Readers reviews of WHEELS OF FORTUNE
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This is an enjoyable history of the development of futures exchanges in
America. This book does little to dispel two lingering suspicions about the
futures market. It confirms that the futures market is opaque at best, and at
worst, dominated by market manipulation because price discovery processes are
not transparent. The silver corner mounted by the Hunt brothers is not an
aberration. It is part of as long tradition in the futures markets and many
previous examples are examined in the book. The real concern is that
regulators and exchanges were unable to effectively deal with this activity in
modern times despite having had the same experience many times before. When
exchanges themselves are unable to understand the murky trail of trading it
confirms that transparency is a major issue.
The second is the dismal repeated process of fraud, corruption, inside
trading, mismanagement, cover up and the apparent willingness of consumers to
be duped on a regular basis as part of the inevitable boom periods in the
market cycle. Very little changes. The details of each fraud do change, but
the basics do not. The gullible meet the skilled deceivers and uncritically
swallow the information presented to them. The regulators step in when the
collapse is over, too late to do anything effective, and too unskilled to
anticipate the next round. The issues are resolved by the punishment of
several high flying figures, and the remainder of the corrupt practices are
swept under the table and forgotten.
The book is useful in highlighting the differences between the futures markets
and the stock market. The free flow of information in the stock market leads
to greater transparency. In theory, this makes it easier for the trader or
market participant to understand what is happening and to avoid the corrupt
practices. The collapse of the dot.com stocks in 2000 underlines the
theoretical nature of this conclusion.
In contrast, the futures markets remains a market for insiders. Geisst shows
how information flows were routinely suppressed, manipulated, and managed to
the detriment of those off the trading floor. Has this changed? Geisst
provides little convincing evidence to suggest that it has and the charges
bought by Orange County and other institutional investors tends to confirm
The inside and manipulated nature of these markets outraged the farmers when
the futures exchanges were mainly commodity based. The development of the
exchanges and their regulation is very much a product of the conflict between
rural discontent and the city-folks who profited from futures trading. It is
an interesting conflict and it revolves around a single question. Does futures
trading impact on current, or spot, commodity prices for grains, etc to the
extent that it can artificially depress of lift prices without any real
linkage to the issues of actual supply and demand for the commodity?
Futures traders argue their trading does reflect supply and demand for the
commodity. The rural lobby has argued consistently that futures trading
reflects the balance of supply and demand as manipulated by the futures
traders and that it has little or no relationship to the actual supply or
demand for the commodity.
Unfortunately Geisst leaves this question entirely unresolved.
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