholes’s life story should be a cautionary tale AGAINST the idea that financial innovation creates great wealth. Yet here he is, having learned nothing.

Not that it’s unexpected. Nothing encourages cognitive dissonance quite like the absence of consequences. Bailed out bankers on Wall Street who feel they’ve “earned” the bonuses they plan to pay themselves this year are just the latest example…

Comments

[Roger Knights:]

Every agency, commission, board, quango, etc. should set up a semi-independent Kibitzers' Kouncil of responsible mavericks to provide it with input/feedback/catcalls. It would cost virtually nothing and payoff a hundredfold in providing fresh perspectives, etc.

Nov 09 07:19 PM

[Roger Knights:]

PS: These Kouncils could meet via the Internet, perhaps supplemented by video-conferencing.

Nov 09 07:21 PM

[Roger Knights:]

PPS: Half the membership would be chosen by the board, and the remaining half by the Kouncil itself.

Nov 09 07:24 PM