Limit Up! A Review of “The Futures” by Emily Lambert w/Book TV Link

Courtesy of the Museum of Contemporary Art of Chicago website.

© Andreas Gursky. Courtesy Matthew Marks Gallery, New York. Photo © MCA, Chicago.

Gursky, Andreas
(German, b. 1955)
Chicago Board of Trade II, 1999
Chromogenic development print mounted on Plexiglas with artist’s frame
81 1/2 x 132 5/8 in. (207 x 336.9 cm)

The Chicago Mercantile Exchange (CME Group) and the Chicago Board of Trade (CBOT) are world-class institutions with a unique, Chicago flavor.

I grew up on the South Side of Chicago and various members of my family have worked for the exchanges for the last twenty-five years. In spite of the fact that the CBOT, for example, is notorious for being a South Side Irish institution, I didn’t know much about it until I started working for Continental Bank, located at that time across the street on LaSalle. During my time at the bank, I learned a lot about the business of “The Board” and the habits and vices of its inhabitants.

What’s pretty familiar to me is the concept of “favors” and “vouching” for someone for a job. You didn’t so much get a job at the exchanges as have someone get it for you, often based on doing a favor or having a favor owed. And there’s always been a requirement to be sponsored or “vouched” for. This is the culture Emily Lambert describes in her book, “The Futures – The Rise of The Speculator and The Origins of the World’s Biggest Markets.

Emily is a senior Forbes reporter based in Chicago. She covers the futures and options markets, trading, and the business of the exchanges. I met Emily Lambert via Allan Schoenberg, the Director of Corporate Communications for CME Group. When she told me about her book, I was more than excited, since there are thousands of stories at the CME and CBOT, many stranger than fiction.

I thought I knew most of these stories, but once I started reading I couldn’t put the book down. The book starts with a prologue that uses veteran markets guy Charlie Andrews as an effective structural device to hang the long story on. Charlie also appears in the middle and then again at the end, in an epilogue. It works for me because Charlie stands in for all the guys who saw the future of “futures” and made the exchanges a critical part of the Chicago economic environment. There were many others who couldn’t change, couldn’t adapt when the computer and electronic trading took over.

I realized while reading the book that the mid 1980’s, when I graduated from college, was only the beginning of a golden era for the futures exchanges. So many here in Chicago saw the rise of electronic exchanges as evil because it led to the elimination of the trading floors and of the anachronistic ways of floor brokers and traders. There’s another book that could be written about only the history of last twenty years, when financial futures outpaced agricultural futures. There’s only so many ways you can trade physical commodities. The genius of the CBOT and Merc leadership was their tireless innovation – they were always thinking up new products.

Eventually derivatives drove volumes beyond the capacity of mere mortals. Options on indices, options on structured products like swaps, and the creation of synthetic financial instruments drove the appetite for even more hedging tools. These new products also encouraged additional market-making and speculative activities, the likes of which had never been imagined with physical commodities like corn and soybeans. The huge transaction volumes and the complexity of traders’ strategies made prior exchange business models obsolete but necessitated new strategies for creating value for historic institutions and some ingenious men.

“The Futures” is a great read. I learned so much more about many of the characters whose names I’d heard throughout the years. I learned more about the relationship between the New York markets and the Chicago markets and how some ambitious folks played both sides against each other for their advantage. There are useful explanations of the origins of famous and infamous firms like First Options, Shatkin, Rosenthal, Heinhold, and Refco.

I laughed out loud at some of the stories Emily retells, knowing I had heard other versions:

“If your first name was Murray, you went to the CME.  If your last name was Murray, you went to the CBOT.”

“A disheveled gold trader had apparently spent the day trying to start rumors to get the price of gold to go up. ‘I had to kill the president three times to make a buck today.’”

“Rain makes grain.”

“Better spread than dead.”

I remembered the bad habit I developed when I first started working at Continental Bank across the street from the CBOT – stop at The Sign for a “to-go” rum and coke in a Styrofoam cup before getting on the Rock Island train.

“The options traders and grain traders didn’t mingle much. In general, futures traders saw the options crowd as stuck-up, while options traders saw futures traders as dopey. When they got together at all, it was often at the bar that had opened downstairs in the lobby, Sign of the Trader. Some Board of Trade members, impressed by the super-strong drinks at another of his bars, had lured the bar owner to the building.  Some of the traders from the grain room, where most people favored whiskey, showed up first thing in the morning, before a bartender was on duty. They poured their own drinks and left their tab on a napkin.”

I love how Emily captures the use of nicknames in this milieu. “Harry the Hat,” “Vince the Prince,” and “Jimmy the Greek” were familiar to me, as well as the names Billie, Eddie, Leo, Jack, and Terry. Everybody knew whom you were talking about. I reminisced as I read about the Chicago Stockyards. I’m old enough to remember the smell of the slaughterhouses. I went to the circus at the nearby International Amphitheater, and my father was stationed at the Stockyards firehouse, 43rd and Halsted, for a while when we were children.

Roger Lowenstein, author of “When Genius Failed…”, reviewed the book recently for the Wall Street JournalLowenstein asks, at the end of his review, “Do such markets truly serve the public interest? Are there alternatives for determining prices?”

I think he misses the point.

The history of the Chicago futures markets – The CBOT and the Merc – is filled with ripe characters. I can imagine Ms. Lambert has another book’s worth or two of them. Or maybe even a movie.

Limit up!

There’s a book launch party for Emily this Thursday, January 13th, at After-Words Books, 23 E Illinois St (between State St & Wabash Ave), from 5-7pm.  Pre-game party for traders who are out of work earlier at Rossi’s Liquors, 412 N. State St starting at 3:30.

C-SPAN2 taped the book party and Emily’s comments for BookTV. Yours truly asks the first question!

The interview with Emily at NPR Weekend Edition is up.  Take a look here.

Main page photo courtesy of this site. “The Chicago Board of Trade building is one of the city’s finest examples of Art Deco architecture, a style of the 1920s and early 1930s that attempted to express the modern, streamlined world by the use of cubic forms, geometric ornament, and sleek surface materials. The unrelieved verticality of the north facade provides a dramatic termination to LaSalle Street. The two-story lobby is one of the city’s finest examples of this period of design.”

5 replies
  1. Dave
    Dave says:

    Dear Francine – Sounds like a fun read. But on a serious note, do you or Ms. Lambert have any insight as to the possible impact of the increase in personal income tax on the trading activity based here in Chicago. Decreasing volumes and the march of technology make the physical presence of a trading floor increasingly irrelevant. Many former floor traders have already migrated to trading rooms outside the exchange buildings. These folks, as well as those that remain on the floor, are some of the biggest earners in Illinois. But they could easily scatter to the four corners of the globe and still reconvene every morning in ‘the cloud’. Have any of the exchange groups issued any statement on the fine work currently being done in Springfield? I know cross pollination between the political class and the traders used to be high (is there a chapter in the book about that?), but you can only ding traders so many times before they do business elsewhere.


  2. Emily
    Emily says:

    Hi Dave, I’m sorry it has taken me so long to respond to your comment. If you didn’t see it, there was a Reuters headline last week that said, “CME: No plans to exit Chicago, despite tax concern.”

    I sympathize with the idea that if you over-tax people, they will get fed up and leave. And since you wrote this, Illinois did hike the personal income tax, I believe from 3% to 5%. Some traders may leave because of it, but I think the community overall will stay put for now. Here’s why: A) Many traders in Chicago have deep ties here. B) Electronic traders could have left and saved money years ago by moving to a state with no income tax. C) For the high-tech firms, moving could cost a fortune. D) Waxing philosophical, traders who came out of the exchange community are used to funding a system of government. In futures, traders funded the exchange/clearinghouse – although, to be sure, those were run more responsibly than our state government. And last but definitely most important, E) When traders I know talk about moving, they blame weather, not taxes.

Trackbacks & Pingbacks

  1. […] I have disclosed in various forms, but probably not often enough, that I give the CME Group the benefit of the doubt because I grew up in Chicago, the home of CME Group and the Chicago Board of Trade. I live here. The futures markets are in our blood. That being said, I will write the story as I see it. (I do not personally own any CME Group stock.) […]

  2. […] This post was mentioned on Twitter by Francine McKenna and Heidi N. Moore. Heidi N. Moore said: Just read it. Great read! RT @retheauditors: Limit Up! A Review of “The Futures” by Emily Lambert […]

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