Over the week that I took off (should have taken more time off as I am still the market's whipping boy), I started and finished "A Demon of our own Design" by Richard Bookstaber.
Bookstaber was an insider and high level risk manager during the heydays of Salomon, LTCM and the big hedge fund boom. The book mixes anecdotes about some of the biggest moments in finance with technical information about trading, risk, and market crises.
I really enjoyed the book. I thought it was clear he was an academic (he began his career teaching) based on the examples he used and his knack for repeating himself every now and again. The anecdotes were great with just enough name-dropping to allow the reader to understand where the author stood in the food chain. I think it is unfair to compare the anecdotal parts to "Liar's Poker", as Michael Lewis ended up being one of the more respected writers of his generation.
The technical stuff was actually more interesting for me. It explained many trading styles, approaches, and instruments instead of just giving them names. If you asked the people on the floor that I'm trading on what stat arb is, I would assume most of them didn't know, even though they are essentially doing the same thing on a smaller scale. Bookstaber's explanations were simple enough that I think even someone without much trading knowledge would be able to understand. He also provided insight into possible reasons for certain market crises of the last 3 decades.
The more complex stuff actually came from the examples he used from other fields to describe certain phenomena, which seemed more in line with the way a well-rounded academic thinks. He seemed especially caught up on cockroach behavior. While I appreciated the examples and how they compared to real life finance, I'm not sure they'd be everyone's cup of tea.
In all, I highly recommend the book, and I took away two main things from it. First, the market in the short term is always liquidity driven. Price is useful in as much as a way for a large liquidity demander to acquire the liquidity he seeks. Second, humans tend to focus on reducing known risks, sometimes at the cost of and even being the cause of unknown risks that we can't deal with, such as certain financial crises.
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