Articles By: Rick Bookstaber

Rick Bookstaber

Rick Bookstaber is currently working in Washington as Senior Policy Adviser to the Financial Stability Oversight Council and Senior Policy Adviser at the SEC. Before the current stint, Rick worked at Bridgewater Associates, ran the Quantitative Equity Fund at FrontPoint Partners and was in charge of risk management at Moore Capital Management. In investment banking, Rick was in charge of firm-wide risk and a member of Salomon Brothers' Risk Management Committee. Rick also spent ten years at Morgan Stanley, designing derivatives, doing proprietary trading, and concluding as the firm's first market risk manager. Rick is the author of four books and scores of articles on finance including A Demon of Our Own Design. Bookstaber received a Ph.D. in economics from MIT.

Here are my most recent posts

The Product is the Promise: Finance and Social Values

The Product is the Promise: Finance and Social Values

In the first paragraph of my book A Demon of Our Own Design (Wiley, 2007) I observe that “You don’t deliberately obliterate hundreds of billions of dollars of investor money. And that is at the heart of this book – it is going to happen again. The financial markets that we have constructed are now so complex, and the speed of transactions so fast, that apparently isolated actions and even minor events can have catastrophic consequences.” I then spend a significant portion of the book explaining the mechanics that lead the financial markets to lurch from crisis to crisis; why is it that while engineering in other fields increases safety, financial engineering seems to make things get worse. I suggest that the problem stems from the complexity and tight coupling that we introduce into the markets; complexity through financial innovations, tight coupling through leverage.

Read more ›
The Great Migration of the 21st Century

The Great Migration of the 21st Century

One lesson we should keep in mind as we recover in the aftermath of Sandy is that we are slow learners. Although the vulnerability of many of these communities is undeniable, we have resolved to rebuild the homes. That resolve will no doubt weaken if the region is revisited by similar disasters, and those displaced will be forced to move on. If climate change is at the root, that will happen. There will be a crescendo of such disasters, replaying thousands of times in populated areas across the globe. Hurricane Sandy thus has given us a glimpse into what will be the dominant theme of the twenty first century: forced migration.

Read more ›
The Great Labor Reset: Labor Laundering, Self-Sourcing, and Other Tales of Woe

The Great Labor Reset: Labor Laundering, Self-Sourcing, and Other Tales of Woe

By Rick Bookstaber In a  recent post I discussed the potential for long-term, structural unemployment, the possibility that some of what we are seeing in the unemployment picture will not be resolved by an economic upturn. The focus of the post was on how robots and computers are increasingly replacing labor as a factor of production. One question, though, is why should we see […]

Read more ›
Profit Incentives, Disruptive Technology, and Reducing Health Care Costs

Profit Incentives, Disruptive Technology, and Reducing Health Care Costs

By Rick Bookstaber Medical care is famously immune to the usual market incentives; the patient has little reason to make a cost-benefit tradeoff. Doctors and hospitals hardly do either; indeed the opposite seems to be the case. Matters are made all the worse, ironically, by the continual improvements in medicine – improvements which often treat what was previously untreatable, and […]

Read more ›
Will the Unemployed Really Find Jobs Making Robots?

Will the Unemployed Really Find Jobs Making Robots?

By Rick Bookstaber There is a recent story in the New York Times on the growing use of labor-saving robots to increase production efficiency and, by replacing low-cost overseas labor, to return production to our shores. But the operative term here is “labor saving.” They return production to our shores, but given that they do so by replacing the low-cost foreign labor […]

Read more ›
Class Warfare

Class Warfare

we are seeing an ever shrinking number of people paying an ever greater portion of the taxes. Though they also are the ever shrinking number of people acquiring an ever greater portion of the wealth. There is little that matches the artfulness in waving off criticism of the widening income gap as “class warfare”. And there is little that matches the gullibility of those who follow along.

Read more ›
Foxconn and China’s Capitalist Revolution

Foxconn and China’s Capitalist Revolution

The promises of reform at Foxconn are the latest of many as China painfully adjusts to the inevitable social realignment that comes with a capitalist economy. What is occurring in China now happened in Europe during the transition from feudal to industrial society. That transition is more germane than it might appear at first blush because over the past two generations China has been emerging not from a Marxist, but from a feudal state.

Read more ›
Adam Smith and Joseph Schumpeter on the Bifurcation of Society

Adam Smith and Joseph Schumpeter on the Bifurcation of Society

On the issue of the bifurcation of society and the widening income gap in the U.S., and the strains appearing from the factory system in China that have recently been highlighted, there is useful commentary that comes from a surprising quarter, or perhaps not surprising in itself, but in the view taken on the subject: Both Adam Smith and Joseph Schumpeter, defenders of capitalism as the source of “universal opulence”, see a road leading from capitalism to the disenfranchisement of the worker and the vaulting of the elite.

Read more ›
The Twilight of the Leisure Class

The Twilight of the Leisure Class

Taken to its end, industrialization class distinctions are revealed by conspicuous consumption. This points to the objective of industrial production: goods in the realm of common consumption become removed from social distinction. This is what Mumford meant when he stated that the machine is a communist. Products bear the same impersonal imprint. They either function or do not. There is no difference between the light bulb – or phone, or computer, or Kindle – of the common and the wealthy to signal a difference in status. The consummation of the industrial revolution, and insofar as we link the industrial revolution to capitalism, of capitalism as well, will occur when the same can be said in all areas of production.

Read more ›
The Bifurcated Society

The Bifurcated Society

There is less mobility in the work force because the computers are not simply displacing jobs, they are taking out the middle. Because they take out the middle, it is a lot harder to pursue the American dream by working your way up the ladder.

Read more ›
The Volatility Paradox

The Volatility Paradox

Volatility tends to drop when market risk is building up and leverage is rising, luring investors into complacency. Indeed, the lower volatility justifies investors taking on more leverage; if volatility has dropped by a third, why not take one and a half times the leverage? This pro-cyclical dynamic arising from lower volatility in times of increasing risk-taking is the volatility paradox. The main take-away from the volatility paradox is that we shouldn’t use shorter-term, contemporary risk measures when they are very low.

Read more ›
Managing the 99 Percent

Managing the 99 Percent

The McCourtny Consulting Group: We are witnessing a simmering backlash in the face of the widening class distinction. It is wise to address the fundamental issues behind the backlash and consider approaches to deal with the problem, especially given that these conditions may be persistent and structural. Therefore, we have prepared a brief overview of approaches to the problem.

Read more ›