Jul

24

 The Asylum by Leah McGrath Goodman tells the sordid story of the history of the NY Merc from the time it traded potatoes in the early 20th century to its purchase by the Chicago Merc in 2008 as oil barrels went up from $50 to $150 a barrel and back to $25 in just a few months. The NY Merc was called an asylum and its members inmates because it resembled an unruly insane asylum where drugs, fights, vulgarity, drunkenness, sex, bribery, gambling, police raids, infighting, revolving doors with bureaucrats, corruption, and most of all illegal cheating of the public was rampant.

As such it provides a good baedecker of what the markets have been like while pit trading was rampant prior to the electronic screen trading of the current era. Some anecdotes give the flavor. A Hasidic trader was told to take off his yarmulke as it would give too honest an impression of the floor. One trader after another knocked the other out if they dared to stand in the way of a short term profit at the expense of the public on the floor.

The book provides interesting coverage of the chairmen of the exchange. Each one like an Atlantic City Mayor was kicked out and fined by the Feds for illegal activity of one kind or another. A particular favorite who the author seems to admire is Zoltan Louis Guttman, a Hasidic trader, who chaired the exchange for 6 years but was convicted of fake option trading and banned from executive and trading activities. Compared to the other chairmen she writes about Guttman was a saint as his activities were not at the expense of the public or the members but merely for self preservation.

The author is particularly sensitive to sex on the floor. She quotes with umbrage: "Whether you were the chairman of the exchange or the lowest of the low, blow jobs were the one thing everybody could agree on." She follows the traders to a sex bar adjacent to the exchange and is appalled at the sex acts she sees there. When in Washington, she is appalled at the lack of understanding of the politicians to the nitty gritty of the exchange and can tell from a distance that the politicians are more interested in the tight miniskirts of their assistants than the testimony of the exchange officials. Like Miss Clavel in Madeline she decries the women on the floor who wore high heels and tube tops and quotes approvingly a trader: "they took jobs on the floor to catch a rich husband. They'd marry a trader, they'd break up a year later, and she'd walk off the baby and half his net worth."

 There are interesting stories about some of the traders habits. One likes to play practical jokes on his assistants. Another is known as a great scholar because he schools his traders in technical analysis before they go on the floor. Another is very handsome and rich and smart and a martial arts expert who dines at Raos.

The book reaches a climax as the traders fight like mad dogs over their sale to private equity firms and the Chicago Merc. They see the end of their ability to cheat the public in the usual way when screen trading is imminent. They sue each other and fight with each other even after death as they decry the rise in the value of their seats from 50,000 in the 1970's to $15 million when they finally sell to the Chicago Merc and the price of their stock reaches 150. None of them seem to realize how lucky they were as the sale took place right before the crash of 2008 and the descent of oil from $150 to $25.

The energy market is important in many way for the commerce of the world. While there are competitive exchanges in Europe and Dubai the Ny Merc continues to be the premier market in terms of volume of trade. The exchange charges a fee for each trade by non-members, and this is the source of the valuation of seats on the exchange. Many interlocking webs with the regulators, politicians, and competitors maintain the oligoplistic nature of the market. I found the book fascinating, couldn't put it down, and would recommend it to all as both a warning and a education in what it was like, what they were up against in their own trading through the pits, and what the trajectory is likely to be in the future.


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