Leo Melamed on The Markets: Twenty Years of Financial History as Seen by the Man Who Revolutionized the Markets

by Leo Melamed

A riveting inside look at the turbulent, controversial world of the futures markets through the eyes of the man who made them what they are today. Melamed relates how he helped create the futures markets and the changes they wrought in the financial world of the 1980s, the importance of futures markets to the global economy, the debate over them in the wake of the 1987 crash and the future of electronic global markets.

304 pages, Paperback

First published December 1, 1992

Reviews

[m · Rating 3 out of 5]

Good.

Leo Melamed, former chairman of the Chicago Mercantile Exchange (CME), is an essayist, devotee of Milton Friedman, free-market evangelist, & public intellectual — trapped inside the body of a pit trading fill-broker.

In this book he's collected his speeches from the early '70s thru early '90s delivered for the sake of promoting the trade of CME financial products. Most or all of these speeches (and more) are available at his website: https://www.leomelamed.com/essayindex...

Max Weber, in The Protestant Ethic and the Spirit of Capitalism (1905), tried to locate, distill, extract the quintessence of capitalism, it's animating spirit, by copious reference to the writing of Benjamin Franklin and others.

Something perhaps unique about the current state of capitalism — it's animating logic or foundation, as update to Weber's findings — might be locatable in the speeches of Leo Melamed.

This collection kicks off with Milton Friedman writing in his Foreword:

In November 1967, it became clear to me and other observers that Britain was going to be forced to devalue the pound. I called all the major banks in Chicago attempting to sell the pound short. No bank would take my order, insisting that they dealt in futures only with their regular customers and only in connection with commercial activities—though when I pressed them, I received the answer that “The Federal Reserve [or perhaps the Bank of England] would not like it.” In subsequent Newsweek> columns, I laid out the case for eliminating government restrictions on trading in foreign currencies and argued for the adoption of a system of floating exchange rates.

On page 12, Leo writes:

Futures markets represent financial democracy. They offer an open marketplace for investment and speculation where everyone has a right to an opinion. Some opinions are more qualified than others. How qualified you become depends upon you alone. This frontier is still open to a multitude of Americans who have the heart and spirit to learn what it takes. It is one field where the victorious have the satisfaction of knowing they have no one to thank for success except their own intellect, fortitude and capability. And the reward can certainly justify the effort and risk involved

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On page 95 Leo writes:

I crisscrossed the United States dozens of times during the months leading to the birth of the IMM and hundreds of times during the years thereafter in an unending effort to explain our new concept, its rationale, its role, and its potential. I was like an evangelists spreading the gospel of a new religion, obsessed with the idea and its promise. I accepted every opportunity to be heard. To say I was cognizant of the scope of our revolution and the immense potential it represented may sound like a case of hyperbole based on hindsight, but the record gives some license to this claim.

On page 18 Leo writes:

"Not only must the professional technician know the guidelines, he must adhere to them as if it were his religion. He knows that only through strict adherence of his charting principles, coupled with his understanding of the fundamentals, will he survive the fast-moving idiosyncracies of futures markets."

55 ". . . Chicago is second to none. So can we rest on our laurels? Should we be satisfied with the growth of our Chicago's markets during the past decade? Volume on the CME alone has risen by 1690% since 1963. One could conclude that we could take a well-deserved rest and enjoy our successes. If we did, it would not be the way of Chicago. It was with good reason that Nelson Algren called Chicago "City on the Make." Chicago has a restless soul. It is forever probing new vistas, new frontiers. This is the spirit that has made us great and leads us to an even greater destiny. This is the essence of our future.

Towards the end of this collection, Leo riffs on the effects on how the unceasing, inexorability of advancing technology will hasten a kind of shrinkage of the world's trading community, producing a more confined, singular globalized economy to which workers must either adapt or find themselves cast out of Eden.

236 ... as it has throughout the history of mankind, technology again is dictating fundamental change in our social structure and reshaping both the political and economic landscape of our planet.

244 As an unyielding consequence of the telecommunications revolution, the tomorrow we foresee will unquestionably include automated electronic systems for the execution of not only futures and options but every other financial medium including stocks, securities, options or cash market instruments. In this respect, true to their tradition, futures markets again blazed the trail.

244 Ultimately, however, both Chicago exchanges—as well as most of the others in the world—concluded that futures and options markets must make the giant leap toward automated technology if they are to respond to the demands of globalization.

245 {Globex} represents the avant-garde of the financial services arena....

248 Those who ignore the march of technology will soon be history.

249 As it has throughout human history, technology again is dictating fundamental and revolutionary change in our social structure and reshaping the political and economic landscape of our planet.

250 {Futures & options markets are} a force that has been the common denominator and pivotal catalyst of change throughout the history of humankind.

254 On the political front, modern telecommunications fostered instant informational flows in total disregard of national boundaries, offering a stark, uncompromising comparison of political and economic life and making it near impossible for governments to hide the truth from its people. On the economic front, modern telecommunications made instantaneous price information available globally and fostered massive capital flows in an unencumbered fashion. It dramatically changed the nature of global capital markets forever. The markets of futures and options recognized this march of technology, understood its inexorable impact on commerce and trade, and willingly adapted to its demands. Thus it is no accident our markets represent one of the greatest growth arenas of the last two decades.

255 {Futures & options} are the avant-garde of market innovation.

256 Although there are some heavy macroeconomic clouds overhead, the long-term direction in the evolution of global markets is unmistakable. In a world—where the distinctions between the major time zones has vanished, where geographical borders that once could limit the flow of capital are but history, and where traditional internal protections that could insulate ones' citizenry from external price and value influences are no longer valid—a market-driven economic order is quintessential and futures and options are a critical component. For the expanding region such as the Pacific Rim—with its vast and diverse cultures and infrastructure, and with its still untapped and developing potential—there can be no other course.

Taking a cue from Darwin, Leo advises: adapt or die.

263 While the trend is still in its infancy, its direction is unmistakable. Until now computers were used mostly as spreadsheets, or as fast calculators, or to analyze risk, or to run accounting or other programs. In the coming age, computers will no longer act within the framework of their traditional competence, they will have gained artificial intelligence.

270 For we know that protectionism has popular appeal. We know that in times of economic strain protectionism can gain a following. But we also know that protectionism is the scourge of markets everywhere. We know its consequences are devastating and ubiquitous. Dare we allow the near global triumph achieved by free markets in recent years be diminished? Dare we endanger the new world order we have fought so long and valiantly to achieve? Dare we allow the protectionists of the 1990s to lead us down the Smoot-Hawley path of the 1930s? Sophistry and demagogic polemics can snatch for us defeat from the jaws of victory. We, of free markets, must not allow this to transpire.

[Bernardo Pio · Rating 3 out of 5]

Através de vários discursos feitos nas décadas de 70, 80 e 90, Melamed nos passa uma ideia dos bastidores do que se tornou o mercado de futuros de hoje. Um bom livro, apesar de muitas vezes ser repetitivo e ideológico.

[May Ling · Rating 3 out of 5]

I think understanding the history of financial markets is really important. For anyone that owns CME stock or is interested in understanding the nature of the exchanges, this is a worthy read.

I personally preferred Escape to the Futures, but this is shorter and also gets to the point.