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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 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 this suspicion.

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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