The Futures: The Rise of the Speculator and the Origins of the World's Biggest Markets

by Emily Lambert

In The Futures, Emily Lambert, senior writer at Forbes magazine, tells us the rich and dramatic history of the Chicago Mercantile Exchange and Chicago Board of Trade, which together comprised the original, most bustling futures market in the world. She details the emergence of the futures business as a kind of meeting place for gamblers and farmers and its subsequent transformation into a sophisticated electronic market where contracts are traded at lightning-fast speeds. Lambert also details the disastrous effects of Wall Street's adoption of the futures contract without the rules and close-knit social bonds that had made trading it in Chicago work so well. Ultimately Lambert argues that the futures markets are the real "free" markets and that speculators, far from being mere parasites, can serve a vital economic and social function given the right architecture. The traditional futures market, she explains, because of its written and cultural limits, can serve as a

Genres: History, Finance, Nonfiction, Economics, Business, Audiobook, Popular Science

240 pages, Hardcover

First published November 5, 2010

Reviews

[Tim O'Hearn · Rating 4 out of 5]

This is a captivating book providing a cohesive historical account of the futures markets in Chicago. As someone who lives in Chicago and deals with futures markets each day, it would not be reasonable for me to ask Emily Lambert for any more. Am I biased because she provided a hilariously accurate account of the founder of the firm I work for? Am I biased because she took the time to explain just how much liquor you get when you order a drink at Ceres Cafe? Am I biased because the tall brick cold storage warehouse in Fulton Market that she described in detail now houses one of my favorite restaurants? Somewhat.

The truth that others seem to be wrestling with is that this is not a futures textbook. I've come across quite a few futures textbooks. They don't resemble this in format or in diction. The back cover describes The Futures as a "rich and dramatic history of commodities exchanges" and that's exactly what it is. It's a valuable, fun, and endearing book that aggregates a large portion of Chicago's history into barely two hundred pages. Dare I say it should be on any Chicagoan's must-read list.

Even since moving here, I have seen the continued transformation of Fulton Market as the last wholesalers have been (happily, I might add) bought out and replaced by restaurants, social clubs, and other establishments that are quickly transforming it into one of the hottest neighborhoods in America. I guess this book helped validate my paying exorbitant rent, but it also gave me a lot to think about. It is at times a struggle to remain grounded in my appreciation for where I came from while simultaneously mixing with the bourgeois, so I really appreciated the sense of admiration that Emily had for the pioneering laborers who made Chicago what it is today.

See this review and others on my blog

[Caroline · Rating 1 out of 5]

I don't know how to sugarcoat this, so I'm just going to say it.

This. book. sucked.

The Futures was terrible. If you want to learn more about futures markets, for the love of God do NOT read this book. If you DO want to just read chapter after chapter describing the inside of old Chicago buildings and listing the names of individuals who at one point had a tangential connection with the Chicago Mercantile Exchange, congratulations, this is the book for you.

Evidence of how unpleasant this reading experience was: I started this book on September 16th and didn't finish it until NOVEMBER. It's only 240 pages, for crying out loud! It completely killed my momentum and probably cost me a good 3-4 books on the year.

The thing I still can't get over is that you could read this entire book and if you didn't know what a futures contract was prior to cracking it open, you wouldn't be able to explain it by the end. That's madness. It completely side steps the mechanics of how the market works and instead I guess tries to focus on the "human" story? Except the human story is dull as dirt. It felt like an oral history gone terribly wrong.

I read this because while I was interested in the history of the founding of the world's first futures market, I also want to further delve into the intricacies of how futures markets work. The Futures provides no such insights. You'll learn more watching Trading Places and it'll be a hell of a lot more enjoyable to boot.

[Julie Mickens · Rating 4 out of 5]

This is a popular history of the Chicago Board of Trade and the Chicago Mercantile Exchange. I especially enjoyed the first half of the book which told the story of how these markets grew up mostly organically from the buying and selling of agricultural commodities produced in Chicago's hinterland: corn, oats, soybeans, lard, eggs, butter and even onions. In fact, onion trading got so heated in the 1950s that the federal government had to shut it down!

The very concept of the "futures contract" came from these small -- at first -- trading clubs, with just a few hundred members. Once the futures contract was invented, these contracts for real-life farm goods ("commodities") were soon abstracted into tradeable financial instruments, thus creating the speculative futures market. In this market, something as prosaic as a contract for the delivery of a train car of soybeans on a certain date for a certain price could change ownership dozens of times before the actual physical beans arrived anywhere. In the meantime, a trading value of the contract would develop apart from its face value and would float up or down based on whether traders bet that the real-time market price at the date of delivery would be higher or lower than the originally contracted price. In the difference between these values -- the actual delivery value as compared to the trading value -- small fortunes could be quickly won or lost many times over by frantic, sweaty, tobacco-smelling men wearing oddly colored jackets and gesticulating at each other in one of Chicago's famous trading "pits."

These "pits" were actual, physical "pits" -- crowded amphitheaters of theatrical deal-making originally located in the Board of Trade building downtown and the Merc on Fulton Street. In fact, some of Lambert's best material is describing the people playing their frantic roles in these arenas.

The parties to the first futures contracts included people who were directly connected to the physical product -- e.g., farmers hedging against low prices, distributors and processors hedging against high prices. But soon a group of traders developed who were pure creatures of finance, who never laid eyes on an actual soybean, and who only saw a porkbelly fried in strips on their breakfast plates. And yet millions of dollars sloshed around at their impulses -- sometimes generating great value for whole economic sectors, but other times ruining themselves along with farmers, wholesalers, and others.

Once it was established that money could be wrung out simply from trading contracts -- and not growing, transporting or processing physical products -- the race was on to add more and more "pits," or markets, in Chicago. Once the traders had made markets out of all the plausible agricultural commodities, they looked to find a way to create, and then trade, futures contracts on other goods like fuel oil. And from there they made the leap of abstraction to create futures contract for more purely financial instruments: foreign currency, mortgage bundles, stock options and so on.

One strength of this book is the author's many, many first-hand interviews with people associated with the Chicago Board of Trade and "the Merc," or Mercantile Exchange, going back to people who were active in the 1950s, as well as interviews with people involved in similar, smaller commodities exchanges in New York and Kansas City. These valuable interviews are something like oral history that may have been lost otherwise. This is a wealth of information, however, scholars may find her sources insufficiently documented to the standards of academic history.

One thing I think the book lacks is sufficient, clear explanations of how, exactly, one makes money on all these types of trades, or via the various financial firms/services that surround trading like brokers and clearinghouses. My example of a soybean contract above is if anything a bit more detailed than the book offers in any one spot. Such explanations become even more necessary when the trading moves from commodities to pure abstractions like options (later known as derivatives), swaps and "eurodollars." If such explanations -- complete with numbers -- would break up the narrative flow, maybe they could be put in an appendix? Understanding this idiosyncratic financial subculture made me want to understand the basic math and strategy behind it, in addition to the history and personalities.

[Brian Krause · Rating 4 out of 5]

What most of the other reviewers miss is that this book is not intended to explain the uses or inner workings of the various futures and derivatives markets that developed in Chicago in the 20th century. It's clear that Lambert was not attempting this at all. Rather, "The Futures" is a narrative history that fairly accurately and accessibly traces the evolution of the CBOT and Merc and explains the origins of the various markets and contracts that developed overtime.

My advice to the other reviewers that were disappointed that Lambert did not do a better job "explaining" the markets would be to pick up one of the numerous textbooks that Lambert references directly in the text or in her source section.

[Melinda · Rating 4 out of 5]

Fascinating read. Loads of research and very well presented information in these pages. Probably have to read again to take in more of the concepts in here...economics is not my strong suit - but this book gave the layperson (ie: me) a good view into the history of the futures markets. Crazy crazy stuff

[Frank Stein · Rating 3 out of 5]

This is something of a missed opportunity in that commodities and futures markets have not received a tenth of the interest of stock markets, and there are few if any public accounts of them, and none of their whole history that I am aware of. This book takes a bold look at the history of futures and options in America, focusing on Chicago since the formation of the Chicago Board of Trade in 1848 and its wheat trading market, which graduated in 1870 to the later famous octagonal trading pits. The problem is that story is filled with one-off names and characters that don't seem to have much purpose except to add color and there is basically no attempt to explain the reasons for these markets evolution.

The Chicago Mercantile Exchange, the Merc, started in 1874 as the Chicago Produce Exchange, and for awhile a version became the Chicago Butter and Egg Board after 1898, but they remerged in 1919. While the CBOT was mainly Irish, the Merc was a little more down-market and mainly Jewish. In 1842 it introduced trading in potatoes and onions, and acquired a bad rep after Vincent Kosuga corned the onion market and then crashed it, leading to a ban on onions futures by Congress in 1958. That caused the Merc to move into pork bellies in 1961 to make up for the post-January months when egg trading was light. Leo Melamed, the son of Bundist Chicagoans, set up a futures currency trading market on the Merc after a New York one went under. In 1972 the CBOT set up an options exchange attached to the main trading floor for ag commodities and built out clearing firms and brokers with special enticements, just in time for the "Black-Scholes" option model to be built out and it traded bond options. When Berkeley economist Richard Sandor created the first interest rate options to help Ginnie Mae futures contracts for mortgages, he spawned a new industry, as well as, according to his own lights, the term "derivatives" (in 2003 he would form the Chicago Climate Exchange.) The only real trip outside of Chicago for this book is when the New York Commodities Exchange got the oil market over their rivals, but then began to grow.

One of the bigger absences here is the policy side. In the early 20th century speculative futures trading was one of the biggest issues in America, and it was even banned for awhile, as well as being heavily regulated by the Commodity Exchange Commission after 1935, but all of that receives barely a mention. There is some discussion of the 1974 creation of the Commodity Futures Trading Commission, which CBOT outside lawyer Philip Johnson intentionally wrote to include both commodities and futures, and to define commodities as widely as possible, hypothetically even securities, and all futures, even if they were not based on commodities. Johnson became head of the CFTC and made a special deal with S.R. Shad, former EF Hutton chair and then SEC chair, to allow the CFTC to regulate securities futures, and to have them based on cash instead of actual delivery, and to keep the SEC with stock options, what became known as the Shad-Johnson Accord of 1981. (A 1988 Georgetown Law Journal by Mark Young claimed that the swaps business was an unregulated futures market, which since 1985 had operated under the ISDA, yet a 1989 CFTC decision said they would not be regulated as such.)

The above is most of the worthwhile information one could glean from the book. If it focused on these big changes, instead of a bunch of side stories, it would have been much more worthwhile.

[Danny Pasternak · Rating 4 out of 5]

Interesting account of the Futures markets based in Chicago. Provides compelling stories and historical origins of the world's biggest markets. Provides insights into why these markets exist the way they do now as well as the key transformations they have undergone over the years. Little focus on actual futures trading strategies and the technical characteristics of the instruments themselves.

[Topher · Rating 4 out of 5]

A history of the chicago futures markets, based on the pits, from grain up to the attempts to start an electronic cap and trade market for carbon. A good chunk of the book is post-wars, pre-internet as a result. A good quick read - I started it mid-afternoon and still finished at a reasonable hour.

[Shawn McCormick · Rating 2 out of 5]

2.1 This isn’t good. It’s basically a list of individuals involved in various facets of the futures markets over time. Name-dropping on steroids. And it does ZERO to explain what a futures contract is or how it works. Not sure who this book is written for, but it’s not me.

[Michael Sommers · Rating 3 out of 5]

A history of futures trading, mostly in Chicago. Lambert concentrates on the introduction of new types of contract, such as cattle, bonds, and so forth.

[Ben · Rating 4 out of 5]

Interesting historical perspective surrounding the futures market. Definitely a good read for anyone interested in history or economics.

[Liam · Rating 4 out of 5]

Nice book

[Erwin · Rating 2 out of 5]

Much like The Asylum: The Renegades Who Hijacked the World's Oil Market, but with more hyperbole along the lines of Mezerich's Rigged: The True Story of an Ivy League Kid Who Changed the World of Oil, from Wall Street to Dubai, Lambert just reviews a bit of the futures market for people that don't know why we have a futures market.

I added an extra star (two - would have been one) because if I look back at the title/subtitle, it should be obvious that I didn't need to read this one...

Oddly enough, I haven't been to Chicago yet, and the most interesting part of the story was in it's description of the transformation of Chicago from a frontier town, to a post industrial... uh... city?

This Amazon review did a much better job summing it up then I could, but the highlights were:

"The Futures" is delivered as a flat midwestern yarn -- as if told by a Chi-town native, holding forth on a barstool over beers.

The story begins with Chicago's founding in the early 1800s. We find out how the futures business, originally built around grains, was a byproduct of Chicago weather: When the canal and river froze, farmers were forced to store their crops, thus creating gluts in the spring -- and the need to lock in sale prices in advance. By the mid-1860s, the first prototype of the U.S. futures contract had arrived.

To be clear, Lambert's book is not a primer on trading. Instead it is a series of narratives, tracing the beginnings of futures trading (and the Chicago exchanges themselves) to the present day.

"The Futures" is also largely the story of onions and eggs -- the original commodities of the "Merc" or Chicago Mercantile Exchange. Lambert recounts how the CBOT was predominantly Irish and the CME Jewish: If your last name was Murray you were Board of Trade, but if your first name was Murray you went to the Merc. The onion trade was eventually banned by congressional order (at the request of angry onion farmers), while the egg trade revolved around the "butter and egg men" of Fulton Street.

Unlike onions, the egg trade was done in by modernization: Eventually chickens were laying eggs year round, which took the seasonality out. But by the time eggs went away, the bigger businesses -- currencies, indices and interest rates -- were just getting going.

There is very much a "right place, right time" aspect to the later explosive growth of the exchanges. Interest rate futures came into their own as the Volcker Fed wrestled with inflation in the early 1980s, causing bond prices to fluctuate wildly. Currency futures had started in time to take full advantage of the post-Bretton Woods era. And the big daddy of them all, stock index futures, got rolling with the help of a tax advantage at the start of the long-running bull market.

By the close of the story, the color and the craziness is clearly fading, the pushers and shovers in brightly colored jackets being replaced by the quiet hum of computers. Gone are the days of frantic hand signals, spontaneous fist fights, and drug-using clerks wearing goggles to protect their eyes against paper cuts. As Chicago modernized itself, going from stockyards to towers of steel and glass, so too did the futures industry. The new era is electronic, and global.

That makes it all the more fun, though, to revisit this fast, amusing tale of how the exchanges grew up with the Windy City, and the gritty roots of how it all came about.

[David Fulmer · Rating 3 out of 5]

This book presents a description and history of the Chicago-based exchanges where commodity and financial futures have been traded for over a hundred and fifty years. Begun in the mid-nineteenth century as a way for farmers and other producers of commodities to hedge or protect themselves from falling or rising prices and for speculators to profit off the same changes in price for things like grain, soybeans, and meat, the Chicago Board of Trade and other exchanges sprang up between the vast American breadbasket out west and the hungry markets to the east. On this and other exchanges futures contracts - basically an agreement to buy or sell these commodities with delivery set for some time in the future - have been traded, originally in pits or sunken bowls with steps populated by traders but now increasingly by computer via the Globex trading system.

Emily Lambert includes a capsule history of these institutions and their evolution along with some basic, easy to follow descriptions of the financial instruments that are traded but her real strength is in the journalistic reporting on the personalities that have been attached to the trading of futures in Chicago, particularly in the latter half of the twentieth century. Much of the book reads like an oral history of the Chicago Board of Trade and the Chicago Mercantile Exchange as they gradually transitioned from being primarily commodities exchanges of great value to the business of farmers and large agricultural companies to what they are today, globally important financial exchanges offering a variety of financial derivatives based on stock index futures, interest rates, and currency exchange rates.

Lambert covers these more modern, more complicated futures, but there is a dearth of local color and fewer eccentric characters to attach the narrative to as the tide of high finance sweeps away the oddballs who previously made their fortunes at the exchanges, often through some family or neighborhood connection in the Windy City. While I would have appreciated a more rigorous or academic historical approach with more facts and figures, Lambert’s extremely thoroughly reported history of Chicago as a financial center and the way in which it developed from a market for raw goods to a sophisticated financial city captures a warm human angle of this piece of financial history.

[David Nealis · Rating 3 out of 5]

The Futures, written by Emily Lambert, a senior writer at Forbes magazine.

The Futures is a good book, especially if it is your first book into the history of the Chicago Exchanges. Emily Lambert does a good job at laying out some basic history of the exchanges and she organizes the chapters by commodity which is convenient. She makes the subject matter interesting by going through the list of the usual suspects, to her credit she also comes up with some people we don’t hear from much anymore like Maury Kravitz, she also describes his hunt for Genghis Khan’s treasure ,which I always thought was cool. What made the book interesting for me was that one of the characters in the book is Bill Henner a 3rd generation trader who happens to be a friend and a business associate of mine, It was nice to see him in the book.

Overall, It is a good book, though I wish it was a bit more balanced; She had the cigar smoke and pinky rings scene down, but I was hoping that she also included the positive aspects of what the Exchanges have to offer and the people who have dedicated their careers to working in them.

[Jane · Rating 3 out of 5]

As someone who lived in Chicago and worked in the industry (as an accountant) I found this book extremely interesting if somewhat confusing at times. For example, when the author mentioned "spoos" I remembered that it had been in the book previously. However, the index did not include the term so I could not go back and review what the term means (something to do with the S&P Index, I think.) There were many times that I wanted more facts and less color commentary. The book removed some of the mystery but left me wanting more.

[Stan · Rating 1 out of 5]

Granted, The Rise of the Speculator and the Origins of the World's Biggest Markets is a huge, sprawling topic. But Lambert illuminates very little of it in these pages. Her many reports on this topic published at Forbes magazine shed more light than this book.

There's little content in these pages. Her narrative would have been much better if she had narrowed her focus & deepened her analysis.

[Curtis · Rating 2 out of 5]

The whole concept of futures is completely ludicrous to me anyway and reading a book that glorifies the history of men who have fueled the fires of ruthless profiteering in these brutal unregulated markets is really frustrating. The book is not all that well written either or I may have bumped this rating up to 3 stars.

[Eliot M · Rating 3 out of 5]

An enjoyable, if surface-level read. Lambert must have just sat down with a bunch of old traders at one of the oft mentioned pubs and asked for stories of the good ole days at the CME and Chicago Board of Trade. Good, brief history of the development of futures and options markets, if that's your thing.

[keatssycamore · Rating 1 out of 5]

Not what I was looking for. There's nothing technical in here. Instead, it's an occasionally stimulating history of various futures markets (focusing on Chicago and traders) but since that's not what I wanted, I kind of wish I would've read that history of the A & P.

[David · Rating 1 out of 5]

a boring book to read about the different market trading arenas came about from CMOE, etc...just simply about the people who love trading and these arenas were formed..save your money and skip this book.

[Rose · Rating 3 out of 5]

good historical chronology of the derivatives industry

[Nicole · Rating 3 out of 5]

There was a comment made by someone that I "liked". It says it all.