The Panic of 2007...oops, I mean, 1907; plus: tough times for quants, day traders

By: Ray Pellecchia

File Under: Miscellaneous

• 2 Comments
• Email Entry

The Panic of 1907 and Its Relevance for Today -- To be sure, times have changed since 1907. We have a strong Fed, deposit insurance, and the machinery of bank regulation to help us sleep more soundly. But the world financial system is incredibly more complicated. And major elements of past crises seem to be converging today: innovative financial instruments that cannot be valued very easily (remember Enron); a drop in asset prices (remember oil in 1984); and new financial players whose exposure to risk is not transparent and whose behavior is not predictable (remember LTCM). These factors converged in 1907. (Dean Bruner's Blog)

I've been reading Bruner's excellent "Deals from Hell," about the worst mergers and acquisitions of all time. Can't wait for his next one, dissecting the great panic of a hundred years ago.

Dark Days for Day Traders -- Some day traders have thrown in the towel, while others thrive on the volatility. (BusinessWeek.com)

One 'Quant' Sees Shakeout for the Ages -- 10,000 Years -- As the global head of quantitative equity strategies for Lehman Brothers Holdings Inc., Mr. Rothman has an inside view into what went wrong. His story paints a situation that quickly snowballed out of control, as events damaged fund managers' confidence in their models and led them to take steps that made matters worse. By Thursday, Mr. Rothman was so concerned that he wrote an extraordinary plea to the industry to remain calm. (WSJ.com)

Market crises are fertile ground for good journalism, and this behind-the-scenes look at a hedge-fund manager is an excellent example of that.

Book Recommendation: Demon of Our Own Design -- I just finished reading Richard Bookstaber's well-done Demon of Our Own Design, the subtitle of which is "Markets, Hedge Funds, and the Perils of Financial Innovation". The gist: Bookstaber argues that financial innovations have made markets more volatile and interlinked, not less, and that's a bad thing. I have a few bones to pick with the author, but I still recommend it highly. (Infectious Greed by Paul Kedrosky)

It's a beautiful day in the 'Secret' city (Daily News) -- A day in the life of Victoria's Secret models. Two things of note here: 1) A supermodel's favorite breakfast is steak, egg and cheese bagel with hash browns and coffee at McDonald's? 2) One of the models says of guys on the trading floor, "There were some cute ones." You can bet they're all telling each other this morning, "That was me she was talking about!"

Jay Buhner was born on this day in 1964, according to Wikipedia. Buhner was promising, young Yankee for less than a year when he was traded with two minor leaguers to the Seattle Mariners for Ken Phelps, in one of the worst trades of all time. How bad was it? On "Seinfeld," when the George Steinbrenner character called George Costanza's parents to mistakenly inform them their son George was dead, here was the reaction from George's father. Dialogue courtesy of ESPN.com:

Steinbrenner: Mrs. Costanza?

Estelle Costanza: Yes?

Steinbrenner: My name is George Steinbrenner, I'm afraid I have some very sad news about your son.

Estelle: (gasps)

Estelle: I can't believe it. He was so young. How could this have happened?

Steinbrenner: Well, he'd been logging some pretty heavy hours, first one in the morning, last one to leave at night. That kid was a human dynamo.

Estelle: Are you sure you're talking about George?

Steinbrenner: You are Mr. and Mrs. Costanza?

Frank Costanza: What the hell did you trade Jay Buhner for? He had 30 home runs and over 100 RBIs last year. He's got a rocket for an arm. You don't know what the hell you're doin'!

Steinbrenner: Well, Buhner was a good prospect, no question about it. But my baseball people loved Ken Phelps' bat. They kept saying "Ken Phelps, Ken Phelps."

Tags: New York Stock Exchange, Hybrid Market, NYSE, NYSE Euronext, NYX, trading, stock market, day trading, Seinfeld, Jay Buhner